DEFINITION of '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.

BREAKING DOWN 'Zero Liability Policy'

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 direclty 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 acces 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.

RELATED TERMS
  1. Secured Credit Card

    A secured credit card is a type of credit card that is backed ...
  2. Universal Default

    Universal default allows a credit card company to raise a card’s ...
  3. Credit Card Funding

    Credit card funding is the use of a credit card account to provide ...
  4. Carding Forum

    A carding forum is an illegal website dedicated to the sharing ...
  5. Purchase Rate

    The purchase rate is the interest rate applied to purchases made ...
  6. Card Recovery Bulletin

    A card recovery bulletin is published by credit card issuers ...
Related Articles
  1. Personal Finance

    Credit Card or Cash: Which To Use?

    Credit cards are more convenient to use than cash, but they're not always the best choice. Here is why you should and shouldn't pay with a credit card.
  2. Investing

    Investing in Credit Card Companies

    Find out why investing in credit card companies requires keeping an eye on consumer indexes and the overall health of the economy.
  3. IPF - Banking

    Credit versus debit cards: Which is better?

    Credit and debit cards may look identical, it is important to note their differences. Be strategic about which card you choose and learn more about which is better for you.
  4. Personal Finance

    How To Live Without A Credit Card

    Debit cards are more widely accepted and provide better fraud protection than in the past.
  5. Personal Finance

    Why More Millennials Need Credit Cards

    Here's why more Millennials should have credit cards – even though a majority don’t.
  6. Personal Finance

    Credit Card Tutorial

    Credit cards can be a useful tool if you know what you are getting into. Learn the risks, rules, history of credit cards.
  7. Personal Finance

    10 Considerations For Using Your Credit Card Abroad

    Credit cards can be the best item you pack when traveling, just make sure that you are taking the right card that suits your needs.
RELATED FAQS
  1. Am I Responsible for Fraudulent Charges on My Credit Card?

    If your credit card is stolen in the US, federal law limits the liability of card holders to $50, regardless of the amount ... Read Answer >>
Trading Center