Preventing Credit Card Fraud
What is credit card fraud?
Credit card fraud occurs any time your credit card account is used without your knowledge or permission. Credit card fraud costs cardholders and issuers hundreds of millions of dollars every year. Closely related to credit card fraud is “identity theft,” which is addressed in our separate topic discussion, Coping with Identity Theft. While it is easy to become the victim of credit card fraud, there are many simple ways to protect yourself against this loss. Some of these are outlined below.
Tip: The Fair and Accurate Credit Transactions Act of 2003 (FACTA) provides consumers with an arsenal of weapons to fight fraud and identity theft. For example, you can ask the credit bureaus to truncate your Social Security number on any disclosures they send to you, including your credit report. Additionally, creditors and businesses must take other steps to protect consumers against fraud and identity theft. For example, merchants can only print the last five digits of your credit card or debit card number on electronically generated receipts.
How can you protect yourself from credit card fraud?
Keep track of your card
The first step in protecting yourself is to know where your credit card is at all times. Try carrying your money in one pocket and your credit cards in another, so a thief won’t steal both at once. Keep your eye on your card during transactions, and be sure the clerk returns it at the end of the transaction. Don’t loan your card to anyone or reveal your personal identification number (PIN).
Take some low-tech precautions
Retail stores and other businesses that accept credit cards are prohibited by law from asking to see additional identification. This can actually make things easier for anyone fraudulently using your card. Immediately sign the back of a new card, and use permanent ink. A thief may be inhibited by the need to forge your signature. Make the activation call the company requires, because that protects you against liability and may give you additional information. Keep your PIN separate from your card.
Handle your personal identification number (PIN) with care
Your PIN is an important protection for your card. Select one that is easy to remember, but not easy to guess. Don’t use your house number, your license plate, your birthday, or part of your Social Security number. Don’t write the number on your card or carry it somewhere in your wallet. Don’t share your PIN with anyone, including family members.
Consider using a credit card protection service
Having your wallet or purse stolen can be a nightmare. To save yourself the worry of calling every single issuer whose card you carry, you can pay a small fee to a protection service that will notify your credit card companies for you. Some of these protection companies will also pay any liability you incur after you notify them, and they will wire you money if you request it.
Caution: You’ll be paying monthly for this protection service, so think about whether you really need it. Also, the service will only be as good as the information you give them. If you change cards, add cards, or lose more cards than you realized, the service won’t be worth the money you spend on it.
Tip: Make a list of your cards, their numbers, and the toll-free number to report loss or theft. Keep this list in a safe place–not in your wallet or purse. If you lose your wallet or purse and aren’t able to notify your card issuers, you’ll be liable for a portion of any illegally made charges.
Protect your card number as carefully as you protect your card
A thief may steal your card itself, but is even more likely to steal your card number. A dishonest clerk or telemarketer, for example, can copy your credit card number. A thief can also find your number on discarded receipts or carbons and use the information to shop by phone, mail, or Internet. Instead of stuffing your receipts in your glove compartment, keep them in a safe place at home so your number is protected. Never write the number on the outside of envelopes or on postcards.
Tip: Visit the FTC’s website at www.ftc.gov for information on what steps you should take if you believe you are the victim of credit card fraud/identity theft.
What do card issuers do to prevent fraud?
You may feel that it’s you against the pickpocket, but card companies have an incentive to back you up. In most situations, the card issuers bear the responsibility for illegally incurred charges. Many credit cards now have holograms or photos for identity protection. They may also carry “neural networks,” which track your spending habits, the geographical area where you usually shop, and what your typical price range is. That’s why travel card companies advertise that they call their customers if their credit cards show unusual activity.
Online shopping is becoming more popular than the traditional in-store shopping experience. If you’re going to shop online, there are basic ways to protect your credit information.
Unsecured information sent over the Internet can easily be intercepted. If you decide to buy online, you should make sure that your browser’s security features have been updated and that the website you are using has encryption measures. Here are some additional tips for shopping online:
- Buy from reputable stores and sellers.
- Look for third-party seals of approvals, such as the Better Business Bureau Accredited Business Seal.
- Make sure the site uses encryption. Look for an “s” after “http” in the address. There should also be a tiny closed padlock in the address bar, or lower right-hand corner of the window.
- Use a browser filter that warns you of suspicious sites.
Coping with Identity Theft
Whether they’re snatching your purse, diving into your dumpster, stealing your mail, or hacking into your computer, they’re out to get you. Who are they? Identity thieves.
Identity thieves can empty your bank account, max out your credit cards, open new accounts in your name, and purchase furniture, cars, and even homes on the basis of your credit history. If they give your personal information to the police during an arrest and then don’t show up for a court date, you may be subsequently arrested and jailed.
And what will you get for their efforts? You’ll get the headache and expense of cleaning up the mess they leave behind.
Protect yourself against identity theft
There are really two types of identity theft:
- Account takeover–this is what happens when a thief gets your existing credit or debit cards (or even just the account numbers and expiration dates) and goes on a shopping spree at your expense
- Application fraud–this is what happens when a thief gets your Social Security number and uses it (along with other information about you) to obtain new credit in your name
You may never be able to completely prevent either type of identity theft, but here are some steps you can take to help protect yourself from becoming a victim.
Check yourself out
It’s important to review your credit report periodically. Check to make sure that all the information contained in it is correct and there is no fraudulent activity. Every consumer is entitled to a free copy of his or her credit report once a year from each of the three national credit reporting agencies: Equifax,TransUnion, and Experian. You can visit www.annualcreditreport.com for more information.
Secure your number
Your most important personal identifier is your Social Security number (SSN). Guard it carefully. Never carry your Social Security card with you unless you’ll need it. The same goes for other forms of identification (for example, health insurance cards) that display your SSN. If your state uses your SSN as your driver’s license number, request an alternate number.
Don’t have your SSN preprinted on your checks, and don’t let merchants write it on your checks. Don’t give it out over the phone unless you initiate the call to an organization you trust. Ask the three major credit reporting agencies to truncate it on your credit reports. Try to avoid listing it on employment applications; offer instead to provide it during a job interview.
Don’t leave home with it
Most of us carry our checkbooks and all of our credit cards, debit cards, and telephone cards with us all the time. That’s a bad idea; if your wallet or purse is stolen, the thief will have a treasure chest of new toys to play with.
Carry only the cards and/or checks you’ll need for any one trip. And keep a written record of all your account numbers, credit card expiration dates, and the telephone numbers of the customer service and fraud departments in a secure place–at home.
Keep your receipts
When you make a purchase with a credit or debit card, you’re given a receipt. Don’t throw it away or leave it behind; it may contain your credit or debit card number. And don’t leave it in the shopping bag inside your car while you continue shopping; if your car is broken into and the item you bought is stolen, your identity may be as well.
Save your receipts until you can check them against your monthly credit card and bank statements, and watch your statements for purchases you didn’t make.
When you toss it, shred it
Before you throw out any financial records such as credit or debit card receipts and statements, cancelled checks, or even offers for credit you receive in the mail, shred the documents, preferably with a cross-cut shredder. If you don’t, you may find the panhandler going through your dumpster was looking for more than discarded leftovers.
Keep a low profile
The more your personal information is available to others, the more likely you are to be victimized by identity theft. While you don’t need to become a hermit in a cave, there are steps you can take to help minimize your exposure:
- To stop telephone calls from national telemarketers, list your telephone number with the Federal Trade Commission’s National Do Not Call Registry by registering online at www.donotcall.gov.
- To remove your name from most national mailing and e-mailing lists, as well as most telemarketing lists, register online with the Direct Marketing Association at www.dmaconsumers.org.
- To remove your name from marketing lists prepared by the three national consumer reporting agencies, register online with the Direct Marketing Association at www.optoutprescreen.com.
- When given the opportunity to do so by your bank, investment firm, insurance company, and credit card companies, opt out of allowing them to share your financial information with other organizations.
- You may even want to consider having your name and address removed from the telephone book and reverse directories.
- Never provide any personal information via phone, letter, or e-mail unless you initiated the transaction. Legitimate businesses should already have your information on file, and will not call you or e-mail you to ask for it.
Take a byte out of crime
Whatever else you may want your computer to do, you don’t want it to inadvertently reveal your personal information to others. Take steps to help assure that this won’t happen.
Install a firewall to prevent hackers from obtaining information from your hard drive or hijacking your computer to use it for committing other crimes. This is especially important if you use a high-speed connection that leaves you continuously connected to the Internet. Moreover, install virus protection software and update it on a regular basis.
Try to avoid storing personal and financial information on a laptop; if it’s stolen, the thief may obtain more than your computer. If you must store such information on your laptop, make things as difficult as possible for a thief by protecting these files with a strong password–one that’s 6 to 8 characters long, and that contains letters (upper and lower case), numbers, and symbols.
“If a stranger calls, don’t answer.” Opening e-mails from people you don’t know, especially if you download attached files or click on hyperlinks within the message, can expose you to viruses, infect your computer with “spyware” that captures information by recording your keystrokes, or lead you to “spoofs” (websites that replicate legitimate business sites) designed to trick you into revealing personal information that can be used to steal your identity.
If you wish to visit a business’s legitimate website, use your stored bookmark or type the URL address directly into the browser. If you provide personal or financial information about yourself over the Internet, do so only at secure websites; to determine if a site is secure, look for a URL that begins with “https” (instead of “http”) or a lock icon on the browser’s status bar.
And when it comes time to upgrade to a new computer, remove all your personal information from the old one before you dispose of it. Doing so by using the “delete” function isn’t sufficient to do the job; overwrite the hard drive by using a “wipe” utility program. The minimal cost of investing in this software may save you from being wiped out later by an identity thief.
Recovering from identity theft
Suddenly your bank account is empty, your credit card bills are through the roof, and you’re getting late notices for accounts you don’t own. Despite your best efforts, your identity has been stolen. What now?
Time is money
To minimize your losses, act fast. Contact, in this order:
- Your credit card companies
- Your bank
- The three major credit bureaus
- Local, state, or federal law enforcement authorities
Your credit card companies
Credit card companies are getting better at detecting fraud; in many cases, if they spot activity outside the mainstream of your normal card usage, they’ll call you to confirm that you made the charges. But the responsibility to notify them of lost or stolen cards is still yours.
If you do so in a reasonable time (within 30 days after you discover the loss), you won’t be responsible for more than $50 per card in fraudulent charges. Ask that the accounts be closed at your request, and open new accounts with password protection.
If an identity thief opens new accounts in your name, you’ll need to prove it wasn’t you who opened them. Ask the creditors for copies of application forms or other transaction records to verify that the signature on them isn’t yours.
Whether the identity thief compromises an existing account or opens a new one fraudulently, the creditor involved may want you to fill out a fraud affidavit. Most will accept the uniform affidavit form available from the Federal Trade Commission (FTC); you may obtain it from the FTC at www.ftc.gov.
Follow up your initial creditor contacts with letters indicating the date you reported the loss or theft. Watch your subsequent monthly statements from the creditor; if any fraudulent charges appear, contest them in writing.
If your debit (ATM) card is lost or stolen, you won’t be held responsible for any unauthorized withdrawals if you report the loss before it’s used. Otherwise, the extent of your liability depends on how quickly you report the loss:
- If you report the loss within two business days after you notice the card is missing, you’ll be held liable for up to $50 of unauthorized withdrawals. (If the card doubles as a credit card, you may not be protected by this limit.)
- If you fail to report the loss within two days after you notice the card is missing, you can be held responsible for up to $500 in unauthorized withdrawals.
- If you fail to report an unauthorized transfer or withdrawal that’s posted on your bank statement within 60 days after the statement is mailed to you, you risk unlimited loss.
If your checkbook is lost or stolen, stop payment on any outstanding checks, then close the account and open a new one. Dispute any fraudulent checks accepted by merchants in order to prevent collection activity against you. You may also want to contact a check-guarantee bureau for additional assistance.
The three major credit bureaus
If your credit cards have been lost or stolen, call the fraud number of any one of the three national credit reporting agencies:
- Equifax (888) 766-0008
- Experian (888) 397-3742
- TransUnion (800) 680-7289
You only need to contact one of the three; the one you call is required to contact the other two.
Next, place a fraud alert on your credit report. If your credit cards have been lost or stolen, and you think you may be victimized by identity theft, you may place an initial fraud alert on your report. An initial fraud alert entitles you to one free credit report from each credit bureau, and remains on your credit report for 90 days. If you become a victim of identity theft (an existing account is used fraudulently or the thief opens new credit in your name), you may place an extended fraud alert on your credit report once you file a report with a law enforcement agency. An extended fraud alert entitles you to two free credit reports within 12 months from each credit bureau, and remains on your credit report for 7 years.
Once a fraud alert has been placed on your credit report, any user of your report is required to verify your identity before extending any existing credit or issuing new credit in your name. For extended fraud alerts, this verification process must include contacting you personally by telephone at a number you provide for that purpose.
If you live in one of the handful of states that allow you to “freeze” your credit report, do so. Once you do, no one–creditors, insurers, and even potential employers–will be allowed access to your credit report unless you “thaw” it for them.
If your state allows you to freeze your credit report, you must contact all three major credit reporting agencies. In some cases, victims of identity theft are not charged a fee to freeze and/or thaw their credit reports, but the laws vary from state to state. Contact the office of the attorney general in your state for more information.
If you discover fraudulent transactions on your credit reports, contest them through the credit bureaus. Do so in writing, and provide a copy of the identity theft report you file. You should also contest the fraudulent transaction in the same fashion with the merchant, bank, or creditor who reported the information to the credit bureau. Both the credit bureaus and those who provide information to them are responsible for correcting fraudulent information on your credit report, and for taking pains to assure that it doesn’t resurface there.
Law enforcement agencies
While the police may not catch the person who stole your identity, you should file a report about the theft with a federal, state, or local law enforcement agency. Once you’ve filed the report, get a copy of it; you’ll need it in order to file an extended fraud alert with the credit bureaus. You may also need to provide it to banks or creditors before they’ll forgive any unauthorized transactions.
When you file the report, give the law enforcement officer as much information about the crime as possible: the date and location of the loss or theft, information about any existing accounts that have been compromised, and/or information about any new credit accounts that have been opened fraudulently. Write down the name and contact information of the investigator who took your report, and give it to creditors, banks, or credit bureaus that may need to verify your case.
If the theft of your identity involved any mail tampering (such as stealing credit card offers or statements from your mailbox, or filing a fraudulent change of address form), notify the U.S. Postal Inspection Service. If your driver’s license has been used to pass bad checks or perpetrate other forms of fraud, contact your state’s Department of Motor Vehicles. If you lose your passport, contact the U.S. Department of State. Finally, if your Social Security card is lost or stolen, notify the Social Security Administration.
Once resolved, most instances of identity theft stay resolved. But stay alert: monitor your credit reports regularly, check your monthly statements for any unauthorized activity, and be on the lookout for other signs (such as missing mail and debt collection activity) that someone is pretending to be you.
As the grizzled duty sergeant used to say on the televised police drama, “Be careful out there.” The identity you save may be your own.
Your Rights in Case of Lost or Stolen Credit Cards
What are your rights if your card is lost or stolen?
You reach for your credit card and it isn’t there! Don’t panic: Your losses are limited whether the card fell out of your pocket or was stolen by a thief. You’re also protected if your credit card number was used without your permission over the phone, on the Internet, or by mail. If your credit card is illegally used, your liability is limited to a maximum of $50. Although debit cards are governed by a different federal regulation, your maximum liability is still limited in most cases. As long as you tell your bank about your missing card in a timely manner, your liability for unauthorized use is generally limited to $50. However, this amount can increase if you are slow to notify your bank about the missing card.
What should you do if your credit card is lost or stolen?
Call the card issuer immediately
If you discover that your credit card or charge card is missing, or if you discover unauthorized charges on your card statement (indicating that your card number may have been used without your knowledge), call the card issuer immediately. Most card companies provide 24-hour customer service for such emergencies, but you have to know the number. If your card has been stolen, you won’t be able to flip it over and dial the toll-free number printed on the back. It’s important to keep this information in a safe place. You’ll need to provide your account number when you call, so make sure you have recorded this information as well.
Follow up with a letter
Many card issuers will require you to follow up your phone call with a letter. This letter should include your name and account number, the date you realized your card was missing or discovered the unauthorized charges on your statement, and the date you first reported the loss. Write down the name of the customer service representative who takes your phone report and include that in your letter as well.
Don’t use your account
Most card issuers will freeze your credit card account as soon as you report your card or account number lost or stolen, in order to prevent further loss. This means that you (and anyone else who is named as an authorized user) won’t be able to use the account. The card issuer will usually issue a new card and account number immediately.
How is your liability established if your credit card is lost or stolen?
If you report the loss before the card is used, you have no responsibility for any unauthorized charges. If your cards are used before you report them missing, the most you will owe is $50 per card. You’ll never owe more than $50, even if the thief uses your card at an ATM to access your cash advance.
If you discover that a friend or family member has stolen your card, you have a choice to make. Reporting the stolen card limits your liability to $50, but it may mean identifying your friend or family member as the thief, because you must provide any information necessary to assist the card issuer in investigating the loss. You may decide it’s better to pay for the unauthorized charges rather than giving your friend or family member a criminal record.
What should you do if your ATM or debit card is missing?
Notify your bank
If you discover that your ATM or debit card has been lost or stolen, or if you notice unauthorized transactions on your bank statement, notify your bank immediately. You should call your bank first, since this is the quickest way to notify it. However, you should follow up with a letter so that you have a record of your notice.
Stop using your card
As with a credit card, most banks will deactivate your ATM or debit card as soon as you report it missing in order to prevent further loss. They will generally issue you a new card right away.
What is your liability for a lost or stolen ATM or debit card?
Your liability for unauthorized transactions using your ATM or debit card depends on how quickly you notify your bank of the loss. Guidelines for determining your liability are as follows:
Unauthorized use of card
There must be an unauthorized use of your card.
Within two days of discovering card missing
Your liability is limited to no more than $50 if you notify your bank within two days of the time you discover your card is missing.
More than two days after discovering card missing but less than 60 days after unauthorized transactions appear on bank statement
Your liability is limited to no more than $500 if you notify your bank more than two days after discovering your card is missing but less than 60 days after the unauthorized transaction appears on your bank statement.
More than 60 days after unauthorized transactions appear on bank statement
If you wait more than 60 days after receiving a periodic statement showing unauthorized transactions, your liability is unlimited. This means you could lose everything in your account and possibly more if your account is attached to an overdraft line of credit.
Unauthorized use of account number without actual card
If a thief finds out your debit card number without actually taking the card, this information can be used to shop by phone, mail, or on the Internet. You would probably not know your card is being used fraudulently until the transactions appear on your bank statement. Your liability for this type of unauthorized transaction is limited to $50, as long as you report the fraud within 60 days of the time the information first appears on your bank statement. Failure to report fraudulent use within this time frame can increase your liability significantly.
As long as your liability is limited, why bother protecting your cards?
You generally don’t pay for unauthorized usage of your credit or debit cards and credit card thieves are seldom caught, so who is left holding the bag? In most cases, the card issuers are stuck with the loss. Or are they? Credit card companies are usually quite profitable, even though they suffer large losses from credit card theft. What this really means is that the card issuers pass their losses on to you in the form of increased interest rates and fees.
For a free, no obligation financial consultation, contact Armstrong Advisory Group at (800) 393-4001.
Securities offered through Securities America Inc., Member FINRA/SIPC and advisory services offered through Securities America Advisors, Inc. Armstrong Advisory Group and the Securities America companies are unaffiliated.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2014. AT897872.2 – June 2015