Zero liability. It even sounds good. And it’s supposed to. It was coined by the financial industry and driven by federal laws to ensure that victims of identity theft and fraud would not be liable for unauthorized charges or withdrawals on their accounts.

In most cases, your liability for the actions of thieves, even if you can’t actually prove it, will be zero. Or at least close to – in some cases you are required to cover the first $50 yourself, sort of like a fraud deductable, but in most cases your bank or credit card company will waive this too. All in the interest of a happy and loyal customer.

Not so in the case for a Georgia couple unfortunately, when they noticed that the more they put into their bank account, the lower the balance fell. So they immediately contacted their bank, who investigated and quickly found more than $1,000 in unauthorized charges.

The bank agreed to honor their zero liability pledge and did return most of the stolen funds. But it kept happening, and it seemed like the bank quickly adopted a policy of zero goodwill and refused to refund the couple’s newly lost money.

Why the sudden change? Apparently the couple made the cardinal mistake of not closing their compromised bank account and starting fresh with a new one. It’s always recommended that if your bank account or ATM card or PIN are compromised, your best bet is to close or cancel them quickly, and start fresh with a new account, number, card, PIN etc.

But for many bank customers, that can be a complicated and inconvenient process, and they’re not actually required by law to do it. And of course if your bank doesn’t demand the change either, you could be forgiven for assuming that your bank is OK with the idea. After all, a fraud has been discovered and the bank should be watching the account extra carefully.

As the saga continued, not only did the bank stop cooperating with the victims in this case, the bank started to charge overdraft fees on the couple’s account because the frauds had created a negative account balance at some point.

The victims finally agreed to close the account. But as if to reinforce just how insensitive a bank can be to the plight of fraud victims, within just weeks of the event the couple started receiving phone calls from debt collectors hired by the bank to collect the $153 in overdraft fees.

The reality of zero liability is that if the bank can find any reason to refute the victim’s claim, they can simply refuse to refund any lost money. The only option for the victim may be a long and costly lawsuit, which may not be realistic for a relatively small amount of money.

Lessons learned?

• Don’t rely on zero liability to always protect your accounts and funds, and to make you whole.

• Always have a backup plan in case your account is compromised and you can’t access funds or pay bills. A separate savings account is a good idea, just as long as you can make quick and penalty-free withdrawals in an emergency.

• In the event of bank account fraud, it’s always best to immediately close the account, and get a new account number, ATM card and PIN. It still won’t guarantee zero liability, but it will reduce the risk of the same crime happening again, and helps prove to the bank that you’re serious.

RELATED STORY: Couple says they’re victims of identity theft and their bank made it worse

http://www2.wsav.com/news/2010/jul/16/couple-says-theyre-victims-identity-theft-and-thei-ar-590713/

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1. Identity Theft Targeting the Elderly
2. IN THE HEADLINES: Home Seller Scams on the Rise
3. The IDGuardian Podcast: Episode #011 — Identity Theft Against the Elderly