Finance Globe

U.S. financial and economic topics from several finance writers.
6 minutes reading time (1218 words)

Preventing Unauthorized Use of a Credit or Debit Card

Electronic payments are safer than cash.
Credit and debit cards are such a convenient way to pay that many consumers use a card for nearly every purchase. And not only are cards convenient, but they're safer than carrying around lots of cash.

A cautious person whose paying at the register, with a wallet full of cash, instinctively looks around to make sure nobody has noticed how much money they're carrying. You never see that from a person with a wallet full of credit cards. And if cash is lost or stolen, it's likely to be gone for good. Credit and debit cards have a liability limit, depending on the circumstances and how quickly you report it to the financial institution or card issuer.

The Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA) offers procedures in the case of credit or debit card loss or theft. Report the loss or unauthorized use of your credit or debit card as soon as you find out about it. Call the customer service department number located on the back of the card; this number can also be found on your account statements if your card is not in your possession.

Credit card loss or fraudulent charges (FCBA)
Federal law states that the consumer's maximum liability for unauthorized charges on a credit card, under any circumstances, is $50. If you report the loss before the card is used, then you will have no liability for fraudulently incurred charges. If the card has already been used by the time you report it, then your maximum liability is $50.

You have zero liability if the theft is of only your account number, and not of the card itself. It's likely you won't even know about this kind of theft until you receive your monthly account statement and notice charges that you didn't make. In this case, it may be necessary to close your account and be issued a new account number, since you won't know if or when the thief will try to use the account again.

Debit or ATM card loss or fraudulent transfers (EFTA)
Debit and ATM cards are a little trickier, and potentially more costly in the case of loss or theft. Your ATM or debit card gives access to all the money in your bank account, which can amount to a huge loss if you don't catch it quickly enough. If you report the loss before your card is used, then you have no liability for unauthorized charges. If you report the loss within two days of noticing the loss, then you won't be liable for more than $50.

If you fail to report your card missing within two days, you could be held responsible for $500 because of an unauthorized transfer. And your loss could be as much as all the cash in your bank account, as well as your overdraft line-of-credit, if you don't report the unauthorized use within 60 days of receiving your account statement in the mail.

If the loss is of only your account or card number, and not of the card itself, then you will only be responsible for unauthorized transfers made after the 60 day period of receiving your statement, if you haven't yet reported the loss. So say you receive a bank statement, and notice a transfer you don't remember, but can't say for sure you didn't authorize it.
Then the next month you see another transfer and are now positive that you didn't authorize it. Report it to the financial institution immediately, and you won't be liable for the charges. You would be responsible for any charges that occur after the 60 day period if you put off reporting it any longer.

A quick response is key to limiting fraud losses.
The first and most important reaction to unauthorized use of your credit or debit card or account number is to report it promptly. Don't wait for any reason. Even if you aren't sure, it's better to let the card issuer or financial institution assist you in finding out where the suspicious charges came from. You may find that it was fraud, or a simple oversight on your part.

A merchant you've done business may show up as an unfamiliar corporate name on your statement. Or maybe you had signed up for a membership and forgot that the subscription would be automatically renewed through your credit card, long after you've stopped using their services. That's okay, some of use our cards so routinely that it's difficult to keep track of it all. It's better to verify charges immediately, for your peace of mind if nothing else.

Protect your cards and their numbers:

  • Use a credit card for on-line or over the phone purchases, not a debit card.
  • Use Pay-pal if you want to make an on-line purchase with money in your bank account. You'll only have to give your bank information to that one company, instead of many.
  • Never give a credit or debit card number to anyone who initiated a phone call, unless you are sure of who you're dealing with.
  • Safeguard your ATM card PIN and keep it separately from your card. Better yet, memorize it and destroy any document that contains it.
  • Never put your account number where is it visible on your mailed correspondence.
  • Don't sign blank credit card receipts, and draw a line through any blank spaces so the total charge cannot be altered.
  • Carry only the cards you anticipate using, and put the rest in a safe.
  • Keep a record of all your credit and debit cards in a safe place so that you have the needed account and phone numbers in case you need to report a loss.
Card registry services With an annual subscription and the related fee, a card registry service will notify all your card issuers in the case of loss or theft, and will often assist you in getting replacement cards. The main benefit is that you only need to report your loss with one phone call, as opposed to phone calls to all your card issuers. It's up to you whether a card registry service is worth the expense, about $25 or so a year, depending on who you go with.

Credit card registry services may be useful for those who often travel outside of the U.S., since it becomes more complicated to replace lost cards while travelling in foreign countries. Or it may be a good idea for someone who has a large number of cards; it may not be worth it for someone with just a few. Many of the credit card registry services I found on the web are for Canadian credit cards, but a few U.S. card issuers offer their own card registry services.

But to me, it seems similar to paying for insurance you'll probably never need. Really, how often does the typical person lose their entire wallet? While there is always the possibility, I think it would be safe for most reasonably cautious people to believe that it would never happen, or maybe happen once in their lifetime. I am willing to take a risk that I would have to call all my card issuers personally if it did. (Watch me lose my wallet this week.)

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Thursday, 25 April 2024

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