Question re: Stolen Credit Cards/CC Fraud

[Callisto]

So I was having a discussion and something came up that neither me or my friend were quite sure how it works...if a credit card is stolen and goods are purchased with it, when the card is eventually reported as stolen, who takes the monetary hit for the goods bought with it?

Does the bank just eat the amount when they reimburse the cardholder, or do they go to the vendor and expect the money from the sale to be returned? I was a little iffy because it's not really fair to the vendor to have to cough up the money since they're not getting their product back, but they also accepted stolen funds for their goods so no clue how it works.

Any law students/bank employees who know how this process works that can shed some light?

[Colenzo]

I would assume the person gets taken to court and eventually has to pay the money back.

[Kurokikaze]

From my understanding; you are not responsible for any unlawful purchases made with your card. The bank is supposed to refund your money and deal with the vendor. Not sure exactly what happens behind the scene but you shouldn't take the hit or let anyone try to talk you into doing so.

[Dimmauk]

This happened to me recently. They duped my card, and spent close to 1000 dollars. A week later the bank paid it back. So I guess the bank eats it.

[Callisto]

From my understanding; you are not liable for any unlawful purchases made with your card. The bank is supposed to refund your money and deal with the vendor. Not sure exactly what happens behind the scene but you shouldn't take the hit or let anyone try to talk you into doing so.

Yeah I don't mean from the standpoint of the cardholder. For the record, noone in the conversation had a card stolen or anything, we were just discussing something related and realized neither of us knew how the back end of the process works, and I'm just curious.

[Callisto]

This happened to me recently. They duped my card, and spent close to 1000 dollars. A week later the bank paid it back. So I guess the bank eats it.

hmm that's actually a really fast turnaround...I'm assuming you don't use TCF, lol. I guess unless they front the money then try to recover it from the vendor after the fact that sounds a lot like the bank does eat it, that sounds way too fast for them to work something out with a third party.

[Siniroth]

My initial thought to that is that either way you'd be reimbursed, so bank may reimburse it and then later deal with the third party to work out how they deal with it, since either way you'd ostensibly be reimbursed.

[Thoronas]

I've had to report a card stolen a couple times and the operators intimated that they eat it but it's also up to you to report the card as stolen within a reasonable amount of time.

[Kurokikaze]

I'd have a hard time believing that the bank would take the hit completely for the customer... They definitely get the money back from the vendor and leave them to deal with the cops/FBI. Technically it's their fault - they should ask for ID when accepting payments with cards.

[izembo]

If the company took the credit card following their credit card procedures that they agree to in order to accept credit cards, the credit card company/bank eats the loss. They have the legal department that makes sure the appropriate things go through in order to prosecute and recover the lost funds. Neither the customer or the business is affected if all goes the way it should.

[Dimmauk]

Well, they did dupe my card, but had their name on my card, and used fake IDs. They tested my card by buying a coffee, when it turned out it worked, they went to two Targets and blew through my card.

[Callisto]

I'd have a hard time believing that the bank would take the hit completely for the customer... They definitely get the money back from the vendor and leave them to deal with the cops/FBI. Technically it's their fault - they should ask for ID when accepting payments with cards.

This was the line of thought I had, I was just seeing if there was someone who has been on either side of the back end that could confirm/deny.

[Salodin]

Working in retail, I can at least say with certainty that we personally never pay a dime to the bank in case something is fraudulent.

Technically it's their fault - they should ask for ID when accepting payments with cards.

.

That's so wrong, I don't even know where to begin. What if they made a fake I.D. with the card holders name on it? What if they use THEIR OWN CARD, but change the magnetic strip to match the stolen account numbers? There's so many ways to fraudulently using a stolen credit card other then just picking a pocket and using it elsewhere, and in all these situations there is almost no way for the average retailer or cashier to tell the difference (nor are they expected to), hence why retailers are never held responsible for it. The banks eat it, which is also why they have started really ramping up their efforts against it.

[Zeb]

Don't banks have insurance to cover their losses from theft? Whether it's personal (bank robber)or digitally (identity theft)?

[Callisto]

It would seem logical that they would, though I'm not sure who would provide it.

[Zeb]

It would seem logical that they would, though I'm not sure who would provide it.

Lloyd's of London?

[Kurokikaze]

I'm sorry I guess that did come out a little harsh...

I think Izembo's explanation is the most likely outcome in these sorts of situations. ;o

[NynJa]

You know that 21% interest you pay? Yeah, that's where its going...

[Pharaun]

Credit card disputes, right up my alley since I do this for a living. The short answer to your question is it depends, some times it's the issuing financial institution that takes the loss and some times it's the merchant. The long answer is coming up and for those that don't want to read about the details of credit card processing and disputes should skip the next bit.

There are basically 3 ways a credit or debit card can be processed for transaction approval, PIN based and two types of signature based, swiped and hand keyed.

PIN based transactions can't be disputed for fraudulent activity since the PIN is a secure number that only the card holder should know. So for and supposed fraudulent PIN activity the financial institution will end up taking the loss. This isn't to say that fraudulent PIN activity can't happen, it is becoming very common for ATM's to be tampered with having skimmers and pinhole cameras attached them in order to steal both the magnetic stripe information and the PIN. So if you are using an ATM just make sure to check that nothing has been attached.

PIN transactions can be disputed for processing errors such as not receiving money at an ATM or having a transaction processed twice. In those cases the merchant has to prove that they aren't in error otherwise the money will be taken back and sent to the financial institution so they can reimburse the card holder. If the merchant can prove that everything was processed correctly then it is deemed a legitimate transaction and the card holder will be responsible for it.

Signature based transactions is where the who takes the loss question gets a little fuzzier. A swiped transaction is just what it sounds like, the card is swiped and the data is read from the magnetic stripe in order for the card to be processed. A lot of people are talking about merchants needing to check IDs in order to prevent fraud, but this is actually is not required by processing regulations, all a merchant is supposed to do is to check that the signature on the back of a card matches the signature on the receipt or that was electronically captured. Sadly it's assumed that any receipt with a signature is a valid transaction so in these cases the financial institution has no charge back rights and will end up taking the loss for these transactions. For swiped transactions where no signature is captured then the merchant is held responsible since they have no way of proving that the card was used by the card holder or authorized signer and must payback the financial institution. This is most commonly seen at gas stations and fast food restaurants.

Hand keyed transactions are any transaction where the card wasn't able to be swiped, most commonly seen in internet based transactions or purchases made over the phone. This can also happen if the mag stripe is damaged and can't be read then merchants may have the option to manually enter or hand key the card information. Since a signature generally can't be captured for internet and phone transactions other methods of verification are used, primarily address data. If these transactions are disputed then merchant will generally provide address data and shipping records to show where any merchandise was sent. If the records don't satisfactorily show that the merchandise was sent to the card holder then the merchant will be required to send the money back to the financial institution. If the merchant does prove that the card holder received the goods then the financial institution will take the loss.

It honestly can be even more complicated than what I've outlined here, but you really don't want to hear about representments, pre-arbitration, and arbitration settlements.

[Kurokikaze]

Hmm pretty interesting read. Thanks for clearing that up.