By MIKE GOLDSTEIN
Have you received a new credit card in the mail recently? As of October 1, many retailers have begun supporting chip-and-signature credit cards (also called EMV chip cards, the ones with a little gold chip embedded on the front) in addition to the traditional sign-and-swipe credit cards (the ones with the magnetic stripe on the back). While some experts believe this change will cut down on fraud, others believe the measure doesn't go far enough.
A tale of two types of cards
Until 2015, U.S. consumers typically used swipe-and-sign credit cards with magnetic stripes on the back, which can be particularly vulnerable to fraud. This is because data thieves can more easily extract data from cards with a magnetic stripe than cards with chip technology. Chip cards are common in many other countries, including Canada, Great Britain and Australia, and according to the Nilson Report, nearly 50 percent of all the world's credit card fraud happens in the U.S. However, most of these countries use chip-and-pin technology, which is a chip card that in order to use, you must input a 4-digit pin.
Why chip cards?
Chip credit cards are already widely used in Europe and Canada, and many experts believe they're more secure than traditional cards with magnetic stripes.
Here's why: Chip cards create a unique code for each transaction, while magnetic stripes use the same information for every transaction. As a result, even if thieves were able to steal chip card transaction codes in, say, a retailer data breach, it would be much less likely that thieves can make counterfeit cards with the stolen data. Counterfeit cards, which comprised about 37 percent of all U.S. credit card fraud last year, are a bigger issue than stolen cards in the U.S.
So are cards embedded with chip technology truly less prone to theft and fraud? Let's take a look at Canada, whose transition to chip-and-pin cards began in 2003. As these new cards were rolled out, credit card data theft costs dropped from C$142 million in 2009 to C$38.5 in 2012.
Who's making the change?
In 2012, credit card networks Visa, MasterCard, Discover and American Express announced their plans to migrate to chip credit cards. The networks believe this new technology will increase security for in-person transactions.
Since then, credit card issuers (like Bank of America and Citi, as well as smaller banks and credit unions) have been gradually replacing their existing swipe-and-sign credit cards with new credit cards that use the chip technology.
Retailers have the final step of getting chip cards fully integrated. Chip credit cards aren't swiped like normal credit cards; instead, they're dipped into the front of a payment terminal, a difference that requires completely new (and costly) equipment.
Mastercard and Visa set the Oct. 1st deadline for the transition and American Express will shift liability on Oct. 16. The cost of transitioning left some small businesses reluctant to convert but after October 1st, retailers who haven't upgraded their technology may assume liability for certain fraudulent credit card transactions. These fraudulent credit card charges have traditionally been covered by the issuers.
What chip credit cards mean for you
The switch to chip cards is meant to be a good thing for consumers. Protections for credit cards are already solid, as consumers are typically limited to just $50 in liability if they report credit card fraud within 60 days under the Fair Credit Billing Act.
However, identity theft can take an emotional as well as financial toll on consumers. A 2013 survey from the Identity Theft Resource Center (ITRC) found that 70 percent of respondents felt fear regarding their personal financial security after their identity was stolen.
If a thief uses your new chip card at a retailer and the retailer accepts the charge using the old swipe and signature system, the retailer could be liable for the fraud. However, if you still have a swipe and signature card and it's used by a thief, the issuer could be liable, as it hasn't issued a chip card by the October 1st deadline.
What you can do
If you haven't already received your new chip card in the mail, you can reach out to your credit card issuer to find out when they're planning on replacing your current credit card with a chip card. Many issuers have already started the process, while others are waiting for current cards to expire before they send replacements. While this transition is ongoing, many new payment stations will still accept swipe and signature credit cards.
You should also keep in mind that, even with all the positives of chip cards, they still aren't a fraud miracle cure. Many experts are quick to point out that chip cards won't have any effect on online transactions, which are an increasingly large source of credit card fraud. Even with the new cards, you'll want to remain vigilant about where you enter your information online.
Also, while chip-and-signature cards are typically more secure than their magnetic strip counterparts, they're still not as secure as chip-and-pin cards, as it's more difficult to steal or duplicate a PIN than a signature.
Consumers should also check their credit card transactions regularly to make sure there are no surprises in their recent activity. If you have autopay set up for your credit cards, you should still study your bill carefully to look out for fraudulent charges. Credit card transactions are typically protected from fraud, but if you wait more than 60 days to notify your creditor, you could be out of luck.
The enhanced security offered by chip cards is great news for customers, but it won't solve the problem of identity theft completely. Chip card or no, check your credit report regularly and stay on top of your finances to make sure you're protected.
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