Credit Card Fraud

Part 1 Of A 2 Part Series

 You May Not Discover Fraud Until You Receive Your Statement

Credit card fraud is a general term for theft and fraud by using a credit card to obtain funds in a transaction.

The purpose may be to obtain goods without paying, or to get money from an account. Credit card fraud is also a part of identity theft

How It Starts

The fraud begins with either the theft of the card or the compromise of data associated with the account, including the card account number or other information.

The compromise can occur by different means and can usually be done without tipping off the card holder, the merchant or the bank, at least until the account is eventually used for fraud.

A simple example is that of a store clerk copying sales receipts for later use. The rapid growth of credit card use on the Internet has made security lapses very costly; in some cases, millions of accounts have been compromised.

Stolen cards can be reported quickly by card holders, but a compromised account can be hoarded by a thief for weeks or months before any fraudulent use, making it difficult to identify the source of the compromise.

You may not discover credit card fraud until you receive your statement, which may not be for some time.

Stolen Cards

When a card is lost or stolen, it remains usable until the holder notifies the bank that the card is lost; most banks have toll-free telephone numbers with 24-hour support to encourage prompt reporting.

Still, it is possible for a thief to make unauthorized purchases on that card up until the card is canceled.

In the absence of other security measures, a thief could potentially purchase thousands of dollars in merchandise or services before you or the bank realize that the card is in the wrong hands.

In the US, federal law limits the liability of card holders to $50 in the event of credit card fraud, regardless of the amount charged on the card.

In practice, many banks will waive even this small payment and simply remove the fraudulent charges from the customer's account if the customer signs an affidavit confirming that the charges are indeed fraudulent.

Other countries have similar laws concerning fraud aimed at protecting consumers from theft of their card.

The only common security measure on all cards is a signature panel, but signatures are fairly easy to forge. Many merchants will demand to see a picture ID, such as a driver's license, to verify the identity of the purchaser, and some credit cards include the holder's picture on the card itself.

Gas Stations Are Targets

Self-serve payment systems (gas stations, kiosks, etc.) are common targets for stolen cards, as there is no way to verify the card holder's identity.

A common countermeasure is to require the user to key in some identifying information, such as the user's ZIP or postal code.

This method may deter casual theft of a card found alone, but if the card holder's wallet is stolen, it may be quite easy for the thief to find other valuable information. For instance, a US drivers license commonly has the holder's home address and ZIP code printed on it.

Banks have a number of counter measures for card fraud, including sophisticated real-time analysis that can estimate the probability of fraud based on a number of factors.

Suspicious Transactions

For example, a large transaction occurring a great distance from the card holder's home might be flagged as suspicious. The merchant may be instructed to call the bank for verification, to decline the transaction, or even to hold the card and refuse to return it to the customer.