Financial scammers – especially those who are tech-savvy – are thriving in our digital age. Nearly 70% more Americans were impacted by financial data breaches in 2012 than in 2010, according to WalletHub research, and $94 million worth of credit card fraud was reported in 2012.
Credit card fraud can be classified into two different categories. One is a form of identity theft, which occurs when someone else impersonates you in order to open credit card accounts under your name. Alternatively, the other type happens when your credit card or card information is retrieved to make unauthorized purchases. Both are troublesome to resolve, so one should take steps to stay informed and to protect themself.
For more about credit card fraud, notorious cases in recent history and strategies for safeguarding your finances, continue reading below.
How Credit Card Fraud Happens
Credit card fraud isn’t complicated – and that’s a big part of why it’s so terrifying to consumers. Scammers simply need to steal a few key pieces of personal information, and voilà! They can either access your funds directly or sell your account information via black market websites.
Here is a list of the most common data points that fraudsters typically target:
Think about how much of the above information is shared every time you make a purchase. While merchants are prohibited from storing your security code and several other pieces of information – such as your PIN and magnetic stripe data – scammers don’t need to abide by such rules. In fact, here are the methods they’ll use to get their hands on your personal info:
- Skimming – Skimming is when fraudsters insert a small device into a point of sale machine or ATM, allowing them to record account information from the magnetic strip whenever plastic is swiped. This information can be used to make a duplicate card.
- Computer Hacking – Fraudsters can infiltrate your computer by installing viral spyware on it. This potentially gives them access to the keystrokes you type into your computer, including credit card details as well as account passwords and usernames.
- Phishing – While most people think of scammers as computer nerds sitting in a dark room halfway around the world, they can actually be smooth talkers. Whether it’s online or over the phone, they’re adept at contacting individuals under seemingly legitimate pretenses to get them to hand over confidential information. They’ll often have a couple pieces of information about you already, adding to their aura of authenticity.
- Mail & Dumpster Diving – You can learn a lot about someone simply by sifting through their trash and mail. Fraudsters aren’t afraid to get their hands dirty – they’ll look for documents such as bank statements, credit card and utility bills, receipts and pre-screened credit card offers in particular.
- Stealing – Some thieves also take the old-fashioned route of robbery, simply pickpocketing people for plastic.
How to Protect Yourself
Credit card fraudsters may be upping their game, but that doesn’t mean consumers should stand pat. In fact, there are numerous measures individuals can take to proactively minimize their odds of victimization. And since these strategies don’t require much effort to implement and are fairly commonsensical, one should try to cover as many of these bases as possible:
- Cancel Your Card If Lost – If you lose your credit card, contact your issuer immediately (unless you’re positive that you’ve lost it somewhere at home or in a private space). You see, even if you’re certain that you left it at a particular bar or restaurant and can arrange to pick it up, someone with malicious intent may have already jotted down your credit card information. So, always follow the “better safe than sorry” motto and cancel the card.
- Check Your Credit Card Statement – Make it a standard practice to cross-reference credit card receipts with monthly credit card bills in order to spot unauthorized charges. Not only is this useful for budgeting purposes, but doing so is one of the easiest and quickest ways to detect credit card fraud.
- Augment Your Fraud Protection – While all card networks provide $0 fraud liability guarantees, you may want to keep a closer eye on your finances with either a credit monitoring service or add-on services – such as SecureCode by MasterCard and Verified by VISA, which require cardholders to enter an additional PIN when making online purchases.Several issuers also feature text alerts that are sent every time the card is swiped, thereby notifying the cardholder if the account is ever hijacked. Check with your issuer and network to see what specific fraud protection services they can offer you.
- Protect Your Identity – Generally safeguarding your identity will help prevent credit card fraud by minimizing the chances that personal information becomes available to the wrong people. Check out our Identity Theft guide to learn about preventive measures like checking your credit reports and shredding your documents.
- Leave No Room For Doubt – Never leave the final amount of a transaction open for interpretation. That means, for example, making sure to always fill in the “Tip” field on a bill, even if you’re only going to write “$0.00.”
- Avoid Public Computers – Never enter credit card information on public computers. A lot of different people use them, leaving them unsecured and especially susceptible to spyware.
- Secure Your Wireless Network – Make sure your home and office Internet connections require passwords to connect. Public wireless networks are much more vulnerable to “middle-man” attacks, which are when a third party hacker intercepts the information sent between a user and the Internet server they’re connected to.
What To Do When Fraud Finds You
The good news is that credit card users are protected. All of the major card networks extend $0 fraud liability guarantees to cardholders. As long as you report suspected fraud within a reasonable timeframe (your issuer is watching for signs of fraud and may notify you of any issues as well), you will not be held responsible for any unauthorized charges.
With that being said, each card network’s fraud liability policy is a bit different – especially as they relate to debit cards – so make sure to check out WalletHub’s latest Credit & Debit Card Fraud Liability Study for more information on how to report your case.
Most Infamous Credit Card Scams
Like we said, credit card fraud isn’t hard to commit. But who actually goes through with it? Let’s take a look at some of the most notorious cases of credit card fraud in recent history, which have cost companies millions of dollars and caused consumers hours of headaches.
- The Student with a Part-Time Job – In 2008, Anup Patel, a computer science student, stole nearly 20,000 credit card numbers as his side-job. He banked over $3 million as a result. Patel used a skimming device at gas stations, while also installing hidden cameras in order to capture and duplicate credit card information.
- The CardSystems Solutions Hack – This third-party payment processor was compromised by a simple Trojan virus installed on its computers in 2005. Over 40 million credit card numbers were stolen, rendering it one of the largest cybercrimes ever at the time.
- The Target Takeover – Around 40 million credit and debit card numbers were stolen from Target stores between November and December of 2013. Attackers – still at large – planted a virus in the company’s network, which then sent credit card number-stealing malware to payment terminals in domestic stores, enabling hackers to retrieve data associated with every single card that was swiped in-store.
- The TJX Breach – Between 2005 and 2006, a yearlong data breach at the TJX Companies compromised 45 – 94 million credit and debit card numbers. Due to a combination of the TJX’s failure to comply with the latest security standards and hackers’ skill, card data was stolen from about 2,500 stores.
- The Home Depot Burglary – Home Depot fell victim to a massive credit and debit card scam in 2014 due to malware deployed in the company’s check-out system. An estimated 56 million card numbers were stolen.
- The Shape-Shifting Thief – Adekunle Adetiloye, who was living on welfare but somehow maintained a lavish lifestyle, was sentenced to jail for about 18 years due to nearly 600 fraudulent credit card accounts opened under multiple peoples’ identities. The elaborate scheme enabled him to steal roughly $1.5 million from over 20 major banks.
The Future: EMV vs. Fraud
The future of credit card security is in pretty good hands. We’ve already starting using cards that employ EMV technology, rendering it more difficult for credit card fraudsters to maintain their old tricks.
For instance, our adoption of chip-and-PIN credit cards reduces the likelihood of mag stripe data skimming, as the EMV chip and PIN code are used to verify the transaction instead. While the United States has been fairly slow – compared to its counterparts in Europe and Asia – in making the leap from magnetic stripe credit cards and payment terminals, change is on the way. Better late than never, right?
