Learn the difference between debit and credit card fraud.

With the sharp increase in eCommerce transactions since the beginning of the pandemic, it follows that online fraud is also on the rise. Of all the forms of online fraud, from phishing scams to fintech fraud, the most impactful could be said to be credit card fraud. 

We get a lot of questions about what the difference is between debit card fraud and credit card fraud, but when we talk about “credit card fraud,” we’re including both. 

That’s not to say there aren’t differences. Both credit card fraud and debit card fraud victims are protected under a separate set of laws. In function, however, the methods for obtaining card information are basically the same across both types. 

Card information is often stolen via phishing scams, where the victim is tricked into giving their card information to somebody impersonating an official entity via email or other means. It’s also frequently bought and sold on the dark web. Online retailers can have their data breached, which then leads to large amounts of customer information being stolen, including card numbers. 

Also, the impact on the merchant is essentially the same. They’re faced with chargebacks either way. 

It’s for the victims where the true difference between credit card fraud and debit card fraud can be found. 

Credit Card Fraud

Credit cards operate on lines of credit rather than drawing from the cardholder’s bank account like with debit cards. Theoretically, when you make a purchase with a credit card you’re making a promise to the merchant that the credit card company will pay for the transaction. Then, you pay the credit card company back for the amount. 

We know this is basic information, but it matters when examining how a fraudulent charge on a credit card is handled. 

Because credit cards operate on, well, credit, they’re protected by the Fair Credit Billing Act (FCBA). This law essentially ensures that a consumer who reports their credit card as missing or stolen will face no liability for any fraudulent charges thereafter. 

Additionally, if the physical card wasn’t lost but its numbers were stolen and used for fraudulent purchases, the customer is not liable. In any case where the victim is found liable for fraudulent use of their card, the maximum they can be expected to pay is $50.

Debit Card Fraud

Because debit cards draw from a bank account, it is the bank that is held responsible for reimbursement.

Debit cards fall under the protection of the Electronic Funds Transfer Act (EFTA). This law differs in several ways from the FCBA, most notably in its imposition of a timeline for liability. 

Under the EFTA, if a lost or stolen debit card is reported within 48 hours, the maximum liability for the victim is $50. If it’s reported after 48 hours, but before 60 days, the maximum liability increases to $500. Beyond those 60 days, the victim may be responsible for the entirety of the fraudulent charges, including any overdraft fees and money taken from any linked accounts to the debit card account. 

However, like with the FCBA, if the card wasn’t lost or stolen the customer isn’t liable for any fraudulent charges. That is conditional on time, though, as this only applies if the customer reports the fraudulent charges within a 60 day period that begins after receiving the bank statement that shows the fraudulent charges.

What to Do If Your Card Is Stolen

With both types of cards, the first step when a customer realizes they’ve been victimized by card theft should be to contact the merchant where the fraudulent charges were made. This gives the merchant a chance to settle the matter without the need for chargebacks. 

You see, chargebacks are what make the merchants the ultimate victims of credit card fraud. When the customer reports fraudulent transactions to their bank or credit card issuer, that institution then enacts a chargeback against the merchant. Then the merchant has to pay back the institution as well as fees and penalties to their own credit companies and banks. They end up losing out on the money, the product, and any extra money they have to pay as penalties. 

In most cases, banks and credit card companies will fully reimburse customers who are victimized by credit card fraud. There will be a brief investigation to ensure that the charges were fraudulent (chargeback fraud is also a major problem that plagues merchants and financial institutions), and then give the money to the customer while filing chargebacks against the merchant. 

The one party who rarely suffers from credit card fraud is the actual fraudster. It’s notoriously difficult to actually apprehend people who commit credit card fraud, especially when it’s done online. That means the money never truly gets paid back and somebody always loses out. 

How Online Merchants Can Protect Themselves

The reality is that online merchants will all at some point or another be on one end of a fraudulent transaction with stolen card information. In fact, it will probably happen many times. 

There are security measures that can be taken by the merchant. For instance, multi-factor authentication for potential transactions is all but necessary. 

Encryption of any customer data stored on the merchant’s end is absolutely essential. A lot of information is stolen via merchant data breaches, and encryption can add an extra layer preventing would-be fraudsters from obtaining that information. 

Cyber insurance can be an added measure to protect against chargebacks and chargeback fraud.  

Fight Fraud with a Team of Experts

The best defense of all, of course, is to partner with a team of experts who know how the minds of fraudsters work and how to defend against them. 

Fraud.net is a proven expert in the field of anti-fraud security. We can help protect your business from credit card fraud and more. If you or your company are looking for the ultimate fraud defense platform, sign up for a free demo today.