The problem with card payments

legal updates

The person entering the PIN should be the authorised cardholder.

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Payment taken over the phone is far less secure than payment taken using chip and pin and in the event of fraud, you are likely to be liable if you have taken payment in this manner. 

A Lawgistics client recently sold a vehicle and took payment for £5000 over the telephone entering the card number given.  The client called the merchant provider who confirmed the transaction was authorised.  This means an authorisation code is given by the card issuer on the basis there are sufficient funds in the cardholder’s account at the time of the request and the card has not been reported lost/stolen.  Authorisation does not confirm the authenticity of the card and/or the presenter.

The vehicle was collected later that day by a third party.  A chargeback was then instigated as the genuine cardholder noticed the fraudulent transaction as his card has been cloned.  Our client was unsuccessful in challenging the chargeback because although the victim of fraud himself, the way in which he had taken payment over the phone offered him no security. 

For mail and telephone order transactions, where the card and cardholder are not present, you are unable to take advantage of inbuilt security within the card, for example, the chip or magnetic strip. You will therefore be liable for the transaction if it is disputed by the authorised cardholder.

The introduction of Chip and PIN gives comfort that the person entering the PIN should be the authorised cardholder and therefore limits your liability should the transaction be disputed.  So, exercise caution when taking card payment over the phone.  

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Polly DaviesLegal AdvisorRead More by this author

Related Legal Updates

For the benefit of Nottinghamshire Trading Standards Service

The Consumer Credit Act 1974 – Section 75 – applies when a consumer buyer uses a credit card, not a debit card.

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Never transfer money to alternative account details when requested by a means of electronic communication, even if it seems as if it is from the other party.

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Chargebacks can typically be made by a cardholder up to 4 months after a sale.

Further caution warned over electronic payments scam

Pay in an undisclosed “mystery” sum (a few pounds and pence) and ask the customer to notify the client what amount did they received, before the bulk is transferred.

Credit card surcharges set to be a thing of the past

In January 2018 it is likely that no surcharges will be passed on for consumer credit cards usage.

Plastic – the car dealer’s inflexible friend

Credit cards and debit cards do not offer a guaranteed form of payment for goods or services.

Be on the ball – it may cost you

Our client had agreed a sale but on taking payment via a card machine, the amount was short by £500.

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