What Is Zero Liability Policy?

Zero liability policy is a condition in a credit card agreement stating that the card holder is not responsible for unauthorized charges. The zero liability policy that all major credit card issuers provide to all card holders means that any fraudulent charges that are reported or that the credit card issuer detects will be removed from the account and the account holder will not have to pay for them.

Zero Liability Policy Explained

As a credit card holder, a number of scenarios could cause fraudulent charges to show up on an account. Hackers could access the database of a company that has retained consumers' credit card information, which could be used directly or sold on the black market to others, resulting in purchases that were not authorized. Through a process called skimming, a criminal could tamper with a credit card swiping device at a store so that when a card is used to make an authorized purchase. However, that account information is transmitted to the fraudster and used to make unauthorized transactions. The consumer might also accidentally reveal their credit card details in a phishing scam, where the fraudster portrays themselves as a representative of an institution the consumer would otherwise trust, unknowingly granting access to make purchases on the card.

How Zero Liability Policies are Implemented

In these situations and others where a credit card is lost or stolen, the customer will have zero liability for any charges made that they did not initiate and approve as long as they meet certain obligations. These include notifying the credit card issuer as soon as any fraudulent transactions are noticed and reasonable care is exercised in protecting credit cards from loss or theft. The zero liability policy applies regardless of how the fraudulent transaction was conducted; the customer will not be responsible for unauthorized transactions made in person, by phone, online, or through a mobile application.

Credit card issuers offer zero liability policies because without them, consumers may believe it is too risky to have a credit card. Consumers do not want to expose themselves to the potentially high costs that could amass if a fraudster gains access to and abuses their account. Zero liability policies have some exceptions, though. They may not apply to all commercial credit card transactions, for example, or to all foreign transactions. The stipulations of these policies are detailed by the credit card issuer, who should be contacted for further information on how the company processes these cases.