Credit Card Fraud

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Know Your (Liability) Limits

The Electronic Fund Transfer Act and the Fair Credit Billing Act are among the federal laws protecting consumers from liability if they've been victimized by credit card or banking fraud. In many cases your liability is limited to the first $50 of loss, but that depends on the type of account and how quickly you report the problem. Here's a brief overview of what you should know about your potential liability.

Automated Teller Machine (ATM) Cards: If a thief withdraws money from a cash machine using your ATM card, your maximum liability is $50 if you report your card lost or stolen within two business days of discovering the loss (not within two days of the transaction). If you report the loss within 60 days, your maximum exposure is $500. Wait more than 60 days and you could be liable for all the money the thief obtained using your ATM card, plus other charges, such as fees for bounced checks.

Checks: State laws govern whether you'd be held responsible if a lost or stolen check were used in a forgery. In most cases you probably won't be held liable for losses. However, bank customers generally are responsible for paying "reasonable" attention to their accounts and for protecting them against misuse. "A bank may refuse to reimburse you for a forged check if it believes you were negligent," says FDIC attorney Mark Mellon. "Negligence may include failing to safeguard your checks, filling them out in a way that would be easy to alter, or not notifying the bank about a loss in a timely manner." Among the ways to protect yourself: Look at your bank statement within a month of receiving it and immediately notify the bank of any suspicious or unauthorized transactions.

Credit Cards: Under federal law, the most you'd owe for unauthorized charges to your credit card is $50 per card. You owe nothing if you report the problem before charges are made.

Debit Cards: These cards can be used to pay for purchases out of your checking account but without writing a check. There are two types of debit cards - an "on-line" card that requires a personal identification number (PIN), and an "off-line" card where no PIN is needed as an ID. Many consumers think of a debit card (and its liability) as being comparable to a credit card because both can be used at cash registers or to order products over the phone. Until recently, however, consumer liability for a lost or stolen debit card was comparable to an ATM card (see left), which may be far higher than that of a credit card ($50 maximum loss). Consumer groups and members of Congress complained about off-line cards in particular because, without requiring a PIN, these cards are more susceptible to fraud. VISA and MasterCard recently announced voluntary changes that currently put your maximum loss from a missing debit card at $50, the same as for credit cards. Contact your card issuer for more details. Legislation also is before Congress that would impose this same $50 limit by law, to ensure the continuation of this protection.

Stored-Value Cards: These cards are loaded with a set dollar value and can be used to pay for small-dollar purchases. A stored-value card essentially is electronic cash. Accordingly, your loss is equal to the amount of money on the card.

Correcting Bank Account Errors

It is important to check your credit account and bank account statements regularly. The Fair Credit Billing Act (FCBA) and Electronic Fund Transfers Act (EFTA) establish procedures for resolving mistakes on credit account and bank account statements.

When many customers find a mistake on their bill, they pick up the telephone and call the company to correct the problem. You may do this if you wish, but telephoning does not trigger the legal safeguards under the Fair Credit Billing Act. To be protected under the law, you must send a separate written billing error notice, to the creditor. Your notice must reach the creditor within 60 days after the first bill containing the error was mailed to you. The written notice must be sent to the address provided on the bill for billing error notices (and not, for example, directly to the store, unless the bill says that is where it should be sent). In your letter, you must include the following information:

Your name and account number;

A statement that you believe the bill contains a billing error and the dollar amount involved, and;

The reason you believe there is a mistake.

The FCBA generally applies to "open end" credit accounts, such as credit cards or revolving charge accounts (such as department store accounts).

The EFTA applies to electronic fund transfers transactions involving automated teller machines (ATMs), debit cards, other point-of-sale debit transactions, and other electronic banking transactions that can result in the withdrawal of cash from your bank account.

Under the EFTA, if there is a mistake or unauthorized withdrawal from your bank account through the use of a debit card, you must notify your financial institution of the problem or error within 60 days after the statement containing the problem or error was sent. For retail purchases, your financial institution has up to 20 business days to investigate after receiving notice of the error.

You must notify your institution immediately upon learning that your debit card or credit card has been misplaced or lost. If you do not report the loss within two business days after you realize the card is missing, and if someone uses the card without your permission, you may lose from $50 to $500. If you do not report an unauthorized transfer or withdrawal within 60 days after your statement is sent to you, you risk unlimited loss.