As a flooring retailer, you handle credit card transactions every day. You swipe or insert the card into the credit card reader or terminal and receive authorization from the card processor. In some sales, the customer may call after visiting your store to buy the flooring. The customer will give you credit card information for the purchase. You may also make online sales. In these transactions, you gather the required information, submit it to the credit card company, and again receive authorization.
Getting the authorization approval does not mean that you are guaranteed payment. Approval only indicates that, at the time the approval was issued, the card was not reported stolen or lost, and that the card credit limit has not been exceeded. If someone else is using the credit card number illegally, the card holder has a right to dispute the approved charges. The issue is who will end up paying for any fraudulent charges—you or the credit card issuer. As explained below, that may depend on how you verified the credit card.
Swipe or Chip?
All most all credit cards now have EMV chips that promise better security for users and a reduced risk of fraud. The chip and an EMV terminal work together to create a unique, encrypted code. This code is unique to the specific transaction taking place, and will only be used that one time, and thereby reduce the risk of fraud. In contrast, the magnetic strip information is static and is always there on the credit card and can be copied.
If the credit card has a chip and you swipe it or do not have the EMV terminal, you will be responsible for the fraud, even if you received authorization approval. As of October 1, 2015, in-store fraud liability shifted to the party that has not yet adopted chip technology. If the credit card does not have a chip, then the bank issuing the card will remain liable; but if the card does have a chip and you either swipe the magnetic strip or your terminal has not been upgraded to EMV compliance, you are responsible for any fraudulent transactions.
What if I Get a Signature?
Getting a signature will not shift liability if you swipe the card or do not have an EMV credit card reader or terminal. In fact, the major credit card companies (American Express, Discover, Mastercard and Visa) stopped requiring merchants to collect signatures for credit and debit card purchases if the card has a chip and your terminal is EMV compliant. This often helps speed up the checkout process, and eliminates the requirement and cost incurred to save and secure the signed receipts. If you have not updated your credit card terminal to an EMV compliant model, you may not be eligible to skip signature verification, nor will the signature necessarily protect you from ultimately being responsible for the fraud.
What About Sales Over the Phone or Online?
Obviously, if a customer orders flooring online or calls in a credit card, you will not be able to use the chip and EMV terminal to protect against fraud. You can, however, avoid liability in these types of transactions by changing the way you handle phone and online orders,
The credit card companies recognize that the convenience of a credit card is important when buying online or over the telephone. Accordingly, the credit card issuers publish rules on how to handle “card not present” transactions. These rules are usually in the agreements you sign with the credit card issuer. The rules will require you to enter the card verification code (CV) that is on the back of the credit card. The rules may also require you to verify other information, such as addresses and zip codes. You need to strictly follow the card issuer’s transaction authorization procedures. Any variation could leave you responsible if the transaction is fraudulent. It is recommended that you follow the requirements for all the credit cards you accept and train your employees on how to follow them to the letter. Complying with these rules will reduce the chances of you being responsible in case of fraud.
Notice: The information contained in this blog is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.