I believe that the Electronic Funds Transfer Act, in force since the 70's, limits card holder liability to $50 in the event of fraudulent use of a card. Even that $50 is disputable, according to the act.

This sounds like insurance company misinformation, to me. It is the vendor's responsibility to verify the transaction, not the card holder's.

Unless something has changed recently, consumers are not on the hook for fraudulent use of their cards.