Case Notes
Search results
Credit card fraud – merchant enquired about validity of fraud – authorisation given – no guarantee of payment
Mr Y owned a clothing company. In April 2006 he received an order from a foreign purchaser wanting to buy a large quantity of T-shirts, using two credit cards. As the purchaser was not physically present at the point of sale, Mr Y telephoned his bank to inquire whether the credit card numbers were valid.
If vendors have suspicions about a cardholder, they may give bank call centres a specific code word. The bank then asks the vendor a series of questions to which only “yes” or “no” answers may be given. After speaking to Mr Y, who had given the code word, the bank gave him an authorisation number for the transaction, and confirmed that sufficient funds were available on the credit card. On the basis of this information Mr Y proceeded to complete the sale.
The transaction turned out to be fraudulent, as the holders of the credit card accounts denied making the purchases. The bank then advised Mr Y that it would be charging the losses back to his account. He complained to the bank, contending that it should have cautioned him about the risks involved in accepting overseas credit card transactions. He requested the bank to return the funds to him, as he had proceeded with the sale only after the bank had confirmed his authorisation request.
The bank said that the authorisation did not guarantee that the credit card had not been fraudulently used. Furthermore, a code authorisation merely checks whether the card has been reported lost or stolen at the time of the vendor’s query, and whether sufficient credit is available for the transaction. The bank said that, under its contract with Mr Y, a signed authority from the purchaser did not guarantee payment, and that a valid payment depended on the card issuing bank’s approval of the transaction.
As a goodwill gesture the bank offered to refund 50% of the transaction. Mr Y declined the offer, as he believed that the bank had given him misleading information about the code authorisation, or had at the very least neglected to inform him of the risks involved. He drew his complaint to the attention of my office.
The bank declined to change its position. It accepted that its staff member possibly did not understand why Mr Y had requested a code authorisation. Mr Y had not told the bank that the cardholder was not present, and the bank argued that, had it known that this was the case, it would have asked Mr Y for more detailed information. Moreover, the bank said that, had Mr Y described the background to his concerns, it would have advised him not to accept a credit card payment for the transaction.
The bank’s contract with Mr Y and the other facts obtained during the investigation appeared to support the bank’s position in this case. Mr Y decided to accept the bank’s offer of 50% of the chargeback transaction. The file was closed.