Will Your New Chip Card Protect You from Fraud?
Posted 11 October 2016 12:00 AM by John Ulzheimer
Unless you have been living under a rock for the past several months you are probably familiar with the new “chip” cards being distributed by many banks, credit unions, and credit card issuers. If your old cards have already been updated you may have even done an uncomfortable little dance at the cash register a few times, wondering whether you need to swipe or insert your new little piece of plastic into the credit card terminal to complete your transaction. However, what you may not realize is how these new cards work, what purpose they serve, and who this new technology actually protects.
How Chip Cards Work
Chips cards (or more formally called chip and PIN, chip and signature, or EMV cards) are actually not new technology at all. The cards are only being newly introduced in the United States. Most European countries began using these smarter credit cards many years ago.
Credit cards with magnetic stripes, an antiquated and much less secure form of credit card technology, are much more vulnerable to credit card theft than the newer chip cards. With magnetic stripe technology all of your information, including your account number itself, is stored inside of the stripe on the back of your card. Card readers access this information whenever you swipe the stripe. Fraudsters can easily use devices known as skimmers to steal card information from magnetic stripe cards and then recreate phony cards with the stolen account information to use for fraudulent transactions.
Chip cards feature technology which is certainly not foolproof, however, it is much more advanced than the old magnetic stripe technology. With this newer card technology your account information is stored inside of a microchip which is embedded inside of the card, making the theft of your information considerably more difficult. However, most of the new cards being currently distributed in the US are a hybrid between chip and PIN cards and magnetic stripe cards known as chip and signature cards. While certainly a step up in security from older credit card technology, these chip and signature cards are still vulnerable to theft.
Who Does Your Chip Card Really Protect?
Stopping credit card fraud is naturally in everyone's best interest, but the idea that this new generation of credit card technology will protect you personally from fraud liability is completely false. Consumers are already well protected from liability for fraudulent credit card and debit card transactions thanks to the Fair Credit Billing Act (credit cards) and the Electronic Funds Transfer Act (debit cards). These consumer protection laws already cap your responsibility for fraudulent credit card transactions at a mere $50 and responsibility for fraudulent debit card transactions at $500 (and only $50 if you report the fraud within 2 days). And, all four of the major credit card networks (Amex, Discover, Visa, and MasterCard) have zero liability fraud policies, which means unless you never report the theft or abuse of your credit cards then you’ll never have to pay a dime of the fraudulent charges. When fraud does occur it has traditionally been your credit or debit card issuer who has shouldered the burden for the theft.
In addition to reducing fraud, chip cards also serve the purpose of helping credit and debit card issuers reduce their own liability for fraudulent transactions. As of October of 2015 merchants were required to upgrade their payment terminals to newer versions with chip card reading capability. Merchants who failed to make the expensive upgrades could be left footing the bill for any fraudulent credit card charges occurring on their premises. Stopping thieves is great, but you just should not believe all of the hype that this new gen technology was created solely with your own best interest at heart.
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