Credit Card Fraud in the UK - Research Paper Example

Credit Card Fraud in the UK Wordcount: 1830 Introduction Credit card fraud is one of the most attractive crimes that tempt ordinary people today as purchasing become the national past time of many countries with the rise of free market economies. However, more seasoned criminals as well as information and communication technology experts or even neophytes gravitate towards the activity for the same reason, and for more. This paper will provide a background about credit card use, credit card fraud, its implication, as well as recommendation to reduce commission of the crime. Use of credit card or plastic cards started in 1965 although Woolsey and Gerson (2009) traces the practice with issuance of proprietary cards by oil companies and department stores in 1900 whwrein the card is useful in the same business. These cards were created to encourage customer loyalty and improvement of customer service. In 1946, John Biggins’ introduced the first bank card called “Charg-It” which allowed account holders at Biggins bank located in Brooklyn to purchase. The bill is forwarded to Biggins and Biggins pay the merchant, then charge their account holders in return. In 1951, the same system was also adopted by Franklin National Bank in New York. Both systems worked the same but use was limited locally. Diners Club Card was introduced through the initiative of Frank McNamara and his partner Ralph Schneider. By 1951, there were about 20,000 cardholders of Diners Club (Woolsey and Gerson, 2009). It was estimated that the cost of credit card fraud in the United States amounts to around US$750-830 million in 2006 alone or globally at 7 cents per $100 transaction (Mercator Advisory Group, 2008). In 2007, it has been reported that estimate of losses caused by credit card fraud reached some $52.6 billion. Credit card fraud is the misuse of a credit card through theft or other payment system through illegal source of funds with the purpose to obtain funds or goods without bearing the payment. Physical cards may be stolen or identity data and other relevant information may have been compromised to allow the commission of credit card fraud. Usually, the legitimate card holder may not be aware of the fraud, and neither do the institution that issued the card (Levi, Bissell, and Richardson, 1991). The cardholder may only start to become aware of theft or fraud once a billing statement has been received which is not delivered daily or weekly, but usually every month (Levi, Bissell, and Richardson, 1991). The popular use of internet or online transaction nowadays contributed to the acceleration of credit card fraud through compromised accounts. It is said that the lack of face-to-face transaction or voice interaction has emboldened fraudsters. Anonymity is maintained, while detection and prevention are almost impossible to implement. This makes “Credit card fraud successful because the chances of being caught are small and prosecution is very laborious,” (Balan, 2011, 1). Theoretical Explanations: Criminal Justice Theory Fraud is committed in the use of stolen credit card or data as well as compromised accounts. Users are usually unauthorized and neither the owners nor issuers of the card were usually unaware of the fraud committed until such time the account holder becomes aware of his billing charges through his statement of account. Some card companies maintain 24/7 customer service hotlines for reporting of credit card loss or any other related case. According to the Federal Deposit Insurance Corporation (1980), card holders have a limited liability of $50 upon reporting of credit card theft or within 60 days upon receipt of statement. However, some issuers waive the amount and the fraudulent chargers after the customer signs an affidavit that the charges were fraudulent. Where credit card account number is stolen and not the card, the card holders have no liability to credit card issuer as provided by the US federal law under the Consumer Protection act. The merchant or the financial institution usually bears the loss for fraudulent card transactions. Where the card issuer does not have a chargeback right, or if the merchant followed all the precautionary measures and provide sufficient evidence, the financial institution bears the loss (FDIC, 1980). Schemes on the commission of fraud include thieves selling the cards, skimming, unauthorized use of card by family members, or fraudulent access to accounts or cards, opening up fraudulent accounts using stolen data, account takeover, or operation of illegitimate rings involved in credit card fraud. Forged or counterfeit check may be issued as an advance or overpayment for a stolen credit card providing sufficient time for the ring to spread use of the card among its members before the check will be verified (Balan, 2011). Identity theft occurs in two manners: application of an account using stolen or fake documents and account takeover. Application for a credit card where thief uses someone else’s name and data is done fraudulently. Utility bills, social security numbers, bank statements, and other information maybe gathered by the fraudster for use in creating counterfeit document. The other system is account takeover where thief pretends to be the account owner and reports a lost card for replacement and forwarding of billing of statement or a new card to another address (Balan, 2011). Another credit card fraud scheme is called shave and paste where the alpha numeric characters from the card surface are substituted with another through manual process of slicing and pasting using fast drying epoxy or glue. Emboss and de-emboss process exposes the card to heat replacing names and card numbers with another. Counterfeit cards is the most popular form of physical card theft using duplicated copy of credit cards complete with names and numbers and used in collaboration with merchant employees (Balan, 2011). Stolen data or card numbers are also extremely exploited online as one account maybe used by several members of a ring of fraudsters. One specific case of credit card fraud involved online process undertaken by hacker Albert Gonzalez who was once worked with Secret Service. His group built at shadowcrew.com sold or trafficked some 1.5 million stolen credit card and ATM card numbers worldwide and Gonzalez himself lived affluently for sometime from one hotel to another. On the personal part of Gonzalez, allegations of his card selling or trafficking reached to about 170 million card or ATM numbers from 2005 until 2007. He and his accomplices apply various security programs in the creation of their own backdoor malwares applied on targeted retailers to hack on card and ATM numbers. Some of these were auctioned online while others were sold or personally used by the hackers including Gonzalez. He was arrested at a hotel in Florida in May 7, 2008 but his defense lawyer contended that he was only a member of the group with another leader (CNBC, 2011). Policy Implications: Prevention of “credit card fraud” The impact of credit card fraud as mentioned earlier has been massive losses among merchants, holders, and card institutions. The many methods that are applied by fraudsters, thieves, and hackers in the commission of the crime make credit card fraud one of the more difficult crimes to track as well as prosecute. The stealing of card numbers and identity through physical manner may be the easiest one to track as the user can identify or enumerate the merchants he or she has conducted a transaction within certain or specific times although this method may be applicable only for recent transactions. However, the production of fake cards that can pass as authentic has also been mentioned. Many special printing characteristics of the card such as the hologram reduce the progress of such method. The most challenging fraud problem remains on internet or online transactions as well as ICT manners with the proliferation of mobile communications systems, for obvious reasons that the user may be difficult to track, hackers usually are adept at using firewalls, breaking protocols, or employment of more advanced systems which they themselves create in order to remain anonymous in location, identity, as well as activity. There are loopholes in consumer protection acts that render card issuers or even merchants from fraud as helpless. Some of these measures preempt security measures to be undertaken such as provision of zip code, security codes, and other information by card user when paying using a credit card. Another problem is the proliferation of online transactions that allow hackers such as Gonzalez to steal partial or complete data for credit card fraud use without risk of immediate arrest or prosecution. Many systems are employed by hackers who seem to be two steps ahead from authorities in online security issues. This makes credit card fraud a lucrative business for criminals for a long while. Biometrics has been introduced to counter such problems. Biometrics allows personal identification using the iris of the eye, fingerprints, voice, and other personal identification manners in the card not present or CNP transactions such as physical payment system or the internet. Many companies now develop software and hardware capable to gather and transfer remote data to servers of card issuers to further reduce fraudulent transactions. The continuing rise of information and telecommunication technologies in many forms of interaction as well as transaction makes the credit card system remain a lucrative target for fraudsters. Adoption of the most effective biometric system or account verification systems such as calling a specified number for security measures to combat fraud today remain as some of the better options (Roman, 2011). However, privacy protection advocates often rise to the occasion to counter such measures. Laws that safeguard privacy has been invoked on these matters and has run counter on some provisions of law. Conclusion Credit card use usually involves three parties in order to make it possible: the card holder, the card issuer, and the merchant. In order to prevent or reduce possibilities of fraud and thief, it is important that all three parties are required by law to adopt safety measures in protecting the card and its card use. Some of these measures were already implemented by merchants and card issuers but the rate at which fraud were committed meant that these measures are not enough. It is important that laws be enacted to strike cooperation between card users, merchants and issuers. The balance has been tilted against issuers due to their overzealous manner of enlisting membership and card use as reflected on the recent credit crunch that catapulted financial problems globally. Since the issuers and merchants remain the basic beneficiary of credit card use profits, it is therefore logical that they also bear most of the losses where credit card fraud and thief occur. The safest manner they should focus into is prevention of the crime, therefore, the adoption of technologies and systems that could detect fraudulent transactions to prevent completion of the process. The most that law enforcers could do to help is to improve their efficiency and skills in the crime detection and tracking of criminals to encompass ICT skills, at least at par with hackers, if not a step in advance. Reference: Balan, C. (2011). Credit Card Fraud. The Annals of the Stefan cel Mare. University of Suceava 11:1, 13. CNBC (2011). Case File: Operation Get Rich or Die Tryin'. American Greed. Accessed from http://www.cnbc.com/id/40535839 Mercator Advisory Group.(2008). "Credit Card Issuer Fraud Management, Report Highlights, December 2008".. http://www.sas.com/news/analysts/mercator_fraud_1208.pdf Federal Deposit Insurance Corporation (1980). 6500 - Consumer Protection: TITLE IX—ELECTRONIC FUND TRANSFERS. International Review of Law, Computers & Technology Volume 13, Issue 2, 1999 Counteracting Identity Fraud in the Information Age: The Identity Theft and Assumption Deterrence Act Roman, J. (2011). Authentication: What Works and What Doesn't. Bank Info Security, July 7, accessed from http://www.bankinfosecurity.asia/articles.php?art_id=3823 Woolsey, B. and E. Gerson (2009). The history of credit cards. Credit Cards. Accessed from http://www.creditcards.com/credit-card-news/credit-cards-history-1264.php Read More