Despite the introduction of chip and pin systems and other enhanced security features such as microchips and photographs, credit card fraud continues to be a major problem. Fortunately, in recent years, government intervention has required credit card providers to take a more pragmatic and sympathetic approach to resolving genuinely fraudulent activity on customer accounts, making the reversal of such charges much easier.
Credit card fraud can happen in a number of ways, and the rules for recovery of fraudulent charges depend on whether: (a) the card itself is lost or stolen, or: (b) the card number is compromised while the card is still in customer possession. The regime in the UK (under The Lending Code) and in the US (under Federal FDIC rules) is remarkably similar.
There are some basic rules and responsibilities that a customer must observe to ensure that they are not liable for fraudulent charges. Firstly, they must take reasonable care to protect their card and/or their PIN number. Card providers are not liable to pay out if there has been gross negligence. Secondly, the loss, theft or unauthorised use must be reported as soon as possible after it is discovered.
Lost or Stolen cards
If the card has been lost or stolen, and fraudulent charges are racked up before the customer reports it, liability is limited to no more than GBP £50 or US $50 (depending on jurisdiction) regardless of the number of separate items that have been charged to the card. However, in the US, there is a specific requirement that lost or stolen cards must be reported no later than two working days after the consumer realises they are missing. If charges continue to rack up after that time, the consumer can be liable for up to US $500 of the fraudulent charges that are made. There is no specific time limit on reporting in the UK.
In the UK, if the card number is used while the card is still in the consumer’s possession (such as by cloning or copying details for use on the internet) then the consumer has no liability to the card provider. This exception does not apply in the US, where liability is still limited to US $50, whether the card is present or not.
Consumers should carefully check their credit card statements when they arrive to check for any unfamiliar charges. They are entitled to query or dispute any charge on the statement, and the card provider is duty bound to investigate it in good faith. Most UK providers will send a confirmation letter with a form to fill in, asking the consumer to confirm that they are applying for a reversal in good faith.
Under the US Fair Credit Billing Act (the FCBA), there is an additional requirement for written notice to be given by the consumer with details of the item in dispute, no later than sixty days from the date of the statement. During the investigation period, the obligation to pay the charge is suspended until the issue is resolved.
Burden of proof
In both the US and UK, the onus is on the card provider to prove that the charge is not fraudulent. However, to avoid a long and protracted dispute, the consumer should gather as much evidence as possible to demonstrate that the charge is not genuine, such as proving that they were in a different time or place when the charge was made.
Provided that the claim for reversal is genuine, card providers will reimburse the consumer for the full amount of the fraud, as well as any interest or late payment fees charged as a result. Under the FCBA, the dispute must be resolved, and any charges refunded no later than ninety days after the complaint is received.
Although not strictly related to the reversal of charges, the next step for the prudent consumer should be to request a copy of their credit report to ensure that other card details have not been compromised. In the UK, this can be done for a small GBP £2 fee from Experian or Equifax, or in the US, free of charge from Annual Credit Report.