One-upping MasterCard International, Visa U.S.A. said Wednesday that it will eliminate all consumer liability on unauthorized credit and debit card purchases, provided consumers report trouble with their cards within two business days.

By allowing a two-day grace period, San Francisco-based Visa went a step further than MasterCard, which said last month it will limit consumer liability on unauthorized debit card purchases to $50.

Under the Visa policy, consumers will be liable for up to $50 if they do not report loss, theft, or fraud within two days.

Visa also extended the same protection to its on-line debit card, Interlink; MasterCard's $50 cap does not apply to its on-line product, Maestro.

The back-to-back decisions by the two associations are an effort to clear up consumer confusion over liability in the burgeoning debit card market, as well as head off efforts by legislators to align debit card liability with credit cards.

"Together with MasterCard's new policy this could well obviate the need for additional federal protections," said Stephen Brobeck, executive director of the Consumer Federation of America. Efforts for legislation may now be moot, he added.

Under Federal Reserve Regulation E, which covers debit card transactions, consumers are liable for a maximum of $50 if they report a lost or stolen card within two days. But that liability increases to $500 if the loss is reported within 60 days. Thereafter, liability is unlimited.

Carl Pascarella, president and chief executive officer of Visa U.S.A., said the policy "establishes a new level of security" for the association's fastest-growing product, the Visa check card.

The moves by the associations may further accelerate the use of debit cards. In 1996 Visa reported $37 billion transaction volume, 95% more than in 1994. During the same period, MasterCard said its debit card transaction volume more than tripled, to $8.7 billion from $2.5 billion.

Along with the increase in debit card use has come confusion over consumer liability. As a result, activists and legislators have called for more regulations, making them similar to the protections consumers have for credit cards.

Just last week, Senate Banking Committee Chairman Alfonse M. D'Amato asked the Federal Reserve Board to look into whether more comprehensive laws are needed to help protect debit card users.

In July, Reps. Henry Gonzalez, D-Tex., and Charles E. Schumer, D-N.Y., introduced legislation calling for a $50 cap on debit card liability.

With consumer concerns growing, Arthur E. Clark Jr., partner at Business Dynamics Consulting of Nyack, N.Y., said the initiatives by the associations would "ease the consumers' mind. All the consumer studies and data I've seen say consumers really like the debit product."

In the wake of the MasterCard change, some of the largest Visa check card issuers in the country started taking matters into their own hands. BankAmerica Corp. in San Francisco and NationsBank Corp. in Charlotte, N.C., recently announced zero liability for unauthorized transactions no matter when a consumer reports a lost or stolen card or fraudulent use of a card.

Fraud and lost cards constitute a small portion of overall card volume. Mr. Pascarella said at Visa the amount is less than 0.1%. Card issuers face bigger losses in personal bankruptcies than fraud.

Visa also will require its members to provide customers with provisional credit within five business days of notification for money lost through unauthorized transactions. Many issuers, such as First Union Corp. in Charlotte, N.C., already do so.

Visa's policy changes, which take effect in November, also include card activation requirements. Consumers will be required to call a telephone number after receiving a debit card in the mail, whether solicited or not.

Purchase, N.Y.-based MasterCard does not have such a requirement.

"This is one-upmanship" on Visa's part, Mr. Clark said.

He added, however, that it is unlikely that Visa drew up its plan solely in response to MasterCard.

"This has been an issue both Visa and MasterCard have been focusing on. Visa's proposal is too comprehensive to have been put together quickly. I'm quite confident we would have heard from Visa one way or another in the next month or two."

Mr. Pascarella played down any association rivalry.

"This is not a competitive issue," Mr. Pascarella said. "This is a consumer issue."

MasterCard's Irene L. Katen, vice president of business management, U.S. deposit access, said Visa's decision is a good thing.

"We're glad they've followed MasterCard's leadership role in protecting the consumer," Ms. Katen said. "This will continue to help the use of debit cards grow."

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