Credit Card Fraud Table of Contents

How Does Credit Card Fraud Happen?

Several years ago, credit card fraud occurred largely as card-present transactions. This means that the criminal would obtain the physical card from their victim and attempt to use it at a store by presenting it at the register for payment. With the inception of card chip technology, card-present purchases have become much more difficult to complete.

Now, the most common type of credit card fraud is card-not-present fraud. This type of fraud is much easier for criminals to commit without being detected. It can be committed by individuals or by organized crime operations. All the criminal needs to do is hack into a particular system and obtain the card information. From there, they can make purchases online without ever contacting a cashier or other human who might catch them.

Examples of Credit Card Fraud

There are many different types of credit card fraud, but some of the most common include skimming phishing, and account takeover. Let’s take a closer look at each one.

Skimming is when a thief uses a device to copy the information from the magnetic stripe on a credit card. The device, known as a skimmer, is usually placed on or near a credit card reader. When a credit card is swiped through the reader, the skimmer captures the credit card number and other information. This information can then be used to make fraudulent purchases or withdrawals.

Phishing involves sending fake emails or texts that appear to be from a legitimate source to obtain credit card information. Hackers often create phishing emails that look like they’re from a legitimate company, such as a bank or credit card company. They may even use the same logo or branding to make the email look more convincing. The hacker aims to get the recipient to click on a link in the email or enter personal information on a fake website. Once the hacker has this information, they can use it to make unauthorized charges on the victim’s credit card or even empty their bank account.

Account takeover is when a thief gains access to someone’s credit card account and uses it to make unauthorized charges. Usually, the criminal will first obtain the credit card holder’s personal information, such as their name, address, date of birth, and Social Security number. This information allows the criminal to apply for a new credit card in the victim’s name. Once the new credit card is approved, the criminal can purchase or withdraw cash from ATMs. In some cases, criminals will also change the victim’s billing address to continue using the card without being detected.

Counterfeiting happens when a criminal creates fake credit cards or uses stolen credit card information to make unauthorized purchases. This can be done by stealing the credit card information from the cardholder or by creating a fake credit card using the same technology as the credit card companies. Counterfeiting is a serious problem for credit card companies, as it can result in significant financial losses. In addition, it can also lead to identity theft, as the counterfeiters may use the credit card information to apply for new credit cards or loans in the victim’s name.

How Do Credit Card Companies Investigate Fraud?

Credit card fraud is a serious problem that costs businesses and consumers billions annually. Credit card companies use various methods to investigate fraud cases, including data analysis and customer interviews.

Data analysis helps identify suspicious activity that may indicate fraud, such as unexpected changes in spending patterns, large purchases that are out of the norm for that cardholder, or sudden spikes in credit card use. For example, when the same card is used to make several small purchases quickly, it could get flagged for investigation. Various fraud detection software solutions are available to help issuing banks stop fraud before it happens.

On the other hand, customer interviews can provide valuable insights into suspicious behavior. By speaking to customers affected by credit card fraud, investigators can gain valuable insights into how it occurred and what can be done to prevent it. In addition, customer interviews can also help to identify any patterns or trends that may be emerging in credit card fraud. For example, if several customers report that credit card fraudsters targeted them after making a purchase online, this could indicate a new type of credit card fraud targeting online shoppers. By speaking to customers, investigators can stay one step ahead of the criminals and help to keep people safe from credit card fraud.

Law enforcement agencies are sometimes asked to help track down and prosecute culprits. This is typically reserved for severe incidents or a series of events.

Credit card companies can use these methods to investigate and resolve most fraud cases. When the bank suspects fraud, they will contact the customer to confirm the activity. No further action is needed if the customer confirms that the activity is authorized. If the customer does not confirm the activity, the bank will take steps to block the card, shut it down, issue a new one, and begin its investigation.

Who Pays for Credit Card Fraud?

Financial institutions are typically responsible for reimbursing cardholders for fraudulent charges, but a few exceptions exist. For example, if a credit card is lost or stolen, the cardholder may be responsible for up to $50 in fraudulent charges. Additionally, some credit card companies may require customers to alert them of suspicious activity within a certain time to avoid liability.

Different card-issuing banks may have other policies around fraud. Knowing your credit card company’s policies is important to minimize your risk of being liable for fraud. Those policies can be found in the account information provided when you receive your card. They may also be available online through your card issuer’s website.

How to Prevent Credit Card Fraud

Credit card fraud can be difficult to detect and cause financial damage to businesses and individuals. However, there are some steps that you can take to protect yourself.

  • Monitor your credit card statements.
  • Report suspicious charges immediately.
  • Always keep your cards in a secure location
  • Cover the pin pad when entering a pin or zip code at a terminal
  • Be careful who you give your credit card information to, and which websites you use

Many card-issuing banks offer additional information on how to protect yourself. It’s in their best interest to ensure your data is safe, too! The bottom line is to be smart, protect your cards, and be vigilant about checking that statement every month.