Who Pays for Fraud Charges on a Credit Card?

Credit card fraud involves unauthorized charges made using your credit card information or physical card. This can occur through various means, such as data breaches, phishing scams, or the physical theft of a card. When such an event happens, a common concern is who bears the financial responsibility for these fraudulent transactions. This article will clarify the roles of cardholders, credit card issuers, and merchants in covering the costs associated with credit card fraud.

Understanding Cardholder Liability

Consumers have significant protections against unauthorized credit card charges. The primary federal law governing this area is the Fair Credit Billing Act (FCBA), which caps a cardholder’s maximum liability for unauthorized charges at $50. This limited liability applies even if a physical card is lost or stolen. If only the credit card account number is stolen, the cardholder typically bears no liability.

Many credit card issuers extend consumer protection beyond the federal minimums by offering “zero liability” policies. These policies mean the cardholder will not be responsible for any fraudulent charges, provided they report the unauthorized activity promptly. The extent of a cardholder’s responsibility largely depends on how quickly they identify and report the fraudulent activity to their card issuer.

The Role of Credit Card Issuers

Credit card issuers play a central role in resolving credit card fraud. They are primarily responsible for investigating and covering the costs of unauthorized transactions. When a cardholder reports suspicious activity, the issuer’s fraud department initiates an investigation. This process involves gathering details about the disputed transactions, such as timestamps and transaction locations.

During the investigation, the card issuer often provides a provisional credit to the cardholder’s account, temporarily refunding the disputed amount. This allows the cardholder to maintain access to their funds while the issuer examines the claim. If the investigation confirms the charges were fraudulent, the provisional credit becomes permanent, and the unauthorized amounts are removed from the cardholder’s statement. Issuers are generally required to respond to a fraud report within 30 days and complete their investigation within 90 days.

Reporting Fraudulent Charges

Prompt action is important when you discover fraudulent charges on your credit card statement. The first step involves immediately contacting your credit card issuer. You can typically do this by calling the customer service number located on the back of your card, or by using their official online portal or mobile application.

When reporting, be prepared to provide specific details about the unauthorized transactions, including dates, amounts, and any other relevant information you may have. While initial contact can be made by phone, following up with a written letter to the billing inquiries address provided by your issuer helps establish a clear record of your dispute. After reporting, you can expect the issuer to acknowledge your claim and begin their investigation, potentially issuing a provisional credit to your account.

Merchant Responsibility in Fraud Cases

Merchants can also bear the financial burden of fraudulent credit card transactions, primarily through a process known as a chargeback. When a cardholder disputes an unauthorized charge, the card issuer initiates a chargeback, which effectively reverses the transaction and debits the amount from the merchant’s account. Merchants are often held liable for these losses if they fail to adhere to proper security protocols during the transaction.

The EMV (Europay, Mastercard, and Visa) liability shift impacts merchant liability. This shift dictates that for in-person transactions, if a merchant does not process a chip-enabled card using an EMV-compliant terminal, they become responsible for any counterfeit card fraud that occurs. This incentivized merchants to upgrade their point-of-sale systems to more secure technology. For card-not-present (CNP) transactions, the merchant typically carries the liability for fraud and often employs various fraud detection tools to mitigate this risk.

Distinguishing Debit Card and Credit Card Liability

While both credit and debit cards offer protections against fraud, their liability rules differ significantly. Debit card fraud is primarily governed by the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E. A key difference is that debit cards draw funds directly from your bank account, meaning that fraudulent transactions immediately impact your available balance. This direct link makes timely reporting important for debit card users.

Under Regulation E, consumer liability for unauthorized debit card transactions is tiered based on reporting time. If a lost or stolen debit card is reported before any unauthorized use, liability is $0. If reported within two business days of learning of the loss or theft, liability is capped at $50. However, if reported after two business days but within 60 calendar days of the bank statement showing the unauthorized transaction, liability can increase to up to $500. Failure to report after 60 days can result in unlimited liability for the unauthorized transactions.