Zero Liability Guarantees and the Fair Credit Billing Act

Emily VuittonChargeback Basics2 Comments

$0 Liability Guarantees and Fair Credit Billing Act

We spend a considerable amount of time talking about chargebacks (obviously). From what a chargeback actually is, to the process a chargeback follows, our goal is to help all merchants understand customer disputes. We’ve spent so much time talking about what chargebacks are and how they work that we haven’t touched on why they exist in the first place.

Put simply, chargebacks exist as a result of federal law aimed at protecting consumers. Because of the federal law’s transactional value limitations and product differentiation efforts, each of the card networks have built upon the grounds of the law with their own zero liability guarantees.

Credit Debit – Signature Debit – PIN ATM
Fair Credit Billing Act $50 $50 – When Issuer is Notified Within 2 Days

$500 – When Issuer is Notified Within 60 Days

None – When Issuer is Notified After 60 Days

$50 – When Issuer is Notified Within 2 Days

$500 – When Issuer is Notified Within 60 Days

None – When Issuer is Notified After 60 Days

None – When PIN was Provided by Cardholder

$50 – When Issuer is Notified Within 2 Days

$500 – When Issuer is Notified Within 60 Days

None – When Issuer is Notified After 60 Days

None – PIN Provided by Cardholder

Visa $0 $0 $0 – If Processed by Visa

None – If Not Processed by Visa

Issuer Liability
MasterCard $0 $0 $0 – If Processed by MasterCard

None – If Not Processed by MasterCard

$50 – When Issuer is Notified Within 2 Days

$500 – When Issuer is Notified Within 60 Days

None – When Issuer is Notified Within 60 Days

None – PIN Provided by Cardholder

Discover $0 $0 $0 $0
American Express $0 $0 (Prepaid Debit Cards) N/A $0

The Fair Credit Billing Act

The Fair Credit Billing Act was created to protect consumers against inaccurate or unfair credit billing and credit card practices. Examples of billing errors outlined by the Federal Trade Commission (FTC) include:

  • Unauthorized charges
  • Charges that list the wrong date or amount
  • Charges for goods and services the consumer did not accept
  • Charges for goods and services that weren’t delivered as agreed
  • Failure to post payments and other credits (returns and refunds)
  • Charges for which the consumer asks for an explanation or written proof of purchase

Federal law limits consumer responsibility for unauthorized credit card charges to $50. For debit transactions with a signature, consumer liability is also $50 if the loss is reported to the issuer within two business days. If reported within 60 days, the consumer liability increases to $500. If the consumer reports the unauthorized debit signature transaction after 60 days, there is no longer a liability limit.

For debit transactions that used a PIN and ATM transactions, liability coverage depends on whether or not the cardholder furnished the PIN used in the transaction in question. If it can be proven that the cardholder provided the PIN, there is no liability coverage. On the other hand, if it cannot be proven that the cardholder furnished the PIN, the liability coverages for debit signature transactions applies.

Card Network’s Zero Liability Policies

The card networks build upon the liability coverage dictated by the Fair Credit Billing Act as a means of product differentiation by offering enhanced cardholder protection. If the transaction is processed by the card network, it is subject to that specific network’s liability policies.

Visa’s Zero Liability Policy

Visa’s Zero Liability Policy ensures that cardholders are not held responsible for unauthorized transactions. The policy covers U.S.-issued cards and requires the cardholder to notify their financial institution immediately in the event of any unauthorized card use. Transactions not processed by Visa aren’t covered by Visa’s Zero Liability Policy.

As the policy name indicates, a Visa cardholder is not responsible monetarily for unauthorized credit and debit signature transactions. For debit PIN transactions, the zero liability coverage extends to only transactions processed by Visa. If the transaction was not processed by Visa, the cardholder has no liability protection. In ATM transactions, the liability is with the issuer.

MasterCard’s Zero Liability Protection

MasterCard’s Zero Liability Protection ensures that cardholders will not be held responsible for unauthorized transactions as long as the cardholder has used reasonable care in protecting against loss or theft and the cardholder promptly reports the lost or stolen MasterCard to the issuer. However, the Zero Liability Protection does not apply to MasterCard prepaid gift cards, commercial cards, or to debit transactions where a PIN was used for the unauthorized purchase.

Cardholders have zero liability for MasterCard credit and debit signature card transactions that are unauthorized. Similarly to Visa, MasterCard debit PIN transactions carry $0 cardholder liability to transactions processed by MasterCard. While there is no liability protection for debit PIN transactions not processed by MasterCard, beyond what’s covered by the Fair Credit Billing Act. MasterCard also defers to federal law for ATM transactions.

Discover’s $0 Fraud Liability Guarantee

With Discover’s $0 Fraud Liability Guarantee, cardholders are never responsible for unauthorized charges on their Discover Card accounts. Cardholder liability is $0 for unauthorized transactions using credit cards, debit cards using signature or PIN, and ATMs. Moreover, Discover’s $0 Fraud Liability Guarantee allows cardholders to dispute a transaction after the standard 120 days post-transaction date timeframe.

American Express No Liability for Fraudulent Purchase

American Express card users are not liable for any fraudulent purchases. Since American Express does not offer traditional debit cards using PIN or signature, the $0 liability extends to credit cards, ATM transactions and prepaid debit cards.

Each card network may have its own additional cardholder protections, the consumer’s right to dispute a transaction is essentially guaranteed by federal law. For merchants, this means chargebacks are an inevitable aspect of doing business.

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2 Comments on “Zero Liability Guarantees and the Fair Credit Billing Act”

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