Crime and Punishment: Credit Card Fraud

Cole Mayer  | 

An unusual email appears in your inbox. It’s a fraud alert, noting unusual activity on your credit card. Were you in Brazil a few hours ago, buying a computer? Looking around your office in Everytown, USA, it’s clear to you that no, you did not buy a computer hundreds of miles away.

You open up your credit card statement. You also did not buy a full tank of gas for your car in Africa. Or buy a $10 iTunes gift card a few days ago. You are the victim of credit card fraud.

What is Credit Card Fraud?

Credit card fraud occurs when someone steals your credit card information — number, name on card, expiration date, etc. — and uses the card to purchase items in your name, using your money. It is, unfortunately, more common than you probably think. There are few common ways of stealing your credit card information, but one major tactic is hacking credit card information from a company. For example, Home Depot’s self-checkout machines were hacked in 2014, with 50 million customers’ credit card and email information leaked.

The information is then sold in bulk in the dark corners of the internet – thousands of credit card numbers at a time. A scammer buys the information, and can then methodically work their way down the list, testing credit cards by making small purchases, hoping you won’t notice – like a $10 iTunes gift card.

In 2015, Americans accounted for about a quarter of total credit card usage, but nearly half of credit card fraud targeted the US. But, in January 2016, EMV chips embedded in new cards helped. Mastercard (the “M” in “EMV”) reported up to an 80 percent reduction in fraud in European countries that adopted the EMV chips more than a decade ago. Security firm Gemalto found that England saw a 30 percent reduction in credit card fraud cases since EMV adoption in 2004, while Canada’s debit card losses were reduced by 73 percent, from $142 million in 2009 to $38.5 million in 2012. Fraud from card theft in France since their 2005 adoption fell a whopping 98 percent.

America is quickly adopting the chips, as well – by the end of 2016, 75 percent of credit cards had an EMV chip.

But, despite these numbers, identity theft and credit card fraud remain a problem. According to Javelin Research and Strategy, $16 billion was stolen from 15.4 million Americans in 2016. In 2015, 13.1 million Americans lost about $15.3 million.

Card-not-present thefts, such as stealing the information from an online retailer, rose by 40 percent since 2015. Given how common credit card information theft is, it’s entirely possible someone has your numbers, and simply hasn’t tested the card yet. Or, they may have an expired credit card. Thankfully, major companies will often inform their clientele after a breach, recommending clients contact their credit card lender in order to issue a new card.

Having your card stolen online is a higher risk than at brick-and-mortar stores, but offline consumers typically take more than 40 days to detect fraud, and thus incur higher amounts of  fraudulent charges as the criminal has longer to go on a buying spree. Compare this to e-commerce shoppers, where 78 percent of victims noticed fraudulent purchases within a week.

Identity Theft

Credit card fraud is closely linked to identity theft, which the Federal Trade Commission recognizes as about 29 percent of consumer complaints. The most common type of identity theft, the FTC found, was debt collection, followed by imposter scams. Debt collectors may be trying to collect debts not owed (such as from a deceased relative), no longer owed due to the statute of limitation, or simply making up debt.

Imposter scams pretend to be government officials, a computer technician, or even, comically, a Nigerian prince looking to give you money. Sometimes they will attempt to get a credit card number from you, to pay for services; other times, they simply want your bank account information.

As FindLaw points out, there’s a number of other ways identity thieves steal information, including:

  • Stealing a new card from your mailbox
  • Watching a transaction over your shoulder
  • Going through your trash and finding old statements
  • Making false telephone solicitations

What do they do with this information, other than buying items on your account? Opening various accounts, from utilities to loans. They apply for government benefits, or try to use the information to forge new documents, like driver’s licences. In this way, they can wreck your credit.

How Do Credit Card Fraudsters Get Caught? 

How do credit card fraudsters get caught? Catching the thieves depends on how smart they are. If they order items online and have them delivered to their house, it can be almost too easy to catch them. But, if they bought your information from the deeper, darker corners of the internet and can rattle off jargon like “VPN” and “proxy,” it can be much harder, if not impossible.

If they are caught, though, and intent is proven, such as they actually meant to commit fraud and knowingly using a stolen card, the sentence differs by state statutes, as do the credit card fraud charges. For example, California penal code 484 governs credit card theft and fraud. As the Shouse Law Group points out, simple possession of stolen credit cards can lead to up to a year in county jail and a $1,000 fine as a misdemeanor. As a felony, it could be up to a year of probation and a year in county jail; or up to three years in a county jail; or even a $10,000 fine — all without actually using the card or cards. Use of the credit card becomes petty theft or grand theft, depending on the value of the items bought.

If, however, the crime was committed on government property, against a government entity, or across state lines, the fraudster could be charged with 18 US Code 1029, a federal offense. On top of a hefty fine, they could face upwards of 20 years in prison.

Preventing Fraud

There are steps you can take to reduce the chances of identity theft or credit card fraud.

First, lockdown social media. Review your privacy settings. The wrong person could get the right information to compromise your accounts. Imagine if your security question to retrieve your credit card account’s password was your pet’s name. Someone searches for you on Facebook, finds photos of you and Fluffy McPupper, and now has the information to hack into your account – with no actual hacking needed.

Next, check your passwords; it’s good to update them periodically. While it might seem best to replace letters with numbers and symbols in your password, Randall Munroe, a former NASA roboticist-turned-webcomic creator, crunched numbers and found a simple four-word phrase, using random words, is much more secure.

Signing up for security and fraud alerts on your credit card is always a wise idea. Many companies offer this already, but some may require you to ask or even pay a fee for it. You can also add an alert tied to your credit score, which will also help inform you of anything out of the ordinary with your score. This may also be free through your bank, but the three major credit bureaus, as well as other credit-reporting companies, offer this as a paid service. Similarly, if you suspect your identity has been stolen, you can place a credit freeze on your credit score, usually for a small fee.

You can enable two-factor authentication on many of your accounts, including e-commerce sites like Amazon. This sends a text message to your phone anytime a new device, such as computer, tablet, or smartphone, attempts to access your account. The message will contain a one-time-use code, which enables access to account. This is on top of your normal username and password.

Finally, do not delay when you suspect fraud. The faster you inform your bank, credit card company or other account provider, the faster they can put a freeze on your account and reissue a card, limiting the amount of damage done. Not only can this limit your own liability, but it gives more time to law enforcement to catch the criminal.

Credit card fraud and identity theft affects millions of people each year. It’s important to understand the fundamentals of credit card fraud in order to prevent it, or minimize damage. Ensuring you have an EMV card, and using simple tips like switching up passwords, you can hamper fraudsters and protect yourself.

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Cole Mayer is an online marketing specialist and corporate blog writer. A former newspaper journalist, he spends his free time freelance writing, playing video games, and learning about every subject under the sun. Follow Cole on Twitter: @ColeMayer42

This post was updated August 8, 2017. It was originally published April 4, 2017.