The Risks of Non-Compliant EMV Chip Credit Card Systems

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Is your business or franchise system compliant with credit card company standards for EMV chip technology? If not, you have a host of legal and financial liability issues.

Most credit card issuers still allow U.S. businesses to accept point-of-sale (POS) “swipe” transactions using a card’s magnetic strip. However, if someone makes a purchase from you with a stolen or counterfeit card, you are responsible for any chargebacks that occur.

To avoid this liability, you must bring your credit card systems and processes current with EMV chip reader technology.

Why your business POS systems and processes must comply with current EMV chip credit card requirements

Understanding the Liability Shift that Came with EMV Chip Technology

Prior to this so-called liability shift, card issuers (banks, etc.) took responsibility for covering credit card fraud losses. This left merchants relatively unscathed, provided that the merchant followed the rules and complied with the terms and conditions set forth by the credit card companies.

When EMV technology became widely available in the U.S., card issuers shifted the liability for fraud to any merchants who did not comply with the new technology.

So unless your business is fully compliant with EMV chip card technology, you are responsible for any and all fraud losses that can be traced to your business.

What Risks Do You Face for Non-Compliance with EMV Chip Standards?

If you’re a franchisor, you may even be responsible for fraud that occurs at a franchise location.

You can verify your potential liability by reviewing the policies of the various card issuers, such as Visa, American Express, Discover, etc. For example, read through Mastercard’s chargeback guide to learn more about your rights and obligations.

One exception is for automated fuel dispensing pumps, but that ends in October 2020.

You may also have an exception for fallback transactions (those that are processed during such times that your chip reader equipment is malfunctioning). However, you must follow the established process for those transactions to be exempt.

Protecting Yourself & Your Business from Credit Card Fraud

EMV technology includes both chip-and-PIN and chip-and-signature systems. Chip-and-PIN is considered to be safer than the signature-based alternative, although card issuers do not yet allow merchants to require a PIN; instead merchants must use an alternative method of terminal certification.

Updating your POS system is the first step. However, you must understand exactly how to fully comply with requirements. You must also formalize your customer service and returns policy, if applicable. You also face the risk of chargeback fraud, as criminals often take advantage of generous card issuer chargeback policies to cheat the system.

Although you may incur some costs for upgrading your equipment, it usually is not substantial. Any cost you do incur is likely to be offset by a reduction in fraudulent transactions. Compliance also helps reduce the likelihood of a hacker accessing your data, further protecting you and your company from legal liability.

Franchise & Business Law Group provides a full range of business law services throughout the Salt Lake City area. Contact us today to schedule a consultation with one of our Utah business law attorneys.