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News - 15 October 2005
Who pays if its used fraudulently?

Chip & Pin confusion over consumer liability for fraud

New figures released last week showed that ‘chip and pin’ technology in credit cards has reduced fraud levels by £36m from January to June in 2005 compared to the same period in 2004. However, there is growing confusion over who is liable when a card is used fraudulently.

Some reports suggested that Chip and PIN was not all it was cracked up to be. There was a fear that while the shop assistant turned away in order to avoid seeing the PIN being entered others around the customer could look over their shoulder and pick up the number.

Official figures from the Chip and PIN Programme dispel any fears that this type of crime has increased indicating that stolen card fraud has reduced by 29% to £89.9 million during the first half of 2005.

The programme has been hailed as a success and will move to the final phase next year. This means that all cards should have built in chips and all customers must have a PIN.

Just as technological advances make it more difficult for fraudsters to steal money in one area, the fraudsters move on to another. Consequently there has been an increase in new cards being stolen in the post, tampering with cash machines to steal customer information ('skimming') and cardholder-not-present (CNP) transactions.

Skimming increased by 85% last year largely because most cash machines still use teh magnetic stripe to read cardholder information rather than the chip that is now imbedded in most cards.

The main points for consumers to remember if they lose cash to criminals is that, whatever pressure the card issuer or bank exerts, it is up to the financial institution to show that the card holder has acted either fraudulently or without reasonable care.

If it can’t do this then the liability for any fraudulent transaction is very limited – normally up to a maximum of £50. If a card has never been lost or stolen or if it is used for CNP transactions without your knowledge (e.g. for purchases over the internet or telephone) then there is no liability for the consumer.

It is a worthwhile exercise for every consumer to read the relevant parts of the Banking Code, which can be viewed by clicking on the link below: -

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