Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS,
Second Regular Session

House Bill No. 7731

Introduced by Rep. MARIO VITTORIO “MARVEY” A. MARINO
5t District, Batangas

EXPLANATORY NOTE

‘Scenario:

Juan Dela Cruz was issued a credit card by a certain bank.
While he was in the mall, his wallet containing this credit card
was pickpocketed. It was only when he was about to pay at a
restaurant that he realized his wallet containing said credit
card was missing. Prior reporting of the lost or stolen credit
card, the thief successfully made several transactions using
Juan Dela Cruz’s credit card. Juan Dela Cruz alone is made to
answer and pay for all these fraudulent and unauthorized
charges. The merchant store has no liability whatsoever. The
credit card issuer would simply say “the credit card holder is
completely liable for any transactions made prior the reporting
of the lost or stolen credit card”.

Forget the fact that your wallet was stolen, that your credit card was used by the
thief, that your signature was forged, that no identification card was asked to be
presented, or that your credit card activity was highly suspicious. Under our current
laws, you are solely liable.

For years, this has been the standard practice of credit card issuers—hold
innocent cardholders liable for fraudulent and unauthorized transactions made prior to
reporting of the lost or stolen credit card. While some credit card issuers are
considerate enough to absolve innocent credit cardholders of liability, many still
adhere to this standard practice as it has been reinforced by the recently enacted law,
Republic Act (R.A.) No. 10870 entitled An Act Regulating the Philippine Credit Card
Industry.

Section 15 of R.A. No. 10870 provides that in case a credit card is lost or stolen,
any transaction made prior to reporting to the credit card issuer shall be for the
account of the cardholder. While some people still find logic in this provision, its
absoluteness in holding cardholders liable runs contrary to the declared policy of the
State to protect cardholders against unfair practices, credit card fraud and scams.


In countries like the United States of America and Malaysia, this practice of
holding innocent cardholders liable for fraudulent and unauthorized transactions due
to lost or stolen cards has long been abandoned. The Fair Credit Billing Act (FCBA),
a United States federal law, limits the liability of cardholders for unauthorized charges
to $50. Nonetheless, some credit card companies, like Visa and Mastercard, often
waive the $50 liability.' In fact, both Visa? and Mastercard’ have zero liability
protection for unauthorized transactions.

Clause 15.2 of Bank Negara’s Credit Card Guidelines (BNM/RH/GL-041-01)(the
“Guidelines”), on the other hand, provides that the cardholder's maximum liability for
unauthorized transactions as a consequence of a lost or stolen credit card shall be
limited to the specified by the issuer of credit cards, which shall not exceed RM250,
provided the cardholder has not acted fraudulently or has not failed to inform the
issuer of credit cards as soon as reasonably practicable after having found that his
credit card is lost or stolen.*

It is time we follow suit and give this needed protection to the public.

* Dilworth, K. (June 5, 2015). Your Rights Under the Fair Credit Billing Act. Retrieved on April 12, 2018
from https://www.creditcards.com/credit-card-news/tair-credit-blling-act-1282.php

2 ‘Visa. Zero.—‘Liability. “Retrieved += on April «16,2018 from
https://www.visa.com/chip/personal/security/zero-lability sp

* "SEA Mastercard. Zero Liability Protection. Retrieved on April 16, 2018 from
https://sea.mastercard.com/en-region-sea/consumers/payment-technologies/safety-and-security/zer
ovliability-protection. htm!

* Skrine Law Firm. Liability on Unauthorized Credit Card Charges. Retrieved April 12, 108 from
hnttp://www.skrine.com/home/index.php?option=com_content&view=article&id=SO08&temid=717


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
Second Regular Session

House Bill No. 778.1

Introduced by Rep. MARIO VITTORIO “MARVEY” A. MARINO
5th District, Batangas

AN ACT LIMITING THE LIABILITY OF A CARDHOLDER FOR
UNAUTHORIZED TRANSACTIONS IN CASES OF LOSS, FRAUD
OR THEFT OF CREDIT OR DEBIT CARDS, AMENDING FOR THE
PURPOSE REPUBLIC ACT NO. 10870

Be it enacted by the Senate and the House of Representatives of the Philippines in
Congress assembled:

SECTION 1. Section 3 of Republic Act No. 10870 is amended to read as
follows:

“Sec. 3. Scope and Coverage. ~ This Act shall govern all credit AND DEBIT
card issuers, acquirers and all credit AND DEBIT card transactions.

SECTION 2. Section 5 of Republic Act No. 10870 is amended to read as
follows:

“Sec 5. Definition of terms. — As used in this Act, the following terms
are defined as follows:

(8) xxx

() Card fraud is a wide-ranging term for theft and fraud committed
using a credit or debit card or any similar payment mechanism as a
fraudulent source of funds. The purpose is to obtain unauthorized
funds from a credit card holder’s account. It is also adjunct to identity
theft.

(u) Debit card is a plastic payment card that can be used instead of
cash when making purchases, It is similar to a credit card, but unlike a
credit card, the money comes directly from the user’s bank account
when performing a transaction.

(v) Reasonable time is defined as so much time as is necessary under
the circumstances for a reasonable prudent and diligent man to do,


conveniently, what the contract or duty requires should be done,
having a regard for the rights, and possibility of loss, if any, to the
other party.”

SECTION 3. Section 8 of Republic Act No. 10870 is amended to read as
follows:

“Sec. 8. Service Level Agreement — There shall be, in the service level
agreement between the acquiring banks and their partner merchants, a
provision requiring merchants to perform due diligence to establish
identity of the cardholders.

THE IDENTITY OF A CARDHOLDER SHALL BE
ASCERTAINED BY REQUIRING THE PRESENTATION OF A
VALID IDENTIFICATION CARD, A COMPARISON OF THE
NAME AND SIGNATURE ON THE CREDIT CARD WITH THE
NAME AND SIGNATURE ON THE ID PRESENTED BY THE
CARDHOLDER, OR SOME OTHER MEANS OF
AUTHENTICATING THE IDENTITY OF THE CARDHOLDER.

Nothing in this Act shall preclude a card issuer from verifying or
seeking confirmation with the cardholder any purchase if in their
assessment there is reasonable concern as to the validity of the
purchase.”

SECTION 4. A new section designated as Sec. 8-A is hereby inserted to read as
follows:

Sec. 8-A. Liability of Parmer Merchants — Merchants shall bear the
loss for failure to observe the due diligence required under Section 8
in ascertaining the identity of a cardholder in case of unauthorized
transactions due to lost or stolen credit or debit cards and other cases
of card fraud.

SECTION 5. Section 11 of Republic Act No. 10870 is amended to read as
follows:

“Sec. 11. Information to be Disclosed. ~ A credit card issuer shall
disclose to all credit cardholders and potential credit cardholders the
following information:

Xxx

(h) xxx

(i) A CLEAR AND PROPER DESCRIPTION OF THE MEANS BY

WHICH THE CARD ISSUER MAY BE NOTIFIED OF THE LOSS
OR THEFT OF CREDIT OR DEBIT CARD. THE TELEPHONE

* Far East Realty Investment, Inc. v. Court of Appeals, 248 Phil. 497, 503-504 (1988)


NUMBER DEDICATED SOLELY FOR REPORTING LOSS OR
THEFT OF CREDIT OR DEBIT CARDS SHALL BE PRINTED IN
THE TERMS AND CONDITIONS AND BILLING STATEMENT.

(j) A REMINDER TO THE CARDHOLDER IN THE TERMS AND
CONDITIONS AND BILLING STATEMENT THAT THE
FAILURE TO REPORT THE LOSS OR THEFT OF A CREDIT OR
DEBIT CARD WITHIN REASONABLE TIME WOULD RESULT
TO POTENTIAL LIABILITY FOR UNAUTHORIZED
TRANSACTIONS.

(k) Any other information that may be required by the BSP.

XXX’

SECTION 6. Section 15 of Republic Act No. 10870 is amended to read as
follows:

Sec. 15. Lost or Stolen Card. — \n case a card is lost or stolen, a
cardholder incurs no liability from the unauthorized use of a card:
Provided, that the cardholder does not act fraudulently: Provided
further, that the cardholder reports the loss or theft of the card within
reasonable time: Provided, finally, that the cardholder has not reported
two or more incidents of unauthorized use in the immediately
preceding 12-month period.

SECTION 7. A new section designated as Sec. 15-A is hereby inserted to read as
follows:

Sec. 15-A. Burden of proof. In any action by a card issuer to enforce
liability for the use of a credit card, the burden of proof is upon the
card issuer to show that the use was authorized or, if the use was
unauthorized, then the burden of proof is upon the card issuer to show
that the conditions set forth in Section 15 have not been met.

SECTION 8. A new section designated as Sec. 15-B is hereby inserted to read as
follows:

Sec. 15-B. Card Security Features — To protect cardholders from
fraudulent and unauthorized transactions, card issuers shall establish
card security features such as but not limited to the following:

a. A PIN-enabled card allowing the cardholder to make purchases
only by keying in a 4 or 6-digit PIN.

b. Transaction notification alerting cardholders of their recent
transactions and charges via SMS, e-mail or other electronic
means.

¢. Transaction validation requiring cardholders to validate recent
transactions or charges via SMS, e-mail or other electronic means.


SECTION 9. Repealing Clause. — All laws, decrees, executive orders,
memorandum circulars inconsistent with the provisions of this Act are hereby
amended, repealed or modified accordingly.

SECTION 10. Effectivity. — This act shall take effect fifteen (15) days after its
publication in the Official Gazette or in two (2) newspapers of general circulation.

Approved,