Limiting your financial loss

By Ben Woolsey and Emily Starbuck Gerson

When a credit card goes missing, your first thought is probably "How can I limit my financial losses?" Fortunately, by acting quickly and taking advantage of federal laws, you can protect yourself, your financial history and your credit from damage and loss.

Steps you can take: Report loss or theft of card: Report the loss or theft of your credit cards and debit cards to the card issuers (the banks, not Visa or MasterCard) immediately. Many companies have toll-free numbers and 24-hour service to deal with such emergencies. You will probably need to close the account and open a new one. It's a good idea to follow up your phone calls with a letter. Include your account number, when you noticed your credit card was missing and the date on which you first reported the loss.

Review billing statements: After the loss, review your billing statements carefully. If any unauthorized charges appear, send a letter to the credit card issuer describing each questionable charge. In the letter, tell the credit card issuer the date your card was lost or stolen, when you first noticed unauthorized charges and when you first reported the problem to them. Be sure to send the letter to the address provided for billing errors. Do not send it with a payment or to the address where you normally send your payments unless you are directed to do so.

Review your credit report: Under law, you are entitled to a free credit report every year. A month after the loss, go to annualcreditreport.com and make sure nothing suspicious appears on your reports. If you do see anything you did not authorize, send a letter to each of the three credit bureaus telling them which information is incorrect and why. Send copies of any documents you have that may help prove you correct. Send it via certified mail with return receipt requested. Information appears on your credit report for seven years, so it is in your best interest to have something negative and false removed.

Check homeowners insurance policy: Your homeowner's insurance policy may cover your liability for card thefts. If not, some insurance companies will allow you to change your policy to include this protection.

Federal laws, and how they protect consumers

Fair Credit Billing Act: This allows you to dispute billing charges, including those made through fraud or identity theft. Your maximum liability under federal law for unauthorized use of your credit card is $50. If you report the loss before your credit cards are used, the FCBA says the card issuer cannot hold you responsible for any unauthorized charges. If a thief uses your cards before you report them missing, the most you will owe for unauthorized charges is $50 per card. Also, if the loss involves your credit card number, but not the card itself, you have no liability for unauthorized use.

Truth in Lending Act: Implemented by Federal Reserve Regulation Z, this "includes a number of consumer protection provisions, including specific mechanisms by which a consumer is protected from liability for unauthorized use of a credit card, at least in excess of $50," says Duncan Douglass, a lawyer with Alston and Bird who practices in the payment systems space. He says many of the major credit card networks generally require the issuer to absorb the $50 fee, so cardholders often don't have to pay it. This is referred to as "zero liability." "The best practice for a consumer to follow is to notify the card issuer promptly after discovering that a credit card has been lost or stolen or that an unauthorized transaction has been conducted using the card," Douglass says. Time is of the essence when you're looking for protection.

Electronic Funds Transfer Act: Your liability under federal law for unauthorized use of your ATM or debit card depends on how quickly you report the loss. If you report an ATM or debit card missing prior to its fraudulent usage, the EFTA says the card issuer cannot hold you responsible for any unauthorized transfers. If unauthorized use occurs before you report it, your liability depends on how quickly you report the loss.

If you report the loss within two business days after realizing your card is missing, you will not be responsible for more than $50 of unauthorized use. If you don't report the loss within two business days, you could lose up to $500 of unauthorized transfer. You may also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank mails the statement containing the unauthorized charges. For unauthorized transfers involving only your debit card number (not the actual loss of the card), you are liable only for transfers that occur more than 60 days following the mailing of your unauthorized use-containing bank statement and before you report the loss.

Fair Credit Reporting Act: "For the most part, the Fair Credit Reporting Act affords consumers protections relating to their consumer credit files maintained by credit reporting agencies, including by providing that the consumer must be afforded access to his or her credit file, has the right to dispute inaccurate or incomplete information, is protected through limitations on who may access the credit file and by affording the consumer certain rights if or when the consumer believes he or she has been the victim of identity theft," Douglass says. He says the FCRA also prohibits institutions from knowingly giving inaccurate information to consumer reporting agencies. If your card is stolen and your credit report contains things you did not do, you have the right to dispute it.

Before you have that moment of panic, take the steps to protect your credit and your credit cards. Remember, your credit is extremely important and you don't want someone else causing you trouble.

Updated: Jan. 2, 2008