A simple question, but what the heck.
When someone fraudulently uses a credit card, who ultimately gets stuck with the tab.
I ask this because someone got hold of one of my credit card numbers and has gone on a spending spree. The credit card company has taken me off the hook.
So who then is responsible for the charges: the merchant or the credit card company.
This is assuming that the thief has probably moved on to a new number and will likely never be caught.
not 100% certain, but close:
neither.
it is the cc issuer who gets hit - the cc company just does the (used to be) paper work - it is the issuer (bank, GM, whoever) who extends the line of credit, which is subject to profit/loss.
so - theif charges $100.00 on your visa, issued by citicorp.
Merchant gets $98.00
Visa gets $2.00 (used to be 2%, amex was 5% - not sure if these are sitll the numbers)
citicorp writes a (bad) loan of $100 - you complain, they do a charge-off (the interest rate on cc’s ensures that they will continue to issue cards, come hell or high water)
One presumes the merchant will not be dunned by the credit card company, so the logical conclusion is that the credit card company will pick up the tab in the short run.
It appears that the average credit card company has built a certain amount of losses due to fraud into their cost of doing business. The company does manage to cover these losses, however, with both the fees and finance charges they assess the cardholders, and the usage fee they charge the merchants.
There also appear to be some built-in disincentives to any serious attempts by credit companies to go after fraudulent users. Criminal fraud charges can be brought against offenders, who can be ordered to pay restitution to the credit companies in addition to any fines that might be levied. But then, actual payment of the restitution requires that the offender be able to obtain the money. Civil damages can be sued for, but the credit card companies’ lawyers must be paid, and again, if the offender has no assets, the only thing the credit company gets in the end is bragging rights, which don’t divvy up very satisfactorily when the investors want their annual dividend check.
The bottom line is that the thief’s purchases are being paid for by every cardholder’s membership fees and finance charges. There’s probably some insurance comapny involved in all this calculus, but that’s more involved than I’m really prepared to speculate about.
Any time someone in a market economy gets paid for doing something (or nothing) no one else would pay for if he had a choice (such as theft), all people working productively pay for it. The effect is a like a ripple in a pond and those closest, credit card consumers who pay interest, pay most, then businesses who pay credit card fees, then people who buy things from those businesses. Eventually it all levels out and all working people pay.
This is why useless mandated government jobs are so wasteful, they not only keep a worker from contributing useful work (work that would get paid for in a market) they reward that work and so pick everyone’s pocket.
This is also why you shouldn’t believe it when someone says, ‘it’s only money’, working people sell their time and effort for money. Your time is your life, your effort is your self. When someone takes the money you have earned without your consent and gives you nothing in return they take your life.
OTOH, it appears that the once the number has been added to the official list of stolen numbers, if a merchant then pays if someone buys from them using the stolen number. I’ve seen TV news stories about people whose credit cards were stolen who get harrassing calls from merchants who want somebody to pay for all the furs and leather coats that were bought using a stolen credit card. (The fact that it was reported stolen, etc. somehow doesn’t matter to these jerks.)
I assume that some merchant could dun me for the money, but that would be ultimately useless since my card has been cancelled and I am entitled to certain protections under US and CA law.
Since I never run a balance on my credit card, the drain on the credit card won’t bother me too much.
But I hope someone is enjoying their $3000 worth of cell phone service purchased from AT&T.
Someone call a credit card fraud analyst?
There’s no set answer, but I’ll give the simplest version. There are set agreements between the credit card company and the merchants who accept credit cards. For example, we (the bank) ask the merchant to verify signatures match on the receipt and credit card. If they don’t follow through on this, and take a stolen credit card as a result, they lose the money. Any proven violations in the agreement that result in fraud charges result in the merchant losing the money.
The merchant is not allowed to go after the cardholder for any fraud losses they (the merchant) incur. If they do, and they are reported, they risk losing their ability to accept credit cards.
hardygrrl knows her stuff! My employees have three times, over the years, accepted stolen credit cards for payment. They did not verify the sigs, and my store was hit with a charge-back each time. So I was out the money.
It’s the same as taking a stolen check. Unless you can prosecute the thief, the store is out the money.
My clerks are trained to verify sigs when dealing with an unfamiliar customer. I realize some customers take umbrage with the procedure, but it really is necessary to prevent fraud.
I concur with truthbot, having myself worked peripherally with that industry.
The credit card companies will charge back the merchant’s processor first, who is responsible for charging back the merchant and then loads the responsibility on the merchant. If the merchant slips up in following their tight procedures, he’s out the money. If the processor slips up, they’re out the money.
By the way, verifying signatures is just as hardygrrl said - back of card checked against sales slip. Merchants are not allowed to check signature against picture ID (unless the card is unsigned, and there are rules about that).
In addition, I’ve saw a business posted “We do not accept credit cards with “CHECK ID” in the signature panels”. From this I could be led to believe that few people have “CHECK ID” as their legal signature 
AmbushBug
[sub]the business i refer to was a u.s. post office[/sub]
The Tower Records I patronized today asked me for ID when I purchased some DVDs.
I felt quite happy to do so for the first time.
Visa/Mastercard policy states the card is not valid unless signed.
It is up to the merchant to verify signatures. Unfortunately, most cashiers are trained to process sales, not to detect fraud. Larger stores are installing the self swipe machines and seem to verify signatures randomly. Like Kaylasdad99 stated, businesses do expect to lose some money from fraud and make those losses up elsewhere.
How much the consumer is liable depends on the cardmember agreement. The bank I work for does not hold the cardmember liable for any fraud charges during the investigation. Some banks hold the cardmember liable for up to the first $50, depending on how quickly the fraud/loss of card is reported. Check the terms of your account.
I work in payments & billing for an online merchant. We often get transactions against credit cards whose numbers (but not the physical cards) were stolen from the owners, unbeknownst to the owners and therefore not yet reported stolen. When the owner gets the bill, they call in a dispute and we get hit with the chargeback. It is certainly possible for a merchant to fight a chargeback, but if you are an online merchant (what we call “card not present” transactions) then you have chance that is approximately zero. If you have a signed receipt then your chances are better, in which case I think the issuing bank eats the charges, as was said earlier.
A relatively new development is a 3- or 4-character code printed on the back of your card near the signature line after the card number (on the front of AmEx cards). This code can be requested for a card-not-present transaction and the association will honor it as being equivalent to a card-present transaction, and the merchant can usually successfully dispute a chargeback. But very few merchants (AFAIK) are actually using it.
BTW our contract with the processor (which covers Visa, MC, et al) says we are absolutely not permitted to ask a cardholder for ID. This is standard. Tower was violating their merchant agreement. The most they can do is check the signature against the back of the card.
And slightly off-topic, merchants are not allowed to require a minimum amount for a charge although many do it anyway.
Not always. In fraud claims, I know my bank will pull a signature from the original application or a payment check and match it to the receipt. If the signatures don’t match, the merchant gets charged back. If the signatures do match, we rebill the customer. We may budget for fraud loss, but it doesn’t mean we intend to lose that amount.
Another hijack, since we have experts in the audience:
Are merchants allowed to charge a “credit card” or “service” fee if and only if a customer pays by CC? I’m pretty sure it’s illegal, but I have seen it done…
One problem I’ve had is with the signature panel. The signature keeps getting rubbed out. I hand the card to a clerk, they check the signature, and I’m looked at askance as if I’m a criminal. I don’t mind showing my ID at all, but I can’t seem to get my signature to stick to the card. I’ve signed it four or five times at least.
By the way, what does it prove when the salesperson asks you to sign the card? Obviously, the same hand signed both card and sales ticket.
Regarding the signature panel, I have the same problem - it’s the gas pumps’ readers doing it to me.
When an unsigned card is presented, the clerk is then supposed to verify actual picture-id at the time of signing. Visa/MC websites have info about this.
No. But discounts for cash or other forms of payment are OK, so it’s really a distinction without a difference.
I seem to remember a municipality where it was not legal for a business to claim “buy our products and we’ll pay your sales tax” but it was OK for those businesses to advertise that “sales tax is included in the price”. Cheaper for businesses that way, too.
(6% sales tax: Customer pays $100, tax to state $6, versus customer pays $94.34+tax=$100, tax to state $5.66)
AmbushBug