An Examination of the Fraud Liability Shift in Consumer Card-Based Payment Systems

At the intersection of consumers conducting legitimate card transactions and fraudsters pursuing their illegal ends is a tangled web of public laws and private card network rules. These laws and rules allocate fraud risk among the consumers, card issuers, and merchants participating in card-based payment systems. In theory, one would hope that these laws and rules for payment card transactions are thoughtfully designed to encourage behavior that minimizes fraud losses to the system as a whole. In reality, system wide fraud reduction is often not the principal objective behind particular public laws or private rules affecting fraud liability allocation. Consequently, these laws and rules may fail to promote efficient fraud avoidance; indeed, in some instances, they may actually discourage fraud avoidance