According to the US Department of Homeland Security, credit card fraud costs Americans over $500 million annually. Despite concerns over terrorism, health care, and the environment, credit and debit card fraud ranks as the number one fear of Americans. Individual consumers, merchants and credit card companies are all at risk. As technology advances, the public will continue to face mounting challenges to prevent and detect credit card scams.
Below are 5 common credit card scams that you need to look out for to avoid having your identity stolen. The second you become aware of a credit card being used without your knowledge, you need to call your credit card company and have the card canceled.
Lost and Stolen Credit Cards
The oldest form of credit card fraud is lost and stolen credit cards. This form of credit card fraud requires no investment in technology. Professional criminals and pickpockets prey upon innocent civilians who have accidentally lost their credit card(s) or taken their attention off their belongings. Unfortunately, there is no real solution to this problem. The only recourse is to stop the credit card through your credit card issuer. If detected early enough, one might be able to stop the damage; however, if left unchecked, the culprit could rack up substantial charges.
Card Not Present Orders
Card Not Present Orders or CNP is a type of credit card scam that occurs when the physical card is not required or visible for the order nor is the consumer’s signature on a sales draft required. CNP scams usually take place via the Internet, over the phone or through the mail. Criminals use stolen cards to place fraudulent orders. Because there are no security guards or cameras present as there would be in a store, criminals are less likely to be caught. Unlike a lost or stolen credit card, which may penalize the consumer who had their card lost or stolen, a CNP scam affects the consumer and the merchant. In all likelihood, once the consumer realizes that they have been scammed, he or she will protest the charge and the merchant will have to process a refund. It is difficult to immediately recognize when such a scam has been carried out, and therefore, takes longer to be reported and is less likely to be investigated.
Application fraud is another common credit card scam and can be divided into two types: the first and most widely known is “identity theft.” In this case, a criminal assumes someone else’s name and credentials to fill out a credit card application unbeknownst to the victim. Often times, an individual uses a false name with a temporary address or steals supporting documents from the victim to substantiate the application. In recent years, banks have “tightened” the application procedure and require account references, a birth certificate, driver’s license and/or passport. However, if and when an identity thief is approved for a card in the victim’s name, thieves have free reign to inflict monetary and emotional harm including damaging the victim’s credit score and payment history.
The second type of application fraud is financial fraud. This type of fraud entails providing false information when applying for a credit card perhaps to gain more credit than the perpetrator is entitled to. Often times, the fraudster will exaggerate income. Although banks attempt to put up safeguards, fraudsters have successfully gotten around such measures.
One of the more modern credit card scams is known as “phishing.” In this scenario, Internet hackers lure their victims to an official looking website claiming to be the victim’s bank, credit card company, or payment processor such as PayPal. The fake website looks as close to being legitimate as possible and includes logos, URLs and slogans. Victims are then asked to provide their bank and credit card information as part of a “routine security check,” yet in reality, the consumer’s information is being stolen. Once the unknowing victim “submits” his/her credit card information, it is immediately transmitted to those running the scam.
Today, skimming is becoming the most popular method of credit card fraud and the most difficult to prevent. Most often, skimming is an “inside” job and usually involves a dishonest employee that interferes in legitimate transactions. Employees or cashiers can carry pocket skimming devices (as pictured below), battery-operated electronic magnetic stripe readers, and use this technology to swipe the customer’s card to obtain their credit card details. During this time, the unknowing customer is waiting for the card terminal to validate their transaction. Once the clerk has the consumer’s credit card information, he/she is free to go on a spending spree. Skimming is not only difficult to detect but hard to prevent, as the last person a defrauded customer suspects is the store clerk. Further, advances in skimming technology have made it easier to copy the data of those cards that claim to be completely secure.