Credit Card Fraud

Credit card fraud occurs when anyone uses another person’s credit card as a source of illegal funds. It doesn’t matter whether it is for a purchase of goods or services, or a cash advance. If the user is not the owner, the transaction is fraudulent.

There are several different types of credit card fraud and it is important for consumers and merchants to understand them and protect against them.

The most common kind of credit card fraud involves the lost or stolen credit card. The card is physically stolen from your home or wallet and then used by a person pretending to be you either in person or not. Advances in security technology such as PIN codes, CVV2 numbers (three digits on the back of the card) and embedded chips are working to slow down the rise of this type of fraud. A large number of cards are stolen every year right out of mailboxes, especially where communal mailboxes are located.

Another prevalent form of credit card fraud is known as skimming and occurs when a valid card is counterfeited or tampered with. Criminals coined the phrase skimming to describe the electronic transfer of information from the magnetic stripe on the back of a valid card to a fraudulent copy.

Skimming devices that copy the information are becoming problematic for credit card companies. Savvy criminals place them at cash machines or pay off unscrupulous employees of retail establishments to discreetly swipe cards while customers are not looking and then deliver the information to others who manufacture and distribute the “cloned” cards. When skimming occurs, the card owner is often not aware of the charges until he gets his next statement.

Most vexing for the Internet, phone order and mail order companies are “card-not-present” fraudulent transactions. This occurs when thieves obtain the information from your card but not the card itself. Most commonly the information is obtained by piecing together discarded receipts or by simply copying the information during a transaction. The latest defence against this type of fraud has been the implementation of the CVV code, the three additional numbers on the back of the card.

Brazen criminals have even gone so far as to illegally obtain enough information on a person and then contact his bank and attempt to either open up new accounts or change the mailing address on existing accounts. This type of activity has become known as identity theft because what has been taken from the card owner is just information.

Fighting back, credit card issuing banks working with merchants are creating systems and security procedures to make credit card fraud more difficult. Creating the Address Verification Service (AVS) to verify the card owner’s address, which is not part of the information on the strip, dealt the criminal underground a severe blow.

Furthermore, the CVV code has created another hurdle for criminals. This information is not found on the strip and will not transfer to skimming devices. It has to be read and entered manually which makes electronic information theft that much more difficult.

Probably the most effective deterrent to criminals have been the creation of well trained, increasingly techno-savvy fraud prevention divisions in law enforcement, from local police forces right on up to the FBI. Collectively these men and women have raided numerous facilities recovering millions in stolen merchandise, counterfeit cards, skimming devices and hoards of cash. With more funding and continuing technological advances, credit card fraud may actually become a thing of the past.