Protecting Your Business from Credit Card Fraud

by Leonard A. Bellavia, Esq. Senior Partner, Bellavia Blatt & Crossett, PC

Consumers are becoming more comfortable with disclosing their credit card information to counterparties either over the phone or on-line.  Part of this reason is the explosion of websites such as Amazon and eBay.  The convenience of these websites hinges on the ability to make instant payment for the goods.  The other reason consumers have become more comfortable using their credit cards in this manner is the protection that card issuers have given consumers against fraudulent purchases.  In our industry, it is common for a consumer to purchase parts or other merchandise, for example, over the telephone or on websites like eBay.  More and more, consumers are also using credit cards to secure availability of a particular product or finance approval without physically visiting the business.

However, as you are aware from years of experience dealing with the credit card companies, the relationship the credit card company looks to protect is that with the consumer, and not necessarily your business.  Businesses see accepting credit cards to pay for purchases by consumers as a necessary evil in a modern world focused on convenience and fluid transactions.  As you evaluate ways to make transactions more convenient for the consumer, remember to analyze your processes for handling credit card payments.  Failing to take simple steps can leave your business facing costly chargebacks.

You create potential liability for your business when you accept payment by credit card when the credit card is not present.  An example of this type of transaction, called a “Card not Present” or “MOTO” transaction is a consumer that authorizes the business to charge his or her credit card over the phone to submit a down payment or deposit on an item. Another example is a consumer that orders a part from your parts department and pays for it over the phone, using a credit card.  In both instances, employees often fail to have the consumer sign the slip if or when the consumer eventually visits the business.  Perhaps unbeknownst to you when you consummated your merchant agreement, your business agreed to warrant the legitimacy of the cardholder and the transaction to the bank that issued the card.  If the consumer later claims that the Card Not Present/MOTO transaction was unauthorized, the bank can charge back the transaction.  Because you do not have the consumer’s signature on the payment slip, you will likely lose in these kinds of disputes.

The credit card industry is experimenting with services that will address some of this liability as it relates to internet sales.  In the meantime, here are some processes you can implement to help protect your business when conducting potential Card Not Present/MOTO transactions:

• Ask the consumer for the Card Verification Value 2 (“CVV”) printed on the card.  Usually, this three-digit sequence is printed either on the front or back of the card, near the card number or signature.  If a criminal stole the credit card number, but does not have physical possession of the card itself, this will thwart many fraudulent transactions.  Ask your website provider to help create a form on your webpage, if you accept credit card payments there, that captures the CVV and stores it securely. If you store the CVV somewhere, make sure your processes comply with the law, such as the Red Flags Rules

• Have the consumer provide his or her billing address, and do not ship goods to any address but the billing address.  For a fee, Visa or Mastercard provide a service where you can verify the billing address.  Consider obtaining this service as an extra safeguard

• Have the consumer sign for the product at the time and place of delivery, whether that place is your business or the shipping address.  If the consumer claims that he or she never received the goods, this should firmly rebut that statement

• For sales, cancel the previous charge taken over the phone and run the transaction again in the presence of the consumer.  Have the consumer sign the credit card slip and retain this in your records.  When doing so, make sure to have the permission of the bank financing the consumer’s transaction, allowing you to accept a credit card transaction for a down payment.  Many banks agreements expressly prohibit this practice and those that allow it often require prior notice

Please call us at 631-224-7000 to find out how we can help you make sure that your business is protected from credit card fraud.