Accept Credit Cards? Make Sure You Know of New Liability Rules

Beginning October 1, EuroPay, Visa, and MasterCard are adopting new rules related to the adoption of chip-and-pin technology in credit cards. The chip-and-pin technology is intended to replace traditional magnetic strip credit cards and the swipe-and-sign process; chip-and-pin technology is reputed to reduce the risk of credit card fraud at point-of-sale systems to nearly zero.

Currently, the credit card issuer bears liability in the event a credit card is used fraudulently at an in-store merchant. Under the new rules coming into effect next month, liability will shift to the party — either the issuer or the merchant — that has not adopted chip-and-pin technology. For businesses that accept credit cards for sales, where a chip-and-pin credit card is used in-store and the merchant has not installed a chip-and-pin point-of-sale reader (i.e., the store is still using magnetic strip swipe readers), liability for fraudulent card use falls on the merchant. If the merchant is using a chip-and-pin reader, the card issuers will continue to assume liability for fraudulent use. Additionally, where an old magnetic strip credit card is used with a merchant still using older magnetic strip readers, card issuers will continue to retain liability, though issuers will have likely phased out all old-style credit cards as they expire in the coming few years.

The liability shift does not apply to card-not-present transactions (such as online transactions or where the merchant keys in the credit card information), or fraud resulting from a lost or stolen card. The liability shift also does not occur for fuel pump or ATM transactions until October 2017. For businesses who accept credit cards for in-person transactions that do not yet have chip-and-pin processing hardware, you should be contacting your payment processor to inquire about how you can obtain up-to-date card processors.

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