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The EMV liability shift at ATMs: What's your risk mitigation plan?

The MasterCard liability shift date has arrived. Avoidance is no longer an option, so what's an unprepared ATM operator to do? Here's the view from a specialist in ATM-related law.

The EMV liability shift at ATMs: What's your risk mitigation plan?


by Jack Milford Ford

Why are so many US ISOs still at great financial risk due to the EMV chip liability shift for ATMs that is now happening within the United States?

For most of my legal career (40-plus years), regardless of whether I was company counsel, law firm partner, in the state attorney general's office, or running my own law office, a fundamental responsibility and legal service has always been to respond to my clients and companies, managing their liability risks through risk mitigation.

So, I am deeply concerned, it being well into October and, it appears, many ISOs potentially on the precipice of financial ruin because of their unsuccessful — or unattempted — risk mitigation.

Over the past four decades, the liability perils that companies face — whether through litigation (damage claims, punitive damages, prayers for relief such as temporary restraining orders) or regulatory (fines, restrictions, cessation) — have substantially increased as the American business landscape has dramatically changed.

Consequently, during this time, companies have succeeded, failed or barely survived due in large part to:

  • how well they identified potential liabilities threatening them in the marketplace and and the regulatory environment;
  • how well they have defined the magnitude of each of these liabilities; and
  • how well they have planned to manage and minimize the damage from each of those liabilities.

In a nutshell, this is what risk mitigation is all about — identifying, defining, and managing risks to minimize one's potential, possible, liability ...

  • of whatever nature,
  • from whatever source,
  • by initiating whatever proactive action,
  • formulated through whatever style in which a company's management team operates,
  • in order to reduce or eliminate financial exposure.

Which is why I am surprised and perplexed that so many smart and savvy ATM ISOs in the United States have not — or very belatedly — turned their full attention to eliminate, reduce or minimize the potentially, devastating financial liability they face due to the networks' EMV counterfeit fraud liability shift — or CFLS — chargebacks. Why?

Are ISOs waiting for the networks to postpone EMV chip liability shift dates? If so, that's not going to happen based on everything I have read and heard. Thus, I do not believe this is the reason.

So, why?

I believe that many ISOs have either underestimated, not accurately defined, or not understood the catastrophic financial liability that CFLS chargebacks will bring to bear on their companies if they are hit with chargebacks.

These chargebacks are not going be similar to Reg E claims, as far as dollar amounts (i.e., $300 dollar claims). They are going to be in the thousands of dollars. With, potentially, wave after wave of such chargebacks once the fraudsters pick up momentum.

I don't want to sound like Chicken Little running around hollering that the sky is falling, but … the sky has been turning grey for some time now and will become dark with the advancement of CFLS chargeback storm clouds over the U.S.

It's not an "if," but a "where", when, and "which," non-EMV chip-compliant ATMs will be hit by fraudsters.

One only has to look at what has been transpiring over the past year in the retail point-of-sale business segment to see the financial costs of not being proactive and doing an EMV upgrade.

Unfortunately, I believe — and I am not the only one — that ATM CFLS chargebacks will be significantly higher than typical POS chargebacks.

I realize and understand that for most ISOs whose portfolios are not totally EMV chip-compliant, the vast majority of non-compliant ATMs are primarily owned and operated by merchants and offsite owners.

These owners have not upgraded either because they refuse to incur the cost, they just keep procrastinating, or they are willing to assume the liability risk with the belief that "my ATM will not be hit with CFLS chargebacks."

However, in my opinion, to be blunt, if you are an ISO and have one or more such merchants or offsite owners within your portfolio of processing accounts, they are now, and will continue to be, playing Russian roulette with a CFLS chargeback gun held to your company's head!

And for every such merchant or offsite owner within your portfolio, there will be that many more guns held to your head.

The storm siren is becoming louder with each passing day. If you are potentially facing CFLS chargeback liability, you have to address it and minimize it now. I highly recommend you take action now.

Determine, as quickly as you can, what course of action you can realistically initiate  for non-EMV chip compliant ATMs within your portfolio to:

  • somehow upgrade those ATMs, perhaps paying half (with the merchant or offsite owner) or all of the cost; or
  • come up with a plan to temporarily cease processing those non-EMV chip compliant ATMs until they are compliant; or
  • somehow, some way, remove those non-EMV chip compliant ATMs from your portfolio.

Otherwise, you need to ask yourself ... if CFLS chargebacks occur within your portfolio, how many shots can your business sustain before it is ___________ ? (You fill in the blank.)


Jack Milford Ford, attorney at law, specializes in navigating the legal issues of the electronic funds transfer industry, specifically including the ATM arena. He has more than 13 years of experience in dealing with the legal matters that surround the ATM, EFT and check cashing industries.

This article was republished, with permission, from the Triton blog, atmAToM.

photo istock


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