Are you EMV Compliant?

On October 1, 2015, changes in a retailer’s liability for fraudulent credit card use will go into effect. Credit card issuers will reserve the right to shift liability for fraudulent credit card use to the retailer if the card used had new chip technology, but the retailer did not have updated processing equipment to read the chip.

This liability shift is designed to entice retailers, including automobile dealers, to change to processing devices that use the global security standard for cards with chip technologies known as Europay, Mastercard, and Visa (EMV) cards. Credit card issuers have already implemented these EMV cards in Canada, Europe, Asia, and Latin America, and they have seen credit card fraud rates drop significantly.emv-smart-card

What is the difference between EMV cards and traditional magnetic strip cards? EMV chip cards provide stronger security features than traditional cards. Traditional magnetic cards store static information that makes them easy targets for hackers. Thieves steal data from the magnetic cards and copy the data onto a cloned card to make purchases and withdraw cash. EMV cards have a small computer chip hard to counterfeit. EMV cards generate a unique encrypted code for each transaction when read using a EMV-compliant processing device.

How does this implementation affect dealers? Dealers will need a new processing device to read the information in the EMV chip cards by October 1, 2015. The EMV compliance implementation on that date shifts the liability to the retailer who processes an in-store payment by an EMV card and does not use an EMV compliant processing device to read the EMV card. Therefore, if your dealership has no EMV processing device, your dealership can be held liable for in-store fraudulent payment transactions using an EMV credit or debit card. Traditionally, card issuers have accepted all liability for counterfeit payment card transactions, but that will change with the EMV compliance implementation on October 1, 2015.  

There is no federal law requiring merchants to be EMV compliant. However, the major credit card companies (Visa, Mastercard, Discover, and American Express) plan to incentivize card issuers and retailers to migrate to EMV by shifting the liability to retailers if they do not institute EMV compliance by October 1, 2015. If your dealership accepts an in-store payment with a chip card and processes the transaction using a magnetic-only card reader, the dealership may be responsible for the fraud losses, not the card issuer.

This implementation shift does not change liability for online purchases, or for in-store transactions by customers using cards with only magnetic strips. If your customers use EMV cards for in-store transactions, be prepared to have an EMV processing device or risk suffering losses for fraud.