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Responsibility for commercial account debit errors

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We are working on a project to make debit card access available to some of our commercial accounts, primarily to give them more flexibility with respect to purchases for their businesses. One of our questions concerns liability for debit card errors or fraudulent transactions. Should we simply "borrow" the provisions of Regulation E by reference in our documents, or should we be going in a different direction?

You can incorporate the Regulation E provisions for customer liability for unauthorized transfers and for error resolution into your business card agreement by reference, but such a decision would expose your bank unnecessarily to potentially heavier losses per account than you have experienced so far in your consumer debit card portfolio. Business account balances tend to be higher and average transaction sizes can be higher, too, when businesses are issued debit cards.

A better course of action, I think, is to sit down with key players at the bank and with legal counsel to decide what types of liability (or what limits of liability) should apply. For example, it's fairly standard to require that the business be responsible for any transaction, regardless of whether it was completed on behalf of the business, if completed by an authorized card user before the business notifies the bank that the individual is no longer authorized to use a card. Once you have determined what the parameters of liability for unauthorized use should be, ask for bank counsel to draft appropriate language for your business debit card agreement. If the card will be issued with a Visa or MasterCard business card "bug", be sure that you get a copy of the appropriate card network's operating rules addressing limits on cardholder liability for unauthorized use, and share it with counsel, too.

First published on 10/18/10

First published on 10/18/2010

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