Card companies that make you cough up if you don't want to be shortchanged by fraud

If someone tries to sell you plastic protection, ask yourself if you really need it, writes Melanie Bien

With so many tantalising deals available on credit cards - from low introductory offers to cashback and Air Miles - more consumers are shopping around rather than sticking with the same plastic for life.

But if you switch cards on a regular basis, you will probably have come across someone trying to sell you card protection. I experienced this last week, when I rang Debenhams to "activate" my new store card.

Before you question why I was taking out a store card that charges interest at 29.9 per cent, I'll explain. I got a 10 per cent discount on my first purchase on the day I took out the card. And as I was spending £150 that day, a £15 saving for filling out a form seemed a good deal.

As soon as the statement arrived, I paid it off, so didn't incur any interest. And I hadn't considered using it again until I got a letter from Debenhams a couple of weeks ago saying that cardholders could get further discounts on sale items if they make purchases on their card. This looked a bargain - hence the call to activate the plastic.

But while this was all I wanted to do, the call centre operator was determined I should have something else. For £45 I would get three years' cover from Card Protection Plan (CPP), she told me, and I wouldn't have to pay for it immediately. She also said it was wise to take it out as "most people don't realise they are responsible for some of the fraud on their card". I said I didn't want it, which ruffled her feathers. "Why not?" she snapped. "Have you already got card protection?"

I chickened out of a big debate on why I feel card protection is a rip-off, and said I did have it, even though that's not the case. The whole experience left a nasty taste; it seemed I was being bullied into taking out protection and made to feel that I would end up paying the penalty if my card was used fraudulently.

Debenhams declined to comment.

The big rise in credit card fraud is behind providers' efforts to push customers into taking out protection. In one of the latest high-profile incidents of fraud, a Heathrow Express employee was jailed along with two accomplices for downloading information from 9,000 credit cards. Cloned cards were created using this information and used to purchase £2m worth of alcohol and cigarettes for sale in the UK.

The new Chip and Pin system, in which microchips replace magnetic stripes, is to be rolled out from next year and should make fraud a lot harder. But in the meantime, card providers are keen for us to take out cover so that they don't have to stump up for any losses incurred.

If your cards are covered by CPP, which accounts for 65 to 70 per cent of the card protection market - including banks such as Barclays, HSBC and NatWest - you can cancel all your plastic by making one free call any time from anywhere in the world. The same is true of cards covered by Sentinel, which charges £16 a year for the service.

If you have half a dozen credit cards and are on holiday when your wallet is snatched, so you don't have contact numbers for the card providers, this kind of protection makes life a lot easier (as long as you remember to take CPP or Sentinel's number with you).

CPP offers up to £5,000 cover against fraudulent use of your cards before you notify the company, or up to £100,000 after notification. The service costs £30 a year or £65 for three years.

But while being able to cancel several cards in one phone call and get replacements is efficient and convenient, protection is often sold on the back of the contention that if someone fraudulently uses your card, you are liable for some of the money they spend.

"Card issuers hold customers responsible for the first £50 of any amount spent on a card if it is lost or stolen," warns Jason Walsh, product manager for protection at CPP. "So if have several cards in your wallet, that can be very expensive."

But a quick call round a number of card providers indicates that this is not strictly true. Halifax does charge credit card holders for the first £50 that thieves or fraudsters spend on their card. And Royal Bank of Scotland, which also covers NatWest cards, says that for "loss or misuse of a card, the customer may be liable for up to £50". But an RBS spokeswoman says the bank doesn't impose this charge in the majority of cases and that it is "highly unlikely" a customer would have to pay a charge.

None of American Express, Barclaycard and MBNA charge customers if their card is lost or stolen and used fraudulently, although those people must have behaved responsibly with their plastic. "The customer has to comply with the terms and conditions, such as not having their Pin number next to their card," says a spokesman for MBNA. Barclaycard's Ian Barber admits that by law, the customer can be held responsible for the first £50, "but we don't charge it". And American Express says that as long as the lost or stolen card is also reported, customers won't be responsible for the losses.

With providers interpreting the rules differently, it's worth asking their position before opting for the card with the cheapest rate or most generous cashback.