03/25/2014 12:30 EDT | Updated 05/25/2014 05:59 EDT

Will Your Credit Card Company Protect Against Fraud? Check Again

Canadians love to shop online. In fact retail e-commerce continues to grow exponentially, now representing a $19-billion market in Canada. This is particularly true of younger Canadians, for whom participation in the digital economy has become the norm.

Because of the growing importance of the burgeoning digital economy, instilling consumer confidence in the online marketplace to assure Canadians about the efficacy of the online world and encourage widespread adoption of e-commerce activities in Canada is more important than ever. One area where action needs to be taken to protect consumers engaging in the digital economy surrounds the use of credit cards. Unless Canadian consumers are assured that they will not be held liable for fraudulent activity on their credit cards, the digital economy will be stifled.

While some online merchants accept payment via Canada's Interac network, credit card payments continue to represent 89.4 per cent of e-commerce purchases. This means that having access to credit cards as a means of payment has taken on heightened importance in the age of the Internet and e-commerce expansion. To illustrate this point, there is the example of the consumer who likes to make travel arrangements or purchase event tickets online, two important areas of e-commerce which typically require the use of a credit card to complete the transaction.

Credit cards have become necessary for consumers to fully engage in the digital economy but many Canadians remain concerned about the security of e-commerce transactions, particularly fraudulent activity using their credit card credentials. To combat this perception, credit card companies have publicized their commitment to zero-liability policies which are meant to protect consumers when their credit card credentials are used fraudulently to make a purchase.

Under these zero-liability policies, if a consumer's credit card is lost or stolen, or if someone uses an individual's credit card number to make unauthorized transactions, that individual should be reimbursed. At the House of Commons Finance Committee in February, representatives from both Visa and MasterCard assured Parliamentarians that the policy extends to online transactions.

That's why it is very alarming that many consumers are finding that financial institutions are now refusing to honour their own, self-promoted zero liability policies in situations where the card has been compromised.

The problem here seems to be that the credit card issuers' Electronic Access Agreements are in conflict with the notion of zero and maximum liability policies, particularly as they pertain to online transactions. These Electronic Access Agreements stipulate that zero liability provisions only apply after a card has been reported lost or stolen. Yet, for fraud or card theft stemming directly from online transactions consumers have no realistic way of knowing, let alone reporting that their financial information has been compromised until fraudulent activity has already occurred.

While financial institutions continue to tout consumer protection measures like zero liability, these Electronic Access Agreements seem to be a concerted attempt to circumvent these commitments by placing the entire burden for fraudulent activities back onto consumers themselves. This is not only unfair, it violates the spirit of zero liability which financial institutions have been promising consumers.

This speaks to the fact that Canada's credit card market continues to be ruled by voluntary commitments and non-binding enforcement mechanisms which have left us with a regulatory system that observers have described as being akin to the Wild West.

Canadian consumers deserve better. Immediate action is needed to reinforce zero liability provisions and reassure Canadians that when their credit card credentials are breached they will be protected. A failure to do so will jeopardize the growth of Canada's digital economy by eroding consumer confidence in a system that they have been continually reassured will protect them from footing the bill for fraudulent activity using their credit card credentials.


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