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Zero Liability Policy: Definition, Advantages & Disadvantages

Updated: November 25, 2022

Major credit card companies have voluntarily established zero liability rules for product consumers because they are worried about how the public would react to fraud and identity theft.

Federal law limits consumers’ out-of-pocket costs whenever a credit card is lost, stolen, and then used illegally up to $50, but zero liability insurance goes beyond that. Zero liability insurance, as the name suggests, protects customers against financial loss in the event that their credit cards or banking information is compromised and used fraudulently.

Read on as we take a look at what exactly the zero liability policy is, why they are issued, what they cover, and the advantages and disadvantages associated with them.

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    • The majority of major credit card issuers include zero liability clauses that absolve consumers of financial responsibility for losses brought on by a fraud claim or unauthorized transactions. 
    • Despite a few exceptions, federal law always caps the damage at $50.
    • Debit cardholders are less properly protected under the law – but some safeguards are put in place.

    What Is a Zero Liability Policy?

    A zero liability policy is a clause in a debit or credit card agreement that specifies that the holder of the card is not liable for any unauthorized charges. All major credit card companies offer this form of protection to their cardholders. 

    It works by guaranteeing them that any reported or discovered fraudulent charges that are taken out of the account without the permission of the cardholder will be replaced without charge. Similar safeguards are typically included with debit cards.

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    Why Are Zero Liability Policies Issued?

    Numerous situations could result in fraudulent charges appearing on a credit card account, leading to a zero liability policy coming into effect. The two most common ones are as follows:

    1. Phishing Scams

    A phishing scam involves sending a false message to a large number of potential victims in the hopes that one of them will cooperate with the con artists.

    The communication claims to be from a reputable business or organization. The scammers will ask the victim to send information on their bank accounts via phone, email, or text message. The funds could then be accessed and spent without the consent of the account holder. 

    2. Hacking 

    Perhaps one of the most popular tricks, hacking is when a hacker gains access to a company’s database that houses the credit card information of customers, such as a chain of retail stores. The next step is to sell this information to another criminal who specializes in making unlawful purchases, either directly or through the black market.

    Prior to the genuine owner of the credit card or the credit card issuer realizing that the information has been stolen, the scammers will have made a large number of illegitimate purchases.

    What Is Covered by the Zero Liability Policy?

    When you are covered by a Zero Liability Policy, you can be sure that you won’t be held liable for any unauthorized payments made using your card or card details. If your debit or credit card is lost, stolen, or fraudulently used in person or online, then you are covered.

    According to federal law, managing credit card fraud falls mostly on the shoulders of the issuers of credit cards. The cardholder is only responsible for losses up to a $50 threshold. Even that possibility of loss is eliminated by the zero liability policy.

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    What Are the Advantages and Disadvantages of a Zero Liability Policy?

    The advantage of having a Zero Liability Policy is that you will not be responsible for any theft that occurs in your account. Without this policy, you can be near bankrupt if a con artist manages to gain access to your funds. 

    The main disadvantage of a zero liability policy is that if the fraudulent use of a debit card is not immediately reported, the cardholder could be held partially accountable for the loss. Be sure to check your credit card contracts to make sure your credit card transactions are protected.


    Zero liability policies are a great way to protect yourself against any illegal attempt to gain access to your funds. 

    It’s important to note that consumers must exercise caution. As failing to report fraudulent debit card use right away may result in the cardholder being held partially liable for the loss.

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    FAQS on Zero Liability Policy

    Do Credit Cards Have Zero Liability?

    Most major credit card providers will have a zero liability policy.

    How Do You Get Zero Liability?

    You will get zero liability if:

    • You have taken reasonable precautions to prevent theft or loss of your card; and.
    • You immediately notified your financial institution of any loss or theft.

    Do Debit Cards Have Liability Protection?

    The safeguards applied to credit cards are typically included with debit cards.

    How to Submit a Claim for Zero Liability?

    The manner in which you can submit a claim will depend on your provider. The best way to find this information is to visit the relevant website.

    What is Credit?

    1. Credit
    2. Credit Analysis
    3. Zero Liability Policy
    4. Borrowing Base
    5. Merton Model


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