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How Do Banks Investigate Unauthorized Transactions?

How Do Banks Investigate Unauthorized Transactions?

It’s never good news when a customer finds out there has been an unauthorized transaction on their credit card. After the initial shock, the first thing most customers do is call their bank to report the fraud.

But, what happens next?

Investigating fraud is a complex process. Here’s what e-commerce merchants need to know about the process – and what their role is.


1. The Bank Is Notified of the Fraud

Of course, to investigate unauthorized transactions, the fraud has to be detected in the first place, which is a surprisingly large hurdle.

Savvy fraudsters often start by using stolen card information only for small transactions that are more likely to fly under the radar. Smaller transactions let criminals test if the card information is valid. Some fraudsters will hack a card number for years, buying small recurring subscriptions or gift cards that can then be re-sold – all while going completely undetected if the consumer isn’t in the habit of regularly examining their credit card statements.

Hopefully this isn’t the case, and the consumer is able to immediately spot the fraud as soon as it happens. Once the consumer notifies their bank, the investigation by the bank can begin.

2. The Consumer Verifies the Fraud

Once the bank is made aware of the disputed or unauthorized charge, a credit card fraud investigation will be opened.

However, it’s not as simple as a consumer saying, “I didn’t authorize this purchase.” Consumers will typically be asked to provide details of the unauthorized charge, along with any supporting documentation, to prove that the purchase was indeed fraudulent. If the fraud has been going on for months or years, this could require a considerable amount of legwork by the consumer.

Fortunately, the consumer will not be on the hook for much: The federal Fair Credit Billing Act states that a card issuer can only hold a cardholder liable for up to $50 in fraudulent charges if the physical card is stolen. If the card number is used but the cardholder is still in possession of the actual card, the liability is $0.

It’s important to note that the rules are different for debit cards. The Electronic Fund Transfer Act states that if fraud reported within two days of the statement date, liability is limited to $50. If reported after two days but within 60, liability is limited to $500. If reported after 60 days? The consumer is completely on the hook for any and all fraudulent purchases.

3. The Bank Investigates the Fraud

Once the bank is alerted to the fraudulent charges and all required documentation is received, they must respond to the dispute within 30 days. The bank will have a maximum of 90 days to investigate and resolve the error.

Depending upon the nature and scope of the fraud, the bank may decide to notify law enforcement. If the credit card fraud is accompanied by identity theft, the FBI may be brought in to investigate or aid in the investigation.

In most cases, however, the matter will be handled by internal credit fraud investigators, who are experienced in combing through electronic transaction trails to determine where fraudulent purchases originated. If, for example, the investigator can determine that the fraudulent purchase was made from an IP address in Australia, but the consumer can demonstrably prove that he was in Boise, Idaho at the time, that is strong evidence that the charge was indeed fraudulent.

The bank will also advise the consumer to contact the three major credit reporting agencies (Equifax, Experian, and TransUnion) and ask for a fraud alert to be placed on file. This will ensure that any attempts to open new credit accounts are declined unless the creditor speaks with the consumer directly and takes extra steps to verify their identity.

How Merchants Can Help Consumers

Protecting consumers from credit card fraud requires all hands on deck, with merchants, banks, credit card companies, credit reporting agencies, law enforcement, and consumers all having an important role to play.

Merchants can support their customers by implementing robust fraud protection solutions. A solution that combines machine-learning technology with manual review is a consumer’s best defense against fraud.

ClearSale has the largest manual review team in the world, with more than 700 fraud analysts on duty 24/7/365 – guaranteeing timely decisions and the flexibility to handle even your toughest sales peaks.

And because our teams and review processes are customized to fit your business and your industry, you get higher approval rates and safer revenue. Contact us today to find out why companies around the world trust the ClearSale solution.

By ensuring that manual reviewers contact customers about AI-flagged transactions, consumers can get an alert about fraudulent credit card use long before their statement arrives in their inbox. This allows them to trigger the investigation process sooner, helping keep fraudsters from succeeding.

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