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Credit Card Fraud & Potential Liability for Gas Stations

Gas station owners currently face the challenge of updating their automated gas pumps to be compatible with EMV technology (EMV® is a registered trademark owned by EMVCo, LLC).  The major American credit card companies have agreed to extend their deadline for the implementation of EMV technology in automated fuel pumps to October 1, 2020.  Once that date passes, gas station owners may see a substantial increase in their potential liability in connection with credit card fraud.

EMV technology was developed by credit card companies to reduce credit card fraud.  Unlike older credit cards that used a magnetic strip on the back of the card that was read by the merchant’s credit card terminal, EMV technology involves small computer chips embedded in the credit card.  The computer chip allows for each transaction to have its own unique number code, thereby reducing the likelihood of credit card theft.

While the United States government has not passed laws mandating the implementation of EMV technology at merchants’ card terminals, the credit card companies have sought to accelerate the implementation process by amending their policies with respect to the assumption of liability in cases of credit card theft.  Before the implementation of EMV technology, it was the industry practice in the United States for the credit card companies to assume the liability in most cases of credit card fraud.  For instance, if someone fraudulently replicated a valid credit card and used the false replica to purchase a product from a merchant, the credit card company, upon discovering the theft, would reimburse the merchant for the value of the fraudulent transaction.

Major credit card companies, including Mastercard, Visa, and Discovery, decided to change their policies with respect to liability in the event of fraud.  They set an initial deadline of October 1, 2015 for merchants to install the EMV compatible chip readers.  Following this deadline, the credit card companies’ liability policy, in the event of a fraudulent credit card case, was to be as follows:  (a) if the fraud stemmed from a non-EMV credit card, then the credit card company would still assume liability; (b) if the fraud stemmed from an EMV credit card and the merchant had already installed and used the EMV-compatible card readers, then the card company would still assume liability; and (c) if the fraud stemmed from an EMV credit card and the merchant had not installed and/or used an EMV-compatible card reader, then the merchant would assume liability for the fraudulent transaction – the credit card company would not reimburse it for its loss.

Although the credit card companies set the October 1, 2015 deadline to encourage merchants to implement the new chip reading technology as soon as possible, it became clear that not all merchants would realistically be able to comply within the deadline.  In particular, owners of gas stations found it very difficult to update the credit card readers located in their outdoor, self-serve oil pumps, or “Automated Fuel Dispensers” (“AFD”).

In comparison to other service and retail industries, gas station owners face more difficult obstacles in implementing EMV-compliant credit card terminals, because of the complicated infrastructure and technology used to enable fuel pumps.  To use EMV technology, an outside gas pump terminal may be required to support Ethernet connectivity, which might require re-wiring every gas pump connection.  As a result, many gas station owners were faced with replacing not only an individual credit card terminal, but possibly the entire AFD as well.  This problem is particularly challenging for independent, single store operators or small chains that own and operate AFD units but may not have the necessary personal, technology or resources to bring their stations into EMV compliance.

In consideration of these challenges, the major credit card companies announced that the original deadline of October 1, 2015 would be extended for AFDs to October 2017.  Upon further review, in late 2016, due in to an insufficient supply of suitable hardware and software available to gas stations and the practical difficulties and costs associated with the implementation, the credit card companies announced that the deadline for gas stations to implement the EMV-compatible equipment for AFD units would be extended again to October 2020.  This extension does not necessarily apply to non-AFD credit card terminals used at gas stations.

Although gas station owners have been granted another two-year extension, they should certainly try to update their AFDs as soon as possible to avoid potential liability after the current extension expires.

[Updated July 15, 2019 to include reference to EMVCo, LLC’s registered trademark]

 

 

About The Author

Stephen T. Connolly

Stephen is a member of the firm’s Business & Corporate Law Group.  He concentrates his practice in the areas of commercial… Read More

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