How a Zero Fraud Liability Policy Protects Your Credit Card

Man shouting angrily into phone while holding a credit card

Martin Dimitrov / Getty Images

Thieves have a number of ways of stealing your credit card information to make unauthorized charges on your account. Thankfully, all four major credit card networks—Visa, MasterCard, Discover, and American Express—offer zero fraud liability for their credit cards, and some Visa and MasterCard debit cards also are protected.

These policies limit your liability for most fraudulent charges that happen on your account, but there are exceptions. If you have a credit or debit card, you should know what the protection entails and how extensive it is.

How Zero Fraud Liability Policies Work

Zero fraud liability automatically comes with your account. When you spot unauthorized transactions on your account or suspect that your account may have been used without your permission, you should contact your credit card issuer right away. If you still have your credit card in your possession, contact your credit card issuer via the number on the back of your card. If you don't have the card, log on to your online account to get the correct phone number.

Each card issuer is different, but you'll typically have to fill out a form that lists the purchases in question. Some issuers might ask you to file a police report with your local police department so there is a record of the crime. Your card issuer will cancel your account as soon as you report the fraudulent charges, and in most instances, it will issue you a new card and new account number automatically. It may take a few days to get the new card or for the account to be activated again.

The federal Truth in Lending Act guarantees that you will not be liable for more than $50 of fraudulent purchases made on your credit card before you report the fraud. In practice, many card issuers wipe out all the fraudulent charges.

Monitoring Your Account

You can spot fraudulent charges by reading your credit card statement or monitoring your account activity online or via a smartphone app. You can catch unauthorized transactions faster if you check your account online periodically throughout the month rather than waiting on your credit card statement to come in the mail.

Your credit card issuer may offer complimentary fraud detection services to proactively notify you of potential fraud to your account. Once you sign up, you'll receive a text, email, or phone call that alerts you to any credit card activity outside your normal spending habits.

For example, if the vast majority of the purchases on your card are from gas stations or grocery stores in the area where you live, an online purchase from a vendor in another country would be a red flag. Issuers might contact you directly or ask you to verify unusual activity when you log on to your online account. Contact your credit card issuer to find out if this type of service is available for your account.

Zero Fraud Liability Exceptions

Protection is different for credit cards than for debit cards, and there is generally little to no protection for gift cards or prepaid cards.

Debit cards issued by Visa, for instance, may be covered under their zero fraud liability policies, but only when the transactions are processed on their networks.

With debit cards, the Electronic Funds Transfer Act limits liability to $50 if you notify the bank within two days of discovering the fraud on your account. However, if you wait longer than two days, you could be liable for up to $500. If it takes you more than 60 days to report fraud on your debit card, you could be liable for the entire amount.

Some banks will provide better debit card protection than what is required, but it is important to review the details of your account and make sure those protections are spelled out in writing.

Credit Fraud vs. Debit Fraud

Credit cards are generally safer options than debit cards because it is not your money being stolen if your credit card is compromised. Even if the card issuer challenged your fraud claim, you haven't lost any money while the matter is being resolved. You've simply lost your ability to use credit on that account.

If the fraud involves your debit card, however, the stolen money comes directly out of your bank account. Banks have up to 10 business days to investigate claims, during which time your account could be frozen. That means you would lose access to whatever money remains in your account in addition to whatever was stolen during that time.

In actual practice, many banks will replenish funds within a single business day, but this is less likely to occur if you took a long time to report the fraud or you do not have a good relationship with your bank. Customers in good standing who react to the fraud as quickly as possible are most likely to see their funds replenished the quickest.

Protecting Yourself

Innovative thieves leave everyone vulnerable to credit card fraud no matter how careful account holders are with their physical cards or their card numbers. Still, a proactive approach can reduce the likelihood of being a victim and decrease the impact if fraud does occur. Keep some important tips in mind:

  • Check your account regularly. Online account access and cell phone apps make it easy to check activity on your account. It can take less than a minute on your phone, which means it's worth it to get in the habit of checking daily.
  • Avoid card readers vulnerable to skimmers. Some thieves attach technology to card readers—often at outdoor sites like gas pumps—that steal your account information when you insert your card. Take the extra precaution of paying inside with the cashier. If you must pay at the pump, choose one in plain view of the cashier, where thieves are less likely to install skimmers.
  • Shop online only with known and trusted sites. Online retail sites like Amazon and others are not impervious to thieves, but their security systems are generally strong, and the percentage of transactions that are compromised is very low. Smaller, unfamiliar retailers are more likely to present a risk.