Fraud liability, loss of ability to accept cards may follow if you don’t follow merchant rules
Dear Your Business Credit,
I have a business that takes only credit cards and no cash. If a customer’s credit card does not work – and the customer gives her sister’s credit card information but does not have the credit card information with her – is running that card credit card fraud? Will I get in trouble or go to jail if it turns out to be credit card fraud – or is the customer the only person who will be arrested. Please answer this as fast as possible. I am worried as to what action will be taken in this scenario. – Roshan
I can understand why you are worried about this. I would generally not recommend accepting any credit card or credit card number from someone other than the cardholder. When you run a business, it is essential to follow credit card companies’ merchant agreements for card verification to the letter. If they discover you are violating those processes, they could block you from processing their cards in the future. That could devastate your business, given that you accept only credit cards.
Will you be arrested? That doesn’t seem very likely. Many states now have identity theft laws against unauthorized use of credit cards. Some of these are quite strict and could potentially extend to merchants. For instance, in Florida, anyone “who willfully and without authorization fraudulently uses, or possesses with intent to fraudulently use, personal identification information concerning an individual without first obtaining that individual’s consent, commits the offense of fraudulent use of personal identification information, which is a felony of the third degree.”
In reality, many victims don’t pursue cases of fraud committed by a family member, because they don’t want to hurt that person. And even when they do, it is hard to get law enforcement authorities interested in investigating these cases aggressively. Perpetrators of this type of identity theft, whether family members or not, are unlikely to spend time in prison, especially if the crime involved a small amount of money. For more detailed information on how identity theft cases are typically handled, I’d recommend you read “Why you should file a police report for card fraud.”
So what do you do if someone comes into your business and asks to use someone else’s card the next time – and you don’t think the cardholder has authorized it? The major credit card issuers have published guidelines on what to do if you suspect someone is fraudulently using a credit card. Essentially, you need to call a phone number the credit card companies each operate and ask for a “Code 10” card authorization, upon which the credit card issuer will guide you through the situation and call the police for you, if you discretely indicate (through yes or no answers) that this is warranted. It doesn’t sound as if you need to notify the police about this situation, but any credit card company you call will likely decline the transaction, giving you an easy out from accepting the card.
One other thing to consider is your potential financial liability. As you may know, a liability shift occurred Oct. 1, 2015, in which merchants who have not adopted chip technology became liable for in-store counterfeit fraud.
Before the shift, credit card issuers were primarily responsible for covering fraud affecting consumer accounts. They would pay back cardholders for funds lost because of fraud. Now that liability has shifted on some transactions. Card issuers may be able to seek reimbursement from the merchant or from the bank or company that processes payments on behalf of a merchant if the retailer was not prepared to accept EMV payment technology. If you are keying in transactions rather than using chip card technology, you are increasing the risk of fraud – and could be exposing yourself to liability for it.
I suggest you review the contracts you signed in order to accept credit cards or look up their policies online – and make sure you are following all of the rules in processing them. The documents may be boring to read, but they can save you from a lot of heartache in the future.
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