Who pays the bill when an identity thief doesn't get caught?

Credit card companies used to cover most fraudulent charges, but not anymore. The arrival of chip cards marked an important shift in who's responsible.

The owner Karpet Klinic in Cranston, Michael Pirolli, says he’s been dealing with a $6,400 headache because of it.

“For a small businessman like myself, $6400 is a substantial amount of money” says Pirolli.

Pirolli says in May of 2018, he received a pretty run-of-the-mill phone call from a man claiming to be a contractor.

“He was from out of state and doing a job and he claimed he ran short of hardwood,” explains Pirolli.

NBC10 reporter Emily Volz asks, “Were there any other red flags that were raised when he was here?”

“Nope,” replies Pirolli. “The guys showed up, they were wearing knee pads like they had just got off a job and they were running short and they needed some more red oak.”

Pirollli says the phony contractor loaded the wood into his truck, and went inside to pay with what looked like a Bank of America credit card.

Pirolli says before he processed the card, he made some calls.

“We called our merchant company and we asked them if the card had been stolen – They said no,” explains Pirolli. “We asked them, are the funds available? She said once you swipe the card and push batch and settlement, it will show that the card had gone through and the money was available.”

Just a few weeks later, Pirolli says he found out his credit card processing company, North American Bancard, was wrong. The card had been stolen.

Karpet Klinic was now on the hook for that $6400 charge.

“As a retailer, I don't know what else I could have done differently,” says Pirolli.

He says he thought he took every precaution, but according to Bentley University Professor and author of Identity Theft Alert, Steve Weisman, Pirolli made one major mistake: He allowed the con man to pay with a credit card that didn't have a chip.

“What they should have done is refuse the card, because generally now all cards have the chip,” explains Weisman.

Bank of America tell us they replaced all of their magnetic swipe cards with chip cards years ago.

They say this crook likely used a cloned credit card – a fake credit card that had a real Bank of America account holder's stolen credit card information loaded onto its magnetic stripe.

Weisman says, if you see a card without a chip, there's a good chance it's a clone.

“If you're a retailer, the only way you can protect yourself is to have the proper processing equipment for a chip, and only accept the chip,” explains Weisman.

Bank of America says Karpet Klinic had an opportunity to dispute the $6400 charge at the time, but Karpet Klinic's credit card processing company, North American Bancard, never initiated that process.

After two months of repeated phone calls and emails, North American Bancard finally issued a response to NBC10’s questions on Thursday.

North American Bancard Company Spokesperson Josh Griffin says:

"North American Bancard (NAB) has completed its investigation of Karpet Klinic's complaint. Based upon that investigation, NAB has determined that it has fulfilled its obligations to Karpet Klinic to the fullest extent, and therefore categorically denies any and all allegations to the contrary by Karpet Klinic or anyone else. It also denies any claim that it is liable to Karpet Klinic in connection with the charge in question. NAB has no further comment at this time."

Karpet Klinic is still on the hook for that $6400 charge.