Chipping away at credit card security; New plastic may shift unauthorized-transaction liabilities to the holder

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    Chipping away at credit card security; New plastic may shift
unauthorized-transaction liabilities to the holder

 

 Ellen Roseman
The Toronto Star , Nov. 2, 2008

 

If you ask Stephen Harding about his new chip-enabled CIBC Aerogold Infinite
Visa card, he has mixed reviews.

 

Many retailers don't know about the change in technology, he says.

 

He was in a restaurant that had no remote wireless terminals to bring to his
table. He had to stand behind the bar, trying to make his card work at a
hard- wired terminal.

 

"The transaction failed and I used my MasterCard instead," he says.

 

Harding is not alone. Some consumers are struggling to use the new credit
cards, which are just starting to arrive in the mail, with the new payment
terminals.

 

This major change will affect millions of cardholders over the next few
years. It's designed to combat fraud, a problem that financial institutions
keep under wraps.

 

Soon, you'll have an embedded computer chip in your card that is virtually
impossible to duplicate. The chip works with a personal identification
number used to verify the transaction.

 

After a one-year pilot program in Kitchener and Waterloo, 88 per cent of
consumers surveyed said the new chip cards were as easy to use as older
cards with a magnetic stripe.

 

Meanwhile, 75 per cent of front-line merchants said processing chip card
transactions was as easy as processing magnetic stripe transactions.

 

Glitches and goofs can be expected in a transition. But there's a bigger
issue, arising from the use of PIN verification.

 

Will cardholders still have a guarantee of zero liability for unauthorized
transactions?

 

Or will financial institutions treat credit card fraud as they treat debit
card fraud, applying harsh penalties to those considered to have abused
their PINs?

 

In recent months, major banks have sent new terms and conditions to credit
cardholders. They seem to be reneging on the zero liability guarantee.

 

If you don't safeguard your personal identification number and someone makes
a PIN-based transaction on your Visa account, you will be "liable for those
transactions and interest, fees and losses incurred," says CIBC Visa.

 

However, if there was nothing you "reasonably could have done to prevent the
PIN's use," you are not responsible for those transactions.

 

TD Visa says you're responsible for the full amount of all unauthorized
activity that occurs "if your PIN, password or card may have become known to
an unauthorized person."

 

TD says you must treat your cards and passwords safely, which includes
ensuring that each PIN is unique. If all the plastic cards in your wallet
need different numbers, you may find it hard to manage without breaking the
rules.

 

Chances are you will write down your PINs on a piece of paper. Or you will
use easily remembered PINs, such as birthdays, telephone numbers or
addresses.

 

"These coping strategies may render the customer liable for all losses due
to unauthorized transactions," says Doug Melville, deputy ombudsman at the
Ombudsman for Banking Services and Investments (OBSI).

 

"This is especially challenging for an aging population or those with memory
deficits to cope with."

 

Melville foresees a dramatic increase in the number of complaints about not
being compensated for credit card fraud.

 

Financial institutions will say customers failed to take care of their PINs
without having to prove negligence. That's how it works with the current
voluntary code of practice for debit cards.

 

Debit card issuers can decide not to reimburse you for fraud by showing that
"on the balance of probabilities," you contributed to the unauthorized use
of the card.

 

Next Sunday, we'll continue exploring this potential change in credit card
liability.

 

Ellen Roseman's column appears Wednesday, Saturday and Sunday. You can reach
her by writing Business c/o Toronto Star, 1 Yonge St., Toronto
M5E 1E6; by phone at               
 416-945-8687        
by fax at 416-865-3630; or at
eroseman @ thestar.ca by email.

 

 

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