You often have an option as to what payment mechanism to use when making a purchase from an online seller. Your legal rights may vary depending on which method you choose.
Why is paying by credit card safer than paying by check, cash, debit card, money order, cashier's check, certified check, or cash on delivery (C.O.D.)?
If you have an unauthorized charge on your credit card, under federal law your liability is limited to $50. Even better, some web site operators and credit card issuers (including all Visa and MasterCard issuers) promise that under certain circumstances you will not be liable even for this amount.
What is my potential liability from using other payment methods?
Your liability for unauthorized use of your ATM or debit card can be much greater than that for a credit card, depending on how quickly you report the loss. If you report a debit card missing before it is used, you are not responsible for any unauthorized withdrawals. Your liability is limited to $50 if you report the loss within two business days after you realize your debit card is missing, and to $500 if you report the loss after two but before sixty days. If you have not reported an unauthorized use of a debit or ATM card by sixty days after your bank mails the statement documenting the unauthorized use, you could lose all the money in your bank account as well as the unused portion of your line of credit established for overdrafts.
Visa USA and MasterCard International have instituted "zero liability" policies applicable to consumer debit card transactions on their networks in connection with unauthorized transactions occurring over the Visa or MasterCard networks. But there are certain limitations and conditions on this protection, so in some circumstances using a credit card may still be safer.
If you send money using some other method, such as by a wire transfer or check, there's usually no way you can get the money back if something goes wrong with the transaction.
How can paying by credit card help in a dispute?
Federal law provides certain rights for consumers who dispute charges on their credit card. There are two legal rules that apply: the first is the "billing error" rule, and the second is the "claims and defenses" rule.
The "billing error" rule applies if you have authorized the merchant to charge your account (either a credit card account or the merchant's revolving charge account) and
- there is a mistake in the bill that you receive;
- the goods or services were not delivered or were late; or
- the goods did not comply with the contract and you did not accept them. (This rule does not apply if you are disputing the quality of goods or services that you have accepted. You may, however, have rights under another rule.)
If you believe that one of those things happened, you should give written notice of the dispute within 60 days after the creditor sent the bill or statement. You must use the address identified on the creditor's bill for "billing inquiries." The creditor must acknowledge your inquiry within 30 days and has up to 90 days to investigate and either correct the bill or explain why the creditor believes it is correct. In the meantime, the creditor may not attempt to collect the claimed debt.
Under the "claims and defenses" rule, you may dispute the seller's charges if the goods do not comply with the contract or the seller does not honor its return policy. There are several limitations to keep in mind:
- You may only dispute charges you have not yet paid;
- You must have made a good faith attempt to resolve the dispute with the seller;
- The sale must be for more than $50 and it must have taken place either in your state or within 100 miles of your home address. (In some states, telephone and web transactions may be considered as taking place where you are located.) These dollar and distance limitations do not apply if the seller issued the credit card, was in a special business relationship with the issuer, or made an offer in your credit card issuer's mail to you.
For additional information about consumer rights and responsibilities with credit card use, see the ABA website on Safe Borrowing.
What are other advantages to paying by credit card?
Earn more interest on your bank account. You may save money by using a credit card if you pay it off in full when the bill arrives. If you do this instead of paying the seller immediately, you will have the money in your bank account, earning interest, until your credit card bill for those payments comes due. Remember that if you pay only the required minimum amount and leave the balance unpaid, you will have to pay interest (which will be called a "finance charge" on your bill). And if you keep paying only the minimum amount each month, you will be paying a lot of interest over many years.
Extended warranties. Some credit card issuers grant you extended warranties on purchases made with the card.
Extended return policies. Many retailers limit returns to 30 days, but some credit cards extend the return period to 90 days. MasterCard will refund up to $250 for a purchase you become dissatisfied with within 60 days if the store won't accept the return. Visa's Return Protection policy will reimburse consumers for eligible items of up to $250 within 90 days of purchase. The annual limit is $1,000 per account. American Express offers 90 days of return protection for items up to $300. Again, coverage maxes out at $1,000 annually. As a condition of receiving your refund, some creditors may require you to ship the item to them, but they'll pay for shipping. Make sure the item you're returning is in like-new condition.
Contact the credit card issuer to find out the specifics of extended warranties or extended return policies associated with the card.
What are some examples of alternative payment methods?
- Peer-to-peer payment systems
The growth of online auction sites and peer-to-peer selling exchanges has led to the development of payment methods that can be used online and do not require the seller to have a credit card merchant account. PayPal, CashEdge, Fiserv, Visa, and MasterCard have all created peer-to-peer payment methods. PayPal, which is owned by eBay, is the most widely used peer-to-peer payment system.
Many peer-to-peer transactions rely on underlying payment methodologies like credit cards, stored value cards and accounts, debit cards, ACH and wire transfers. For example, a PayPal account can be linked to, among other things, a credit card, debit card, bank account or a direct PayPal balance account. The risk profile of online peer-to-peer transactions will be tied to the risk profile of the underlying payment methodology. For example, if you use PayPal linked to your credit card you will get the protections afforded credit card transactions, while if you use PayPal linked to a debit card you will get the protections applying to debit card transactions. If you use your PayPal balance you will get whatever protections PayPal offers for those accounts. This means that your peer-to-peer transaction will have greater protections if it is based on a payment methodology that affords greater protection. This could prove helpful in any type of dispute or security issue.
- Stored-value prepaid cards
Stored-value cards are credit-card sized cards, usually made of plastic, that are encoded to represent a certain amount of money. When the card is used to make a purchase, the amount to be paid is subtracted from the balance held on the card. There are several types of stored-value cards. Some are issued by a particular retailer and are usable only for purchases from that retailer, such as a Starbucks gift card. Other cards physically resemble credit cards in that they carry the logo of a branded card network like MasterCard or Visa. These cards may be used wherever the card network branded card is accepted, or in some cases only with a more limited group of merchants such as those within a particular shopping mall. Prepaid cards are like stored-value cards except that the value associated with a card is kept track of by the card's issuer, rather than physically on the card itself via a magnetic strip or electronic chip.
When using these cards there are several important points to keep in mind.
- Although they resemble credit cards, some of these cards behave more like cash. If you lose a stored-value card, you can't get the money back-it's like losing cash. On the other hand, if you lose a prepaid card the card's issuer may be able to freeze the value and prevent it from being used by anyone else.
- Some cards have an expiration date, or charge a monthly "dormancy" fee if you don't use it for a specified period of time. If you are considering buying a stored-value card, check the fine print to see if there is an expiration date or dormancy charges.
- Some issuers charge a fee for the card itself, or when you add value to the card, so the value stored on the card is less than what you paid for it. Again, read the rules associated with the card before you buy it.
- Payments apps on your smartphone
Payment system providers have been rolling out apps that allow you to make payments from your smartphone. Your bank may offer an app with multiple functions, including making payments using your phone, checking on your account balances, and depositing checks by snapping a photo of them with your phone. PayPal, Google Wallet, and Square Cash allow you to send or receive cash by email. Google Wallet also lets you make payments at a retail store by waving your phone near the payment terminal.
While these apps can make payments very convenient, some of them have raised issues relating to security and privacy. You should take a look at the most recent reviews of these systems to see what risks may accompany them.
- Accepting credit card payments on your smartphone
Several app-plus-hardware combinations allow you to accept credit card payments for goods or services that you offer. These applications are powerful tools that facilitate fast and efficient payments, using the smartphone and small card reader add-ons as a payment processing device. A few of the more prominent mobile payment apps include GoPayment by Intuit, Square Register by Square, Inc., and PayPal Here.
As with mobile payment apps, you should be aware of potential security and privacy risks.
What is identity theft?
Identity theft occurs when someone uses your personal information, such as your name, Social Security number, or credit card number, to commit fraud. The most common way that thieves obtain such information is by theft of your purse or wallet. Identity thieves also try to trick you into giving them information by using highly sophisticated emails which appear to come from banks, insurance companies, Internet service providers, auction sites, and other kinds of websites. These emails, which closely resemble real emails from the company or its actual website, ask for your personal information in order to "verify" accounts or "clear up" errors that have occurred.
Identity thieves may use your information to open a new credit card account or to get a loan in your name. When they don't pay the bills, the delinquent account is reported on your credit report. The law gives you specific rights when you believe you are the victim of identity theft, including the right to have nationwide credit reporting agencies place a fraud alert notice in your file, the right to receive two free file disclosures per year, and the right to obtain documents relating to the fraudulent transactions. You can also block credit reporting and collection activity for fraudulent transactions that result from identity theft.
What should I do if I am a victim of identity theft?
If you believe someone has fraudulently used your personal information to obtain credit in your name, you should (a) file a police report about the events, (b) contact the creditor to request more information and copies of documents about the fraudulent transaction, enclosing a copy of the police report, and (c) contact one of the three national credit reporting companies to place a fraud alert. Placing a fraud alert will help to prevent the thief from opening additional credit accounts in your name.
For further information on identity theft problems and victim assistance, see http://www.ftc.gov/bcp/edu/microsites/idtheft/. This Federal Trade Commission website contains important information about identify theft and provides guidance on what to do if you suspect you have been an identity theft victim. You will also find helpful information on the website of the attorney general in your state.
How can I avoid identity theft?
- Never provide personal or financial information in response to unsolicited email or pop-up requests no matter how legitimate they look. Legitimate businesses do not ask for social security numbers or bank account numbers via the Internet. Do not respond to such emails and do not click on any links they contain.
- Type web addresses into your web browser instead of clicking on links in emails.
- Change your passwords every 60 to 90 days.
- Get anti-virus and anti-spam filtering software and keep it up to date by using its automatic update feature.
- Keep track of your credit accounts. Consider getting credit reports at least on an annual basis to make sure someone is not using your identity. You can do this for free at www.annualcreditreport.com.
How can I protect against unauthorized use of my credit card account number?
Carefully and promptly check your credit card statements when they arrive. If you spot any irregularities, you should immediately bring these to the attention of the issuer of the credit card by telephone and in writing.
How can I increase the security of online credit card transactions?
Some credit card issuers offer "virtual" credit cards for online transactions. To use this system you go to the issuer's website and follow the instructions for obtaining the number you may use in your next transaction. Even though the virtual number you give to the merchant is not the same as the one on your credit card, the charge will be authorized, and it will appear on your regular credit card bill. So, if there is a breach of security by one merchant, the person who obtains the number will not be able to use it to charge things to your account.
For the Lawyers
The Truth in Lending Act, 15 U.S.C. § 1643, http://www.law.cornell.edu/uscode/text/15/1643, and Regulation Z, 12 C.F.R. 226.12(b), http://www.law.cornell.edu/cfr/text/12/226.12, govern the liability of a credit card holder. The Electronic Funds Transfer Act, 15 U.S.C. § 1693g, http://www.law.cornell.edu/uscode/text/15/1693g, and Regulation E, 12 C.F.R. 205.6, http://www.law.cornell.edu/cfr/text/12/205.6, govern the liability of a debit card holder or user of an electronic check or ACH.