If one of your customers gets their bank card, checkbook, or account details stolen, a thief may make purchases or draw money out of the account. Legally, you have to absorb some of these costs, but it depends on the type of transaction and when your customer reports the issue.
However, in some cases, you may want to give your customers more time or more coverage than the law dictates. As you draft your fraud policy, keep the following elements in mind.
Legal Considerations
When it comes to electronic fraud on your customers’ accounts, regulation E spells out your obligations. Namely, if your customers notify you within two days, you can only hold them liable for $50 in losses, and you have to cover the rest. Conversely, if they notify you within 60 days, you can hold them liable for $500. After that 60-day window, you can legally hold your customers liable for any fraudulent transactions related to their account.
To explain, imagine that a customer had their account details stolen. The thief makes a fake credit card and wracks up $900 in purchases, but your customer doesn’t contact you until a week later. This is after the 2-day time limit but within the 60-day window. That means that legally you can hold your client liable for $500, but you need to cover the remaining $400.
With check fraud, the rules are a bit different. Usually, your clients have up to a year to notify you about a single fraudulent check, but if multiple bad checks have been written on the account, they have to report it within 30 days.
Customer-Focused Policies
At first glance, it’s better for your bottom line if you don’t have to pay for losses-related fraud, and by extension, it’s “better” if your customers don’t report the fraud right away so that you’re not legally obligated to cover it. However, if your customers are forced to pay for fraudulent transactions on their accounts, they may lose faith in your institution and take their business elsewhere.
To minimize that risk, you may want to give your customers extra time to report fraud. In particular, you may want to consider offering your customers truly worry-free banking, where they can report fraud at any time. That said, you also have to balance initiatives that impress your customers with policies that protect your bank.
It can be difficult to establish whether or not a transaction was fraudulent if it happened months or years ago, and if customers know that you’re willing to cover all fraud, some may make fraudulent claims. To avoid that, you may want to cap the reporting period even if you do decide to give your customers a bit more leeway than legally required.
Easy Fraud Reporting
Your customers may be more likely to report fraud if the process is easy. To make that possible, consider having a special phone number dedicated to reporting fraud, or install a widget on your website or app that allows customers to dispute fraudulent transactions with a few clicks or taps. If the process is as easy as possible, you won’t have to worry so much about setting deadlines.
Ideally, you shouldn’t have to rely on your customers to notice fraud. Instead, you should have programs and tools in place to detect fraud before it gets out of hand. Let us help. At SQN Banking Systems, we have the solutions you need to protect your financial institution and your customers. Contact us today to learn more.