Credit Card Fraud in the USA - Research Paper Example

Credit Card Fraud in the USA Credit card fraud involves the theft or counterfeit of credit card which is then illegally used to obtain funds, services or goods by means of deception (HG.org, 2011). Credit card fraud is considered a white collar crime. Credit card fraud includes theft of personal information which provides access to another individual’s account. When the card is physically stolen, the theft can be discovered quickly but when personal information is stolen, it can take longer. Charges incurred through credit card fraud can be exorbitant but the Federal Law limits the card holder’s liability to $50. The onus falls on the merchants to pay for the credit card fraud and if it lacks in proper insurance, they have to incur the chargeback fee as well. The US is moving towards a cashless society but credit card theft has become a major concern of retailers, consumers, credit card issuers and the law enforcement agencies (Hearn, 1986). Credit cards were introduced in the 1950s and since then fraudsters have been finding ways to attack the system (Byrne, 2010). According to The Survey of Consumer Payment Choice, there were 176.8 million credit card hodlers in 2008 and the average card holder has 3.5 credit cards (Woolsey & Schulz, 2011). Credit cards represent the majority of the total $315 billion US financial fraud loss in 2005 while according to a European study more than 22 million adults were victims to credit card fraud in 2006 (Conlin, 2007). According to the 2009 LexisNexis True Cost of Fraud Study, retailers lose $100bn a year to consumer-facing fraud. Twenty-four percent of all retailers, 43% of whom have a strong online presence, reported increase in losses through credit card fraud. Most card fraud payment losses were borne by the card issuers (59%) followed by the merchants (41%), says Sullivan (2010). In 2006 the total fraud losses were estimated at $3.718bn as per table provided below: Source: Sullivan (2010). The process for approving card payments depends to a large extent on information. The criminals have an incentive to steal this information and this leads to attacks on computers, data breaches and ultimately payment fraud. Card fraud is the highest in the United States than countries such as UK, Spain and Netherlands. Better technology in the payment approval system can help combat fraud to some extent. Online payment approval permits automated checks against wider sets of information such as the cardholder’s zip code or transaction history (Sullivan, 2010). Criminals gather such information and use it to commit fraud. Criminals steal wallets, intercept mail and get access to account statements, or even spy and gather information when the card is in use. Video cameras secretly placed can capture valuable information. Phishing and hacking are other modes through which criminals gather information to conduct fraud. Credit and charge card fraud cost cardholders and issuers millions of dollars each year. Earlier the fraud used to occur over the telephone when the fraudster posed as an organization representative and offered incentives in exchange for credit card information. Theft is the most common form of fraud but people can also use the card number without the knowledge of the owner of the card (FTC, 2009). The thief eyes the trash to collect discarded receipts or carbons through which it is possible to obtain the credit card number. Others ways in which fraud can occur is when dishonest clerks make an extra imprint and use the card details to make personal charges. Now the criminals use packet-sniffing programs on the Internet and steal credit card information electronically. The largest case in the US credit card fraud history took place in 2008 when Albert Gonzalez and his team attacked TJX and other companies (Byrne, 2010). They acquired more than 130 million debit and credit card numbers and stole tens of millions of dollars. These were basically of customers of 7-eleven and other retail giants. They then sell the data to others who use it to make fraudulent purchases, make unauthorized withdrawals from banks and further identity theft schemes (Seib, 2009). Master Card and Visa have introduced an extra layer of security and perhaps now the identity theft, both online and offline would reduce to some extent. However, in the past five years nearly one-third of American consumers have reported credit card fraud (NPR Staff, 2011). The security system in the US lags behind those employed in other countries. The account information on the card can be easily copied as it is stored unencrypted on a magnetic stripe at the back of the card. Europe has a much better security system and the problem in the US is compounded because there is controversy over who pays for the fraud. Most of the burden is passed on to the merchants in the US. Most card issuers offer zero-liability policy for losses. This has prompted the retail giants such as Wal-mart, Walgreens, Sears, Home Depot to adopt secure system. They have begun to install new sales terminals that can process the smart-chip cards. Credit card theft has its roots in necessity, says Bares (2010). During a difficult economy people are drawn to illegal activities and the seasoned criminals know that companies are desperate to buy or sell. Such factors have resulted in 25-30% rise in credit fraud attempts since 2008. Even if one has not been defrauded, he/she pays for credit card fraud as the cost of goods and services increases to pay for the credit and charge card frauds (Spamlaws, 2009). As online banking and shopping has increased, so have credit card frauds. Credit card counterfeiters use latest technology including encoders and decoders which helps them to read, change and implant magnetic information on counterfeit credit cards. Counterfeit credit card is the most common type of credit card fraud apart from lost or stolen card, no-card fraud, non-receipt fraud and identity theft fraud. The loss from credit card is not limited to the direct losses as calculated by the government. It results in costs involved in restoring the credit records (Webroot, 2011). The consumers also have to pay for increased interest and insurance rates due to corrupted credit, health or driving records; invest in upgrading security parameters to their computer systems apart from the loss in productivity caused by credit card fraud. As mentioned above, credit card fraud occurs due to necessity and has increased during the recent economic downturn. Credit card fraud has not spared the families and children where parents are abusing the children’s good credit. Instances are reported when parents open credit cards in their child’s name and do not end up paying for the bills (Associated Press, 2011). The children suffer as they are not allowed to get credit card as their credibility is at stake. The parents violate the trust and privacy of their own children. Parents who are bad on finances are tempted to dip into their children’s credit and the process is simple as it only requires the birth date and the social security number. Vital information is stolen from everyone – from parents to co-workers to professional hackers. Fraud can thus have direct and indirect victims. The direct victims are the card holders and the indirect victims include the families of the card holder, the society and any other organization to which the individuals may be attached (FAP, 2006). The impact of fraud can be equally great on the indirect victims. As in the case of the children mentioned above, they become devastated and they suffer for loss of identity for long. They also suffer because the onus for repayments falls on their shoulder. Their lives are disrupted as they are emotionally devastated. The corporate victims may be unable to recover from losses and may even collapse thus resulting in small creditors losing money. The entire process has a chain effect where many suffer due to fraud committed by one individual. Moreover, when credit card fraud occurs, the thief usually would extract the maximum benefit from the card which means it affects the credibility report of the card holder. The moment the theft occurs report is immediately sent to the issuer as well as the Credit Bureau that all the available credit has been used up (Identitytheftcreditfraud, 2011). This creates a black mark on the credibility as it denotes desperation. The credit card thieves can even use the information and apply for another credit card or loan products in the card holder’s name. Each time such a request is made the credibility of the card holder is affected. The card holder may not be able to detect the fraud in time and hence become liable for the debt. The thieves have the practice of changing the billing address as soon as the charge on the card is incurred thereby making it difficult for the original card holder to detect fraud. Trying to get the black marks off the credibility can be emotionally exhausting as it can take on an average about 600 hours and over a decade to undo all the damage caused by credit card fraud and identity theft. While other nations have advanced technologically, the United States still lags behind, and which is the cause of the increased identity theft and credit card frauds. However, the individuals can do their part in trying to keep check on the cards by following certain tips. Passwords used should be varied and complex so that it is not easy to capture or remember (Webroot, 2011). The accuracy of personal accounts should be checked regularly and the discrepancies if any should be resolved immediately. Usually the secure sites have “https” with a lock sign and the consumers should ensure this is visible before venturing further. Consumers should be careful when providing information to any unsolicited requests, which actually indicates phishing. Suspected messages should be immediately deleted as spam without opening them which can harm the computer. These could be carrying spyware to detect information. Software should also be downloaded only from trusted sites because usually free software and file-sharing applications can leak out information. However, the responsibility lies with the Federal government in improving the entire system and upgrading technology. The direct loss is borne by the merchants or the card issuers but the consumers too bear the brunt along with their families and societies. As technology advances in securing the system the hackers and thieves too educate themselves and find newer ways to crack the system. Nevertheless, efforts are being made and should be made to ensure the minimum damage through credit card frauds because it impacts the individuals, the societies, the associations and organizations and more importantly the nation. References Associated Press. (2011). Parents Abuse Kids' Good Credit. Retrieved from http://www.wired.com/culture/lifestyle/news/2002/11/56570 Bares, G. (2010, April). Credit Fraud Landscape Shifts During Downturn. Business Credit. Conlin, J. (2007). Credit card fraud keeps growing on the Net. Retrieved from http://www.nytimes.com/2007/05/11/your-money/11iht-mcredit.1.5664687.html Byrne, D. (2010). The History of Credit Card Fraud. eHow.com, Retrieved from http://www.ehow.com/facts_7151953_history-credit-card-fraud.html FAP. (2006). Victims of Fraud. Fraud Advisory Panel, Retrieved from http://www.fraudadvisorypanel.org/new/pdf_show.php?id=74&PHPSESSID=bc518baff3366c7d95fd87e46db07073 FTC. (2009). Avoiding Credit and Charge Card Fraud. Retrieved from http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre07.shtm HG.org. (2011). Credit Card Fraud Law - Guide to Credit Card Fraud Law. Retrieved from http://www.hg.org/credit-card-fraud.html Identitytheftcreditfraud. (2011). How Credit Card Fraud Affects Your Credit Score. Retrieved from http://www.identitytheftcreditfraud.com/creditcardfraud.htm NPR Staff. (2011). Aging Card Technology Drives Rise In Credit Fraud. Retrieved from http://www.npr.org/2011/06/03/136896517/aging-card-technology-drives-rise-in-credit- fraud Seib, C. (2009, August 18). Man accused over America's biggest credit card identity fraud. Timesonline, Retrieved from http://www.timesonline.co.uk/tol/news/world/us_and_americas/article6799806.ece Spamlaws. (2009). Credit Card Fraud Statistics and Facts. Retrieved from http://www.spamlaws.com/credit-fraud-stats.html Webroot. (2011). Credit Card Fraud. Retrieved from http://www.webroot.com/En_US/csc/malware-credit-card-fraud.html Woolsey, B., & Schulz, M. (2011). Credit card statistics, industry facts, debt statistics. Retrieved from http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php Read More