Customer's Negligence Voids Zero Liability?

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Question:

On Visa's website under Zero Liability it states that financial institutions may impose greater liability on the cardholder if the financial institution reasonably determines that the unauthorized transaction was caused by the gross negligence or fraudulent action of the cardholder -- which may include the customer's delay for an unreasonable time in reporting unauthorized transactions. We have a cardholder with unauthorized transactions. I can see that she did a balance inquiry with her card at our ATM five days before she notified us that there was a problem with her account. At the time of the inquiry she was overdrawn and over $800 in unauthorized transactions had occurred. She is negligent in not reporting the issue sooner. By following Visa regulations is she liable for any transactions that occurred after she noticed the balance was not correct at the ATM?

Answer:

You have to start with Section 205.6 of Reg E to determine whether there is any liability on the part of the cardholder for unauthorized transfers. You only look at the Visa rule after you've figured out whether there's any Reg E liability.

Based on your question, it appears the card was neither lost nor stolen (if the transactions took place before the card was used by the cardholder to get the balance at the ATM). Even if the card was stolen and then returned, the cardholder was apparently not aware that it was missing. The cardholder cannot be liable for unauthorized transfers occurring before she noticed the card might have been compromised.

But what about transactions occurring after she saw the overdraft balance? Again, there is the little matter of knowing whether her card had been lost or stolen. If the transactions were made using a counterfeit card, she won't be liable, since no accepted access device was involved.

If all the transactions are, in fact, unauthorized, I don't see any basis for you to lay any liability back on your customer, unless there is more information that you haven't shared with us, such as any knowledge on the part of your customer that the card was lost or stolen.

You didn't say whether the unauthorized transfers were ATM or signature-POS transactions. If they were ATM withdrawals, Visa's Zero Liability provision won't apply in any event.

First published on BankersOnline.com 3/6/06