UK's FSB Calls For Shift In Liability Over Internet Fraud

by Robin Pilgrim, LawAndTax-News.com, London

14 July 2003

The UK's Federation of Small Businesses (FSB) has warned that credit card fraud via the internet is increasing at such a rate that it is threatening the development of e-commerce.

In a letter sent to E-Commerce Minister, Stephen Timms last week, the FSB explained that the issue is of particular concern to small businesses, because in the case of cardholder-not-present transactions, the retailer is liable if the card later turns out to have been stolen, even if the transaction has been correctly authorised by the retailer with the issuing bank or credit card firm.

'Businesses are confused over what authorisation means,' FSB Policy Chairman, John Walker explained, continuing: 'When a transaction takes place over the Internet, credit card authorisation is not a payment guarantee, it only indicates that the card has not been reported lost or stolen and there are sufficient funds available in the cardholder account.'

According to the FSB, the law should be changed in order to shift liability so that the issuing bank is liable in the event of cardholder-not-present fraud in the same way as the card issuer is liable in the event of cardholder-present fraud.

The FSB also believes that when businesses open a merchant account, they should be informed that they are liable in the event of cardholder-not-present fraud, and should be made aware of the correct procedure for reporting such breaches.

According to recent estimates, internet fraud now costs the British economy some £28 million per year, compared with just £3.8 million in 2000.

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