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Credit Card Changeover and Business Liability

An upcoming change in America’s credit card infrastructure may open companies up to new legal liabilities if they are not careful. The change involves updating the way that information is stored on credit cards to a new, more secure method. That new method requires new equipment to read, which means that companies are going to be forced to shell out extra cash to upgrade their credit card systems. If they do not complete the upgrade by the October 1st deadline, then they could find themselves on the hook for fraud liability that used to be covered by the banks that issued the credit cards.

The New System

The new system being implemented is known as EMV, an acronym for Europay Mastercard Visa, but it is also commonly called chip and pin. This new system uses chips embedded in the cards to keep data more secure. The chip creates a new, single-use code for every credit card transaction, which makes the data more secure than the old “swipe and signature” method. The system has already seen widespread adoption across Europe, with some countries reporting 80 percent reductions in fraud as a result of the new security measures.

Of course, such an improvement does not come without a cost. In this case, banks will need to issue brand new credit cards to their customers and stores will need to install new terminals and point-of-sale systems in order to accept the new cards. That can end up costing small businesses hundreds or even thousands of dollars. However, the switch over to the new system is voluntary, at least technically. Stores are not obliged to switch over, but failing to switch before the October deadline can expose them to new fraud liability.

The Liability Shift

The liability shift is the tool being used to encourage companies to adopt this new technology. The basic principle is that if chip and pin technology is not used in a transaction and fraud results, then it is the weak link in the security chain who ends up bearing the cost of that fraud. For instance, if a bank does not issue a chip and pin card to its customer, and the customer ends up being the victim of fraud, then they can recover their money from the bank. Similarly, if the customer has a chip and pin card, but the store cannot accept it, then the store would be liable. In a country where billions of dollars are stolen every year through credit card fraud, failing to adopt the new standards could lead to expensive lawsuits. Businesses that accept credit cards should also be aware that the credit card companies are offering other incentives to change over to the new system, but that such incentives vary from company to company.

The new EMV system is just one way to protect your company from legal liability. If you are involved in a business dispute and have questions about your legal rights, contact a West Palm Beach business litigation attorney at Pike & Lustig, LLP today to learn more about your rights.

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