New credit cards may shift unauthorized-transaction liabilities to the holder
Notice how you’re being encouraged to use credit for small purchases now, and there;s no requirement to sign anything? It’s the new money. Observe the past century’s de-evolution of money away from an objective standard of value: gold (holds its own value) -> fiat paper (where the state taxes the populace through inflation) -> credit (where you are directly taxed by the central credit-issuing agencies). Next, banks will be securitizing people’s credit card debt and selling that through derivative transactions, if they aren’t already. Anything to consolidate the world financial system. So what we need isn’t a new cryptographic pin chip, what we need is real money again.
Ellen Roseman, Toronto Star
November 2, 2008
If you ask Stephen Harding about his new chip-enabled CIBC Aerogold Infinite Visa card, he has mixed reviews. Many retailers don’t know about the change in technology, he says.
He was in a restaurant that had no remote wireless terminals to bring to his table. He had to stand behind the bar, trying to make his card work at a hard-wired terminal.
“The transaction failed and I used my MasterCard instead,” he says.
Harding is not alone. Some consumers are struggling to use the new credit cards, which are just starting to arrive in the mail, with the new payment terminals.
This major change will affect millions of cardholders over the next few years. It’s designed to combat fraud, a problem that financial institutions keep under wraps.
Soon, you’ll have an embedded computer chip in your card that is virtually impossible to duplicate. The chip works with a personal identification number used to verify the transaction.
After a one-year pilot program in Kitchener and Waterloo, 88 per cent of consumers surveyed said the new chip cards were as easy to use as older cards with a magnetic stripe.
Meanwhile, 75 per cent of front-line merchants said processing chip card transactions was as easy as processing magnetic stripe transactions.
Glitches and goofs can be expected in a transition. But there’s a bigger issue, arising from the use of PIN verification.
Will cardholders still have a guarantee of zero liability for unauthorized transactions?
Or will financial institutions treat credit card fraud as they treat debit card fraud, applying harsh penalties to those considered to have abused their PINs?
In recent months, major banks have sent new terms and conditions to credit cardholders. They seem to be reneging on the zero liability guarantee.
If you don’t safeguard your personal identification number and someone makes a PIN-based transaction on your Visa account, you will be “liable for those transactions and interest, fees and losses incurred,” says CIBC Visa.
However, if there was nothing you “reasonably could have done to prevent the PIN’s use,” you are not responsible for those transactions.
TD Visa says you’re responsible for the full amount of all unauthorized activity that occurs “if your PIN, password or card may have become known to an unauthorized person.”
TD says you must treat your cards and passwords safely, which includes ensuring that each PIN is unique. If all the plastic cards in your wallet need different numbers, you may find it hard to manage without breaking the rules.
Chances are you will write down your PINs on a piece of paper. Or you will use easily remembered PINs, such as birthdays, telephone numbers or addresses.
“These coping strategies may render the customer liable for all losses due to unauthorized transactions,” says Doug Melville, deputy ombudsman at the Ombudsman for Banking Services and Investments (OBSI).
“This is especially challenging for an aging population or those with memory deficits to cope with.”
Melville foresees a dramatic increase in the number of complaints about not being compensated for credit card fraud.
Financial institutions will say customers failed to take care of their PINs without having to prove negligence. That’s how it works with the current voluntary code of practice for debit cards.
Debit card issuers can decide not to reimburse you for fraud by showing that “on the balance of probabilities,” you contributed to the unauthorized use of the card.
Next Sunday, we’ll continue exploring this potential change in credit card liability.
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March 21st, 2010 at 7:59 pm
Well. I haven’t find much difference in using new chip cards and older cards with a magnetic stripe. But after reading this article, felt that using chip cards is beneficial in terms of security.
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