Your Liability for Unauthorized Credit and Debit Card Charges

If your ATM, debit, or credit card is lost or stolen, don't panic. Federal laws and bank policies limit your liability for unauthorized charges. But it's important to notify the bank or card issuer of the loss or theft as soon as you discover it. Read on to learn about your notification duties and maximum liability for each type of card.

Credit Cards

Under the Fair Credit Billing Act, your liability for unauthorized charges depends on whether the thief personally presented your card to make the purchase, or just stole the number.

• If the thief personally presents your card to make the purchase, the card issuer can't hold you liable for more than $50 in fraudulent charges. (12 C.F.R. § 1026.12). Many card issuers waive this $50.
• If the thief stole the number, but not the card, you have no liability.

In either of the above situations, however, it's important to notify the card issuer as soon as you know of the theft—by phone and in writing. To dispute unauthorized charges, send a letter to the credit card company at the address given for this purpose, not the address for sending your payments, and include your name, address, account number, and a description of the billing error. You may use the Federal Trade Commission's sample letter. Send your letter so that it reaches the creditor within 60 days after the first bill showing the unauthorized charge. (12 C.F.R. § 1026.13).

ATM and Debit Cards

With ATM or debit cards, you must act quickly in order to avoid full liability for unauthorized charges when your card is lost or stolen. Under the federal Electronic Fund Transfer Act, your liability is:

• $0 if you report the loss or theft of the card immediately and the card has not been used
• up to $50 if you notify the bank within two business days after you realize the card is missing
• up to $500 if you fail to notify the bank within two business days after you realize the card is missing, but do notify the bank within 60 days after your bank statement is mailed to you listing the unauthorized withdrawals, or
• unlimited if you fail to notify the bank within 60 days after your bank statement is mailed to you listing the unauthorized withdrawals. (15 U.S. Code § 1693g).

If you can convince the bank that your notification failure was due to extenuating circumstances, it must extend the notification timeline for a "reasonable period."

If your card wasn't lost or stolen, but the number is used for unauthorized transactions, you aren't liable for those transactions so long as you report them within 60 days of the statement being sent to you.

Voluntary Caps on Liability for Debit Card Charges

In response to consumer complaints about the possibility of unlimited liability, some card issuers cap the liability on debit cards at $50. And some banks don't charge anything if unauthorized withdrawals appear on your statement. Also, some states have capped the liability for unauthorized withdrawals on an ATM or debit card at $50.

For more information on finances, debts, and how to regain financial health, read Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Amy Loftsgordon and Cara O'Neill (Nolo).