Bank takes liability for fraudulent use of Visa cards

Press, 4 November 1978, Page 6

Bank takes liability for fraudulent use of Visa cards

By

KEN COATES

The Bank of New Zealand has accepted liability for goods bought dishonestly with Visa cards posted to account holders but not signed by them.

The bank has taken this tnove in spite of a condition which says that if the card Is not signed, the cardholder shall be liable to pay to the bank all charges arising from unauthorised use of the card — unless the unsigned card is returned within three days.

One Visa card posted to a Christchurch customer was recently stolen and fraudulently used to buy |560 worth of jewellery. Several other cards have been lost, but no more dishonest purchases have been reported. A stipulation as to liability is contained in the fine print of terms and conditions posted to bank customers with the Visa cards. The director of the Consumers’ Institute (Mr R. J. Smithies) said yesterday that because the Visa cards were unsolicited, bank customers to whom they had been sent could not be held liable for goods fraudulently purchased with unsigned cards.

This view was confirmed by a legal opinion that until the Visa card was accepted in an appropriate manner, a customer could not be deemed liable for purchases made by another person

using the unsigned card dishonestly. Mr R. E. Mead, the marketing manager of the Bank of New Zealand, also said that in such circumstances a customer could not be held liable. He said that the clause in the terms was “not as clear as the bank would have liked.” The conditions also provide that the cardholder shall be under no liability to the bank if he returns the card unsigned and unused within three days. This clause, said Mr Mead, was a safety precaution to minimise fraudulent use, though the wording was “not as good as it could have been.” If the card was not returned within three days the Visa offer did not lapse, and the bank would communicate two or three times with a customer if the card was not returned.

The Christchurch police have still not found the two young men who purchased jewellery using a stolen Visa card, nor do they know whether the card was stolen in the mail or after it was delivered. Some customers have rejected the Visa cards. One said yesterday: “I object to them coming through the post because of the lack of security, and I strongly resent the attempt to thrust the cards down my throat] by urging me to accept with-! in three days.”

The customer said that he had cut his Visa card in half and returned it to the bank with an angry letter. A woman customer returned her Visa card to the bank’s Cathedral Square branch because she objected to receiving a card through the mail. However, Mr Mead said that the issue of credit cards by mail was accepted in New Zealand, with a good safety record. The Consumers’ Institute contends that the Visa scheme should not be allowed in New Zealand. Mr Smithies said that the system ran overseas, but the demand to extend it to New Zealand came from the bank. The institute was not consulted.

Many cheque-account holders used Nationwide cards, but because Nationwide appeared on the reverse side of Visa they could easily be persuaded that to reject Visa might also mean the loss of their Nationwide cards. Mr Smithies said that the bank was becoming a new middle man in the distribution chain. He said that where someone using a Visa card bought goods worth $2OO from a retailer, who paid 5| per cent commission to the bank, the Bank of New Zealand would get $ll instead |of 3c cheque handling fee. This was an increase of 37,000 per cent.