Zero Liability Policy: What Is It?

Even beyond the federally imposed limitations, a zero-liability policy in a credit or debit card agreement releases the cardholder from accountability for certain unlawful payments. Though the details of each major credit card issuer’s protection could differ, they all provide it. Similar safeguards are typically included with debit cards.

How Policies with No Liability Operate

The costs of credit card theft are primarily on the credit card issuers, according to federal law. If the cardholder reports the loss or theft of their card before it’s used in a fraudulent purchase, or if their card number was used but not the actual card, they won’t be charged anything. Even if they do not achieve those conditions, their responsibility for damages is capped at $50.

A zero-liability policy, optional for the card issuer, eliminates the possibility of loss.

However, debit cards are subject to various federal regulations, which may result in a higher loss liability for the cardholder. The sum varies depending on whether the card was implicated rather than the number and how quickly they notified the issue. In particular:

The cardholder bears no blame if they report that their debit card was lost or stolen before any fraudulent transactions were made.

Their responsibility is limited to $50 if they report it within two business days of being aware of the theft or loss.

Their loss is limited to $500 for the first sixty calendar days from the date their bank sent them their statement if they wait longer than two days to notify them.

However, if more than sixty days pass, they may be liable for the whole amount in that account and any associated charges.

Similar to credit cards, the regulations are more forgiving if the number from a debit card—rather than the actual card—is used in a fraudulent transaction. In such instances, the cardholder is not liable for the occurrence as long as they disclose it within 60 days of the date their statement was sent.

However, debit card issuers can adopt zero-liability rules that go beyond the legal safeguards. These regulations may differ across card networks and individual issuers.

For instance, USAA states that “you are not liable for unauthorized use of a debit card that you report to us” and defines “unauthorized use” as “using a debit card by someone other than yourself without your consent or authorization and for which you do not receive any benefit.” It excludes the following: (1) using a debit card with fraudulent purpose by you or anybody working in tandem with you, and (2) using a debit card by someone you gave to them unless you informed us that the transfers made by that person are no longer permitted.”

In contrast, Mastercard states that if “1. You have used reasonable care in protecting your card from loss or theft, and 2. You promptly reported loss or theft to your financial institution,” cardholders won’t be held accountable for illegal purchases.

There are commonly exclusions from zero liability plans. For instance, they could not apply to international purchases or company credit cards. All this should be spelled out in the cardholder agreement.

How Credit Card Fraud Operates

A credit or debit card account may experience fraudulent charges under various circumstances. Typical ones consist of:

Attacks by hackers

One popular scam involves a hacker gaining access to a company’s database, such as a chain of retail stores that has stored credit card information for its customers. Then, this information is sold to other criminals who specialize in making unlawful transactions, either directly or via the black market.

The goal is to make as many transactions as possible before the card issuer or owner discovers the information has been stolen.

This is why your card issuer could call you and ask whether you’re really in Peru today or if you’ve been downloading many games from a Hong Kong-based gaming website. However, be cautious about how much information you provide since scammers also use the same pretense to make calls. When in doubt, end the call and give the number on the back of your card to your issuer again.

sweeping

A thief may tamper with credit or debit card swiping equipment at an ATM, shop, or gas pump to get pertinent information from consumers’ cards via a technique known as skimming. Unauthorized transactions may then be made using the information.

The switch to microchip-embedded cards is intended to prevent this method by using more advanced encryption. However, skimming persists because some retailers must install the necessary card readers.

Phoney Frauds

A phony message is sent to many possible victims in a phishing scam to seduce a few unsuspecting people.

The communication poses as coming from a reputable business or government organization. The sender of the phone call, email, or text message requests information from the recipient—such as the account number and validation code of their cards—giving the thieves all the information they need to begin making purchases.

How Can Fraud Using a Credit or Debit Card Be Reported?

Fraud may often be reported over the phone, online, or via your bank’s mobile app. Additionally, the FTC advises that you promptly notify the bank in a letter that contains “your account number, the date and time when you noticed your card was missing, and when you first reported the loss.” In that case, save a copy of that letter as well.

A Validation Code: What Is It?

The three- or four-digit number on the front or back of your credit or debit card is a validation code, often known as a CVV code. It is intended to provide an extra degree of security to transactions made over the phone or online, based on the theory that fraudsters attempting to use your card number could not have the actual card and wouldn’t be able to provide the validation code upon request.

Are prepaid cards exempt from liability?

The federal safeguards afforded to credit and conventional debit cards do not apply to prepaid cards. If the cardholder has registered the prepaid card in their name, certain issuers and networks do provide liability protection if the card is lost or stolen.

Credit and debit cardholders whose cards or card details have been used in fraudulent transactions are entitled to certain liability safeguards under federal law. However, some card issuers go above and beyond by limiting the cardholder’s financial risk with zero-liability policies.

Conclusion

• The financial responsibility that credit and debit cardholders incur if their cards or card details are used in fraudulent transactions is limited by federal law.
• Many credit card and debit card providers now offer optional zero-liability plans to lessen customers’ vulnerability further.
• It’s important to review your card agreements to determine what safeguards are available and under what conditions, since regulations might differ amongst card issuers.
• Even with zero liability rules in place, monitoring your credit cards closely is still essential, if only to save yourself the trouble of disputing any unauthorized payments.