What is a financial institution's liability for unauthorized credit card use?
In New York, a financial institution’s liability for unauthorized credit card use varies depending on the situation. Generally, a financial institution may be held responsible for the unauthorized use of credit cards if it fails to comply with applicable rules and regulations. The New York State Banking Law outlines specific security practices that must be followed to ensure the safety of credit card transactions. These include: (1) employing reasonable security measures to detect unauthorized transactions; (2) monitoring and responding to suspected fraudulent activity; and (3) notifying the cardholder within four days of learning about unauthorized activity. If the financial institution fails to follow these procedures, it can be held liable for any losses resulting from unauthorized use of credit cards. For example, if a credit card is stolen and used without the cardholder’s knowledge, the institution must reimburse the cardholder for any charges that were made without their authorization. Additionally, the Fair Credit Billing Act (FCBA) provides cardholders with added protection against unauthorized uses. Under the FCBA, cardholders are not responsible for any charges made without their knowledge. However, they must report the unauthorized charges within 60 days of receiving their statement. If the cardholder fails to report the unauthorized charges in a timely manner, the financial institution may not be held liable. Therefore, in New York, a financial institution’s liability for unauthorized credit card use depends on the specific situation and the institution’s adherence to applicable laws. If the cardholder’s security practices are not followed, the institution is liable for any losses incurred due to unauthorized credit card use. However, if the cardholder fails to report unauthorized charges in a timely manner, the institution may not be held responsible.
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