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What Is Zero Liability Protection?
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If you’ve spotted fraudulent charges on your credit card, there’s good news: It’s standard for consumer credit cards issued in the United States to protect you against these charges.
Zero liability protection — also called $0 fraud liability — is a line in your cardholder agreement that specifies you aren’t responsible for unauthorized charges that you promptly report to the issuer. We’ll examine when you’re protected and when you might still be on the hook.
How do unauthorized charges happen?
Some common ways that scammers can get your credit card information and make fraudulent charges include skimming, phishing and hacking.
With skimming, an electronic device is attached to a payment terminal such as at a gas pump and your information is stolen when you pay.
Phishing involves sending out emails and text messages imitating legitimate institutions and asking you to supply personal or financial information.
Hacking often takes the form of a breach of a big company with access to sensitive information, such as when the credit bureau Equifax was hacked in 2017. The information that was exposed included Social Security numbers, credit card details and driver’s licenses.
And then there’s good old-fashioned theft of your physical card.
What legal protections do credit card users have?
Consumers can’t be held liable for more than $50 in cases where there are unauthorized charges on their credit cards, under the Fair Credit Billing Act, which was passed in 1974.
However, zero liability protection takes it further, assuring consumers they won’t have to pay unauthorized charges in any amount. This isn’t required by law, but is standard for credit cards issued in the U.S.
Do all credit cards offer zero liability protection?
There are four major credit card payment networks operating in the U.S., and each one offers some form of zero liability protection (though sometimes under other names) on cards issued on their network:
- American Express offers a Fraud Protection Guarantee.
- Discover offers a $0 Fraud Liability Guarantee.
- Mastercard offers Zero Liability Protection.
- Visa offers a Zero Liability Policy.
Are there exceptions to zero liability protection?
Yes, there are cases where you won’t be covered by zero liability protection. For example, Mastercard’s zero liability protection policy specifies that you’re protected when “you have used reasonable care in protecting your card from loss or theft” and “you promptly reported loss or theft to your financial institution.”
When you report fraud, issuers will typically provide a provisional credit, refunding you the amount of the fraudulent transaction. But that doesn’t mean the matter is settled. If it’s determined you did not exercise reasonable care or did not report the fraudulent charges properly, you might be on the hook for up to $50.
Another example of an exception is this line in Visa’s policy: “Visa’s Zero Liability Policy does not apply to certain commercial card and anonymous prepaid card transactions or transactions not processed by Visa.”
In addition, be aware that when you make someone an authorized user on your credit card, you are responsible for whatever they charge to the card, even if you’re not happy once you see the charges.
Do I have zero liability protection with a debit card?
The answer to whether you have zero liability protection on your debit card is “maybe.” For example, Visa’s policy notes, “Visa’s Zero Liability Policy requires issuers to replace funds taken from your account as the result of an unauthorized credit or debit transaction within five business days of notification.” Note that this delay in refunding your money may cause some financial hardship, especially if bills are due or if you have any automatic withdrawals set up.
But while zero liability protection is considered pretty standard on credit cards, when it comes to a debit card, a lot more comes down to the discretion of your bank or credit union.
In addition, it should be noted that debit cards transactions are covered by a different federal law than credit cards. With a debit card, you’re dealing with the Electronic Fund Transfer Act. But with a credit card, the applicable laws are the Fair Credit Billing Act and Truth in Lending Act.
If you report an unauthorized transaction on your debit card within two days, federal law caps your liability at $50. If you report it within 60 days, you could be liable for up to $500. And if you report it later than that, you could be liable for the entire amount, so regularly reviewing charges on your account is essential. However, many larger financial institutions offer zero liability on fraudulent debit card transactions so long as they are reported in a timely manner.
Last but not least, prepaid cards, which function like debit cards but aren’t linked to a checking account, offer even less protection. If you register your prepaid card with the provider of the card, that can entitle you to protections against loss or theft, according to the Consumer Financial Protection Bureau (CFPB).
In short, credit cards typically guarantee more protection than debit cards or prepaid cards.
Am I protected if I have a business credit card?
Generally, the same law protecting consumers also caps liability for unauthorized transactions on a small business credit card at $50, but small business credit cards also come with zero liability protection.
But note that both Mastercard and Visa have exceptions in their zero liability protection policies for commercial credit cards (business cards issued by a company you work for), so be sure to check your cardholder agreement so you know for sure whether or not your business credit card has this benefit. Also know that when you’ve issued a card to an employee, purchases made by that employee likely won’t fall under zero liability protection.