Mark Pestronk
Q: Our agency occasionally makes some in-person sales using our own credit card merchant account at our agency or at a home-based agent's home. For example, we sometimes sell marked-up consolidator tickets to local college students and faculty, and we sometimes charge a planning fee to walk-in traffic. I have always understood that we are protected from chargebacks for in-person sales if we (1) verify the identity of the cardholder, (2) get an approval code, (3) make sure the card has not expired, (4) obtain a swipe or an imprint and (5) get the cardholder's signature on a charge form. But I heard that the rules are changing on Oct. 1. What's the new rule, and does it help us at all?
A: As of Oct. 1, the foregoing steps will no longer protect you from chargebacks if the cardholder has a card with a chip, and if you continue to use the swipe or imprinted method for in-person sales instead of a chip-capable terminal. If you do not yet have a chip-reader terminal and cannot obtain one by that date, then the new rule will obviously hurt you.
So, the credit card industry, which already makes things so difficult for agencies that issue airline tickets because they cannot deal directly with the card companies when they receive airline debit memos, is tightening the screws still further.
For in-person sales using nonchip cards, the old rules will continue to apply: if someone uses a credit card fraudulently, and the merchant has followed the basic acceptance rules, then the credit card issuer will absorb the liability. After Oct. 1, if you already have a chip-capable terminal, but the client has a non-chip card, then the credit card issuer is still liable. Finally, if both the cardholder and the merchant are chip-capable, the old rules apply.
All these permutations can be elegantly restated as follows: whichever party (merchant or issuing bank) has the lesser technology must absorb the fraud loss. It will not matter whether your merchant account bank is even providing chip-reader terminals by that date.
At this point, you may be wanting a few definitions: First, as you probably know, chip cards are regular credit cards with a computer chip visible in a shiny gold rectangle on the face of the card. Second, a chip-reader terminal is a little machine into which you place the chip card during the checkout process, as opposed to swiping the card.
You can see a chip reader in operation if you shop at Target or many supermarkets. Merchants often let you decide whether to insert or swipe, as it makes no difference to them at present. After Oct. 1, merchants should start requiring you to insert the card in order to protect themselves.
I recommend that you procure chip-reader terminals before the Oct. 1 deadline. Even if your merchant bank does not offer them, you can buy them online for as little as $13.
None of these rules affect non-in-person sales or online sales. In both cases, you are going to continue to be liable for unauthorized charges if you did not take all the steps required, even if taking them is impossible because you cannot possibly obtain an imprint or signature on a charge form.