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Credit Card Loss Protection: You Don’t Need It

March 5, 2015
Credit Card Basics, Credit Cards
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Data breaches may seem to be common, but that doesn’t mean we’ve become desensitized. The No. 1 crime Americans worry about is having the credit card information they use at stores stolen by hackers, a Gallup poll found in October 2014. Sixty-nine percent said they frequently or occasionally worry about being victimized.

Don’t let anxiety cloud your judgment. If you get a phone call from someone offering to sell you credit card “loss protection,” don’t fall for it. In observance of National Consumer Protection Week, the Nerds are here to tell you why you should steer clear.

What is credit card loss protection?

Credit card loss protection claims to protect consumers against costs from credit card data hacking and theft. In many cases, peddlers of this bogus insurance try to convince people they need it by misrepresenting the truth. Often, they say legal safeguards aren’t adequate and loss protection is essential to recouping fraudulent charges.

At best, buyers who get lured into this product are wasting their money, perhaps as much as a few hundred dollars. At worst, they’re giving up sensitive personal information that may lead to identity theft. If someone tries to sell you this protection, just say “no.”

Nerd note: Credit card loss protection is different from credit monitoring services that many credible issuers sell as an add-on. Credit monitoring is usually a legitimate product if it’s coming directly from your credit card company, though probably not worth the cost. Checking your credit reports once a year and getting a credit card that provides a free monthly FICO score is enough protection for most people.

The law is all you need (but your issuer can help)

Credit card loss protection isn’t necessary because there are federal laws protecting you if your credit card data is swiped. Under the Fair Credit Billing Act, you won’t be responsible for any unauthorized charges if you report the theft of your card before they’re made. The same is true if you find suspicious charges on your statement and the card is still in your possession.

The only circumstance under which you could be held liable for purchases you didn’t make is if you report the physical theft of your card after charges are made. But in this case, the most you’ll lose is $50. And practically speaking, most major credit card issuers have a $0 fraud liability policy.

Between the law and your credit card issuer’s policies, it’s very unlikely you’d ever have to pay a dime in unauthorized charges on your card – no loss protection required.

» MORE: How to Dispute Fraudulent Credit Card Charges

Practical tips to combat theft

Getting your credit card information hacked is a huge inconvenience, despite the safety net provided by the law. Although the transition to cards equipped with EMV chips should help reduce the frequency of this crime, follow the Nerds’ top tips for avoiding it in the meantime:

  • Be vigilant about whom you give your credit card information to.
  • Review your credit card transaction history online frequently, and scrutinize your monthly statements. If you notice a sketchy charge, contact your issuer right away.
  • Don’t put your credit card information into any website unless you see “https” (with the “s”) at the beginning of the URL. This indicates that the site is secure.
  • If you’re about to swipe your credit card and you notice anything unusual about the terminal, don’t move forward with the transaction. A skimming device might have been installed, which could put your card information in the hands of criminals.

The takeaway: Credit card loss protection is an unnecessary product, given the federal laws in place and the policies of most credit card issuers. You can also take proactive steps to keep your payment information safe, so be sure to put the Nerds’ tips to use.

Lindsay Konsko is a staff writer covering credit cards and consumer credit for NerdWallet. Follow her on Twitter @lkonsko and on Google+.

Image via iStock.