A week or so ago, I made a trip to California from my home in Arizona to visit my daughter. During the trip, I discovered my wallet missing. Do to the nature of the trip; the discovery was unknown by me for several days. The result was my credit card was maxed out, my savings was completely withdrawn, and my checking account was over-drawn by $1500.00. I also found out that because my credit card was not actually used in the theft that I am not protected financially as I wrongly thought.
The Hard Lesson Learned:
Credit card theft or fraud is a wide-ranging term for theft committed using a credit card as a fraudulent source of funds in a transaction. The purpose may be to obtain goods without paying, or to obtain unauthorized funds from an account. Credit card fraud is also an adjunct to identify theft. According to the Federal Trade Commission, while identity theft had been holding steady for the last few years, it saw a 21 percent increase in 2008.
The cost of card fraud in 2006 were 7 cents per 100 dollars worth of transactions. Due to the high volume of transactions this translates to billions of dollars. In 2006, credit card fraud was estimated at $750–830 million within the United States.
The fraud begins with either the theft of the physical card or the compromise of data associated with the account, including the card account number or other information that would routinely and necessarily be available to a merchant during a legitimate transaction. The compromise can occur by many common routes and can usually be conducted without tipping off the card holder, the merchant or the issuer, at least until the account is ultimately 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 database security lapses particularly costly; in some cases, millions of accounts have been compromised.
Stolen cards can be reported quickly by cardholders, 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. The cardholder may not discover fraudulent use until receiving a billing statement, which may be delivered infrequently.
The only common security measure on all cards is a signature panel, but signatures are relatively easy to forge. Some 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. However, the card holder has a right to refuse to show additional verification, and asking for such verification is usually a violation of the merchant’s agreement with the credit card companies. Self-serve payment systems such as gas station pumps 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 trivial for the thief to deduce the information by looking at other items in the wallet. For instance, a U.S. driver license commonly has the holder’s home address and ZIP code printed on it. The credit cards have a three-digit security number code (CVV) on the back and along with the stolen driver’s license; a thief can make actual purchases of almost anything they desire over the internet without a signature being required.
Credit and charge card fraud costs cardholders and issuers hundreds of millions of dollars each year. While theft is the most obvious form of fraud, it can occur in other ways. For example, someone may use your card number without your knowledge.
It is not always possible to prevent credit or charge card fraud from happening. There are a few steps you can take to make it more difficult for a crook to capture your card or card numbers and minimize the possibility of credit theft.
If you lose your credit or charge cards or if you realize they have been lost or stolen, immediately call the issuer(s). Many companies have toll-free numbers and 24-hour service to deal with such emergencies. By law, once you report the loss or theft, you have no further responsibility for unauthorized charges. In any event, your maximum liability under federal law is $50 per card if the actual card is used.
Here are some tips to help protect you from credit and charge card fraud.
• Sign your cards as soon as they arrive.
• Carry your cards separately from your wallet, in a zippered compartment, a business card holder, or another small pouch.
• Keep a record of your account numbers, their expiration dates, and the phone number and address of each company in a secure place.
• Keep an eye on your card during the transaction, and get it back as quickly as possible.
• Void incorrect receipts.
• Destroy carbons.
• Save receipts to compare with billing statements.
• Open bills promptly and reconcile accounts monthly, just as you would your checking account.
• Report any questionable charges promptly and in writing to the card issuer.
• Notify card companies in advance of a change in address.
• Lend your card(s) to anyone.
• Leave cards or receipts lying around.
• Sign a blank receipt. When you sign a receipt, draw a line through any blank spaces above the total.
• Write your account number on a postcard or the outside of an envelope.
• Link your checking or saving accounts to your credit card.
• Give out your account number over the phone unless you’re making the call to a company you know is reputable. If you have questions about a company, check it out with your local consumer protection office or Better Business Bureau.
Limiting Your Financial Loss:
Report the loss or theft of your credit cards and your ATM or debit cards to the card issuers as quickly as possible. Many companies have toll-free numbers and 24-hour service to deal with such emergencies. It is a good idea to follow up your phone calls with a letter. Include your account number, when you noticed your card was missing, and the date you first reported the loss.
You also may want to check your homeowner’s insurance policy to see if it covers your liability for card thefts. If not, some insurance companies will allow you to change your policy to include this protection.
Your Financial Liability for the Loss:
Your maximum liability under federal law for unauthorized use of your credit card is $50. If you report the loss before your credit cards are used, the FCBA says the card issuer cannot hold you responsible for any unauthorized charges. If a thief uses your cards before you report them missing, the most you will owe for unauthorized charges is $50 per card. In addition, if the loss involves your credit card number, but not the card itself, (such as purchases over the internet) you have liability for unauthorized use.
ATM or Debit Card Loss or Fraudulent Transfers (EFTA). Your liability under federal law for unauthorized use of your ATM or debit card depends on how quickly you report the loss. If you report an ATM or debit card missing before it is used without your permission, the EFTA says the card issuer cannot hold you responsible for any unauthorized transfers. If unauthorized use occurs before you report it, your liability under federal law depends on how quickly you report the loss.
For example, if you report the loss within two business days after you realize your card is missing, you will not be responsible for more than $50 for unauthorized use. However, if you do not report the loss within two business days after you discover the loss, you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you. That means you could lose all the money in your bank account and the unused portion of your line of credit established for overdrafts. However, for unauthorized transfers involving only your debit card number (not the loss of the card), you are liable only for transfers that occur after 60 days following the mailing of your bank statement containing the unauthorized use and before you report the loss.
If unauthorized transfers show up on your bank statement, report them to the card issuer as quickly as possible. Once you have reported the loss of your ATM or debit card, you cannot be held liable for additional unauthorized transfers that occur after that time.
Protecting Your Cards:
The best protections against card fraud are to know where your cards are at all times and to keep them secure. For protection of ATM and debit cards that involve a Personal Identification Number (PIN), keep your PIN a secret. Do not use your address, birth date, phone or Social Security number as the PIN and do memorize the number.
The following suggestions may help you protect your credit card and your ATM or debit card accounts.
For Credit Cards:
• Be cautious about disclosing your account number over the phone unless you know you are dealing with a reputable company.
• Never put your account number on the outside of an envelope or on a postcard.
• Draw a line through blank spaces on charge or debit slips above the total so the amount cannot be altered easily.
• Do not sign a blank charge or debit slip.
• Tear up carbons and save your receipts to check against your monthly statements.
• Cut up old cards – cutting through the account number – before disposing of them.
• Open monthly statements promptly and compare them with your receipts. Report mistakes or discrepancies as soon as possible to the special address listed on your statement for inquiries. Under the FCBA (credit cards) and the EFTA (ATM or debit cards), the card issuer must investigate errors reported to them within 60 days of the date your statement was mailed to you.
• Keep a record – in a safe place separate from your cards – of your account numbers, expiration dates, and the telephone numbers of each card issuer so you can report a loss quickly.
• Carry only those cards that you anticipate you’ll need.
For ATM or Debit cards:
• Do not carry your PIN in your wallet or purse or write it on your ATM or debit card.
• Never write your PIN on the outside of a deposit slip, an envelope, or other papers that could be easily lost or seen.
• Carefully check ATM or debit card transactions before you enter the PIN or before you sign the receipt; the funds for this item will be legally and quickly transferred out of your checking or other deposit account.
• Periodically check your account activity. This is particularly important if you bank online. Compare the current balance and recent withdrawals or transfers to those you have recorded, including your current ATM and debit card withdrawals and purchases and your recent checks. If you notice transactions you did not make, or if your balance has dropped suddenly without activity by you, immediately report the problem to your card issuer. Someone may have co-opted your account information to commit fraud.
Buying a Registration Service:
For an annual fee, companies will notify the issuers of your credit card and your ATM or debit card accounts if your card is lost or stolen. This service allows you to make only one phone call to report all card losses rather than calling individual issuers. Most services also will request replacement cards on your behalf.
Purchasing a card registration service may be convenient, but it is not required. The FCBA and the EFTA give you the right to contact your card issuers directly in the event of a loss or suspected unauthorized use.
If you decide to buy a registration service, compare offers. Carefully read the contract to determine the company’s obligations and your liability. For example, will the company reimburse you if it fails to notify card issuers promptly once you have called in the loss to the service? If not, you could be liable for unauthorized charges or transfers.
Thursday, March 25, 2010