Blog: Businesses can lessen liability and exposure to card fraud


I like to carry cash, and use paper money to pay for low-cost items, although that seems to put me in the minority these days. Even at the burger drive-thru window, most everyone is paying with a debit or credit card.

Our grandparents (or great-grandparents for some of you) always used cash, but times have changed. And that’s led to increased risk for business owners.

Credit card fraud is running rampant, and is expected to top $6 billion next year. Business owners — from the mom and pop stores to Walmart — need to know how to avoid card fraud, and when they’re liable.

“Business owners can reduce their risk of card fraud by following the suggestions from their bank and processors (Visa, MasterCard or Discover) such as ensuring that you know the person using the card is the card owner,” said Tom Grant, senior vice president and director of retail banking for Peoples Bank in Colorado Springs. “Asking for identification at the time of purchase or verifying with the card issuer for large card transactions ensures that you are dealing with the card owner. Also, a strong relationship with your banker allows you to work as a team to protect the business.”

Chip cards, which better protect information, have greatly reduced fraud at the checkout counter. But online fraud, spurred by more companies jumping into the e-commerce market, has grown dramatically over the last decade or so.

Merchants with a chip-enabled card reader are not responsible for fraud loss in card-present sales, but are responsible for fraudulent online sales when the card is not present.

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Most of us have probably been blindsided by a situation where our card was compromised. My debit card had charges originating from Guadalajara, Mexico, several years ago while my wife and I were in Las Vegas. We got a call from our bank, which headed off any further trouble.

Banks have great procedures in place to protect consumers, and those also help shield businesses from financial loss.

“Consumers are protected against fraudulent transactions on their cards for all or most of the transaction,” Grant said. “Banks tend to take the loss on most fraudulent transactions through consumer protection provided by the bank and its processor.”

It’s a good idea for a consumer who suspects fraud to contact the retailer, as they may have forgotten about a purchase, or their spouse may have bought something they don’t know about. Even if fraud has occurred, a refund is the simplest and quickest way to handle the situation.

Consumers also have the right to do a “chargeback,” a forced reversal of funds through their bank or credit card issuer. However, chargebacks cost the merchant as much as three times the cost of the fraudulent purchase, said Chargebacks911 Chief Operating Officer Monica Eaton-Cardone.

“Working with merchants to help prevent issues such as ‘friendly fraud’ and merchants being diligent in ensuring they are dealing with the card owner can reduce the potential for losses,” Grant said.

Friendly fraud is when a legitimate cardholder chooses to do a chargeback when it’s not necessary. The Chargebacks911 website says: “Friendly fraud is often called chargeback fraud because consumers use the chargeback process to steal from merchants.” It cites reasons including buyer’s remorse, avoiding a restocking or handling fee, the return limit was exceeded, or simply to make some money.

Grant said business owners could avoid some problems simply by being educated about the process.

“Stay informed as to the business’s rights and responsibilities,” Grant said. “Understand the protections you have from your merchant processor and the process for chargebacks and disputes.”

And, convert that card reader to be chip-friendly to avoid fraud liability on in-house sales.

“If you haven’t already, convert your card equipment to accept EMV cards,” Grant said. “The liability shift rules state that businesses that are victims of fraud from counterfeit cards are liable for the loss if they have not converted to accepting EMV cards. Spend time on card fraud prevention to save you time and money. You can avoid spending time talking to authorities and disgruntled cardholders by heading off the thieves.”

Read more about credit card fraud and what business owners should know in the Dec. 1 Colorado Springs Business Journal.