What's the deal with no sigs for credit card charges?

Factual Questions
1

As long as I can remember, consumers have had to sign for credit card purchases–either paper or electronic versions. Now some stores (Albertson’s, Walgreen’s) are either not requiring signatures or are not requiring them for purchases under a certain dollar amount. Why is this? What were they doing with all those little slips before electronic versions anyway? Were there vast files full of them somewhere just in case the charge was contested?

I like the slight savings in time and hassle but am wondering whether the old system (signatures) had any advantages over the no-signature practice. I asked a cashier at Albertson’s about this, but she had no clue–just said she liked it because it made the line move faster.

2

It convenience. The company has a bank that processes their credit card charges. On those transactions deemed low money (this would vary from place to place) and not likely to be disputed, the company doesn’t require a signature.

Why? Convenience. The company PAYS MORE to the bank that processes the charges. Of course you can bet they are passing this on to the customer in the form of higher prices.

Like Walgreens in my area, normally anything under $50 is signature free. But CTA (Chicago Transit Authority) bus passes must be signed for regardless. Why? Because the fraud rate on that item sold at Walgreens is high. The computer knows which items have high chargeback rates.

What would happen if you disputed one of those chances. There’s a 99.9% probability you’d win and not have to pay. Of course this would only work once, before the credit card company caught on.

People often don’t realize companies have lots of different protection levels to choose from for debit and credit cards. You’d probably think why not use the highest? Isn’t it the safest? Sure, but it’s the most expensive.

When I was asst controller for a hotel, we had three chargebacks in FIVE years. That was absurdly low. So the GM, and Controller agreed to drop the protection to the lowest level and we went to paying less 2/3 less per transaction than we previously paid

3

I’ve been wondering about this. It’s almost as if the credit card companies are encouraging more fraud. My contract with Visa says I have to check signatures on the card in my bookstore, yet the majority of other places I go don’t even look at the card; they have you swipe it yourself. No signature check, no ID check, no nothing. You could use a stolen card with a photo on it even if the photo is someone 30 years older (or younger) of the opposite gender.

4

Really, what protection is a signature presented to a high-school student cashier anyway? They don’t have anything to compare it to except for the signature on the back which the person already has and can emulate. Many credit card agreements even prohibit the store from asking for ID for the purchase. Anyone can sign and good thieves could make a reasonable one for anything they get. All of that is built into the business model from the store to the credit card company. The figured that a signature isn’t good proof of identity so they found it more cost effective to do it another way. It doesn’t affect you as a consumer so you shouldn’t care much. If you get a fraudulent charge, you dispute it and you don’t have to pay it just like if someone stole your credit card and made your signature on the receipt.

The thieves that wanted to bypass a signature check could just make purchases online if they wanted.

5

Another example is I have heard banks no longer check signatures on checks. It cost them more to do so than the bad checks.

6

Did you mean to say that the fraud rate is low on those Walgreen items and that the company then PAYS LESS to the bank? If not, I misunderstand you.

I would think that Walgreen’s would make a decision like, “A customer isn’t going to dispute an $11.43 purchase whether we get a signature or not, therefore it is not worth paying the banks for protection on these purchases at all (making the signatures meaningless).”

So then Walgreens has adopted the strategy that they can make more money by eating the handful of chargebacks on low money purchases by making it up in savings on the protection they pay to the banks?

7

Walgreen’s probably pays more for transactions that don’t have a signature, just as a merchant pays more for transactions made without the card present (like online or over the phone). Higher risk = higher fees.

I don’t know if the banks are actually encouraging higher fraud, but they have no real incentive to discourage it. The merchant is the one who loses out. When there’s a chargeback, the merchant has to refund the money, pays a fee to the bank, is out the merchandise and may end up with higher processing costs. The credit card companies make substantially more money on a fraudulent transaction than on a legitimate transaction.

8

I’m guessing someone finally figured out that if someone has a stolen card, they aren’t likely to go to Price Chopper and buy some steak and beer, theey’re going to go to Best Buy and get a few iPads, or a big-screen TV, or something, and then ditch the card.

Obviously, if it wasn’t cheaper in the long run for companies to not require a signature for low cost purchases and take on the extra liability, they wouldn’t do it. And if in the next few years they notice more fraud for small purchases, they’ll simply go back to requiring signatures on all purchases again.

Honestly, I still don’t see why regular credit cards don’t do what debit cards do and have a PIN for regular transactions…much more secure.

9

A long time ago, I worked in retail management. As part of the end-of-the-day reconciliation, we would have to account for each charge slip (the registers would say we had, say, 16 Visa and 8 Amex charges, we had to make sure we had that many slips). We would store paperwork by the month in boxes, and then we had to keep them in the store for a period of time (maybe a year or two, I dont’ remember exactly). Then, after the time limit had passed, we could throw it out. The whole account number didn’t appear on the slips so there was no security concerns at the time.

Occasionally, loss prevention would call and ask us to pull paperwork from a particular transaction and fax it to them, so yes, sometimes we did need to refer to it.

10

In many places they do. Just not in the US.

11

Fraud rate is determined by the store, not the processing bank.

Let’s start by clarifying. There are five identities in a credit card transaction. The card, the issuing bank, the buyer, the seller and the processing bank.

Markxxx gets a VISA card. It is issued by Citibank. I shop at Acme Drugs and they have their credit/debit transactions processed by Bank Of America

Card - Visa
Issuing Bank - Citibank
Person - Markxxxx
Store - Acme Drug
Processing Bank - Bank Of America

Markxxx USES Visa to buy. Acme submits charges through Bank of America and gets paid by them. Markxxx pays off his Visa via Citibank, which payb Bank of America

Got it. This is what confuses people.

When you own a business, you can choose your level of protection. The processing bank analyzes this and issues rates. These typically range from 0.50% to 5.0% for the level of protection chosen.

In my hotel example, when I took over as asst controller, I found we were paying for the highest level of protection from Bank of America, which processed our credit/debit transactions. This was 5% per transaction. In otherwords if we charged a guest $100, five of that went to Bank of America.

But when I looked at our records, in the last five years we only had THREE disputes. That is REALLY low. If you own a business you can see it’s ridiculously low. We dropped level to were we dropped the protection level. Thus instead of paying 5.0% per credit transaction we paid, 1.7% per transaction.

Thus on a $100 charge the hotel was paying $5.00 to BoA now we paid, $1.70 per credit transaction.

That’s over $3 savings. You can see how that would add up in five years.

Think of it as paying for insurance on a beater (car) that you’d only get $500 if it was totaled. Why bother? Your paying more for the insurance than the car is worth.

In my Walgreens example it is up to WALGREENS to determine the fraud.

In this case with CTA bus passes, people were buying them and then going to their credit card company and disputing them. Thus Walgreens was taking a hit on them. So they fixed their system so that anything under $50 was signature free, but the bus passes STILL required a signature.

This is similar to putting the razor blades behind glass and you have to ask the clerk to get them for you.

You can go into Walgreens, not sign, dispute and you’ll almost certainly win, but you can only do that once or twice. The next time you try it, the credit card company will look at your past history and say “Wait a minute, he’s done this before.”

Credit card companies are getting wise. Last Christmas I worked at a computer store. I dreaded purchases over $500 and being paid with by Chase. Virtually every single Chase card was declined, if the purchase was over $500. Then you had to call Chase, who would make me get a driver’s license, they would then ask to talk to the customer and ask them a series of questions, and the whole transaction took 10 minutes.

Of course Chase was being careful. And the way around this is to call CHASE FIRST and say, “Look I’m going to a computer store to buy a computer and it’ll cost me over XXX amount.” Then Chase will pre-approve you.

Debit cards also have tiers. It depends on what level you get. Some stores have real time checks, others have daily checks.

For instance, a real time check will go into your debit card account and see if you actually HAVE the money. A daily check will verify your balance at a certain time each day and that is all.

The bottom line is fraud happens and we as consumers make it up. And example I had is with Citibank. I lost my wallet and in the 30 minutes before I noticed and called it in stolen, the crooks charged over $2,000 in goods and services.

Of course, I filed a police report and gave it to Citibank with a notarized affidavit that I didn’t make those charges. They took them off immediately. Fine, except then Citibank raised my rate on the credit card from 1.9% to 21%.

So you see, who pays for fraud?

12

So how did BofA change it’s security service regarding your hotel when you changed your protection level?

13

I’m still confused, but that’s normal. :slight_smile:

Let’s say I own a business and I have a choice between the 5% level and the 1.7% level. At each level, does that change what I must do when making the transaction? (verify signature, require signature, check 3 digit code on back, etc.)

Does it change what I am required to pay to the bank in case of a dispute? Do I need less evidence in my favor if I pay 5%, but require much more for the 1.7%?

14

Suranyi, there is really no need to quote 20+ paragraphs from the post above you to ask a one-line question.

15

In our hotel’s case the biggest saving came in the form of the 3 digit CID number in on the back of your credit card. You use that when making charges via the phone. This verifies that you have the card in your possession.

Another thing we changed was the address verification versus zip code. When we swiped the card through the machine, it read the zip code and verified, you pay more for address/zip verification.

You only get protection you pay for, this is a common pitfall of companies who downgrade.

Here’s a for instance, let’s say the Acme Hotel pays for CID verification of phone orders and has a 5% fee for that. Mr Coyote calls and give us his credit card info his CID number and address and we get it approved. Then he disputes the charge.

The hotel can fight this by saying, “Look we got his CID, his address, his number and that all checked out.” We would likely win.

But let’s say we downgrade that and we STILL get the address and CID number and CC # and Mr Coyote disputes it.

If we claim, “He must’ve had the physical CC as he had the correct CID number,” the processing bank says “Do you pay for that”? We say “No,” then they say, “Sorry if you don’t pay for the protection you can’t use it as an argument in your favour, what else you got.”

You see we lost that protection, even if we get it, we can’t use it as a defense unless you pay for it.

What a lot of people fail to realize CC rely a lot on trust.

Here’s a couple of for instances. You give me a credit card and it shows up decline. I can force that sale though. I just make up an approval number. It goes right through.

So what happens, the customer is billed and he says “I didn’t make this.” The bank says “Wait a minute you made that up.” And they take the money back from us.

But suppose on this transaction, the customer pays the bill. What happens? Nothing, since there was no dispute, we get paid. Yes, even though I made up an approval number, as long as nothing is disputed we’ll get paid.

Here’s another matter of trust. Your merchant agreement, will clearly state, THE CREDIT CARD MUST BE SIGNED IN BACK. We’ve had a lot of threads on this.

I worked in a computer store over the holidays. Half the credit cards were unsigned or said, See-ID. Your merchant agreement says “do not accept that.” Then it tells you what to do.

Now let’s get real, if a store told you, “Sign it or we won’t sell it to you,” there’s a 90% probability you’d walk out and go down the street to Best Buy and buy it there.

So did we follow our merchant agreement? No? Could we be in trouble if we had disputes? Yes. So why don’t we. Because too many people don’t sign and those people would walk and we’d lose all those sales.

And unless all those people dispute their charges, it doesn’t matter anyway.

Does this make sense? It’s a matter of trust and knowing your business.

If the store suddenly got a ton of chargebacks with disputes on unsigned CC or those saying See-ID you’d bet we would’ve changed our tune quickly.

As an asst controller it was a balancing act. The rules are restrictive but if they are so restrictive, guests walk to other hotels. So you have to balance.

It’s like a business with a sidewalk sale. Sure you’re probably gonna get more theft from a sidewalk sale, but you probably will sell more items, so any extra theft, will be covered by the extra sales.

Businesses don’t expect to run without theft (called shrinkage in stores) they just expect to minimize it.

And when things don’t work, you don’t need to abandon them, just modify them. Like Walgreens puts high theft items behind glass. I remember being a bit startled to find the dandruff shampoo, both name brand (Head & Shoulders) and generic behind glass. I asked the clerk. He said, "If it’s behind the glass and we have to get it for you, you can bet it’s a high theft item.

But you see Walgreens doesn’t lock everything up. That is too much of an inconvenience, but it would knockout 99% of all theft. The watch, observe and modify.