Credit card fraud soars despite 'chip and pin'

Fraud on credit and debit cards rose by a quarter last year to reach a record high despite the introduction of the "chip and pin" security system.

The cost of fraud on cards issued in Britain totalled £535.2 million during 2007, with losses rising for the first time since 2004, according to the payments body Apacs.

The group said the rise was largely driven by a 77 per cent jump in fraud carried out abroad, with criminals using stolen British card details overseas, typically in countries that have not yet upgraded to chip and pin.

Overseas card fraud was worth £207.6 million, or 39 per cent of the total lost.

But there was also a six per cent increase in card fraud losses in Britain, which was largely driven by fraudsters using stolen details to make purchases over the telephone or internet, or by mail order.

This "card not present" fraud soared by 37 per cent to £290.5 million, possibly as criminals frustrated by chip and pin security looked for alternative scams.

Chip and pin does seem to have had an impact - fraudulent use of credit and debit cards on the high street has dropped by two thirds in the past three years, from £218.8 million in 2004 to £73 million last year.

There was, however, a 46 per cent rise in fraud using cloned cards, although most of this was thought to have happened overseas.

[Source: http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2008/03/12/nfraud112.xml]

Credit Card Companies Can Stop ID Fraud

A relatively simple bit of computer programming at America's three nationwide credit bureaus could create an early-warning system that would significantly deter the $50 billion identity theft problem plaguing America's consumers and the financial services industry serving them.

The Better Business Bureau estimates that 10 million people are affected by identity theft every year. One of the most common forms of this is the hijacking of good credit. If an identity thief gets personally identifiable information such as a Social Security or credit card number of an individual with a high credit score, the thief can apply for a loan or use credit available in the name of his victim. Until collection agencies show up at the victim's door, the target of identity theft may have no idea what has been happening with a criminal taking advantage of his good name and hard-earned good credit.

The same technology that enables credit reporting agencies to keep constant track of our individual borrowing and payment histories — so that banks, finance companies and retailers can make instant credit decisions — can also alert individual consumers by e-mail when there is a new credit application in their name. It would be technologically feasible to provide these alerts to all consumers as a matter of course, and it would go a long way toward preventing data hijacking. When there are credit applications made without consumers' knowledge, that's a problem the victims need to know about at the earliest possible moment, to protect their interests and their good credit standing.

Credit companies do make forms of e-mail alerts available to consumers, but this is a paid service. Those who make money marketing our credit information should be required to provide immediate notice to us for free when a potential credit fraud in our name is being detected.

These e-mail alerts could readily be programmed into the databases of each of the three major credit reporting bureaus, at a minimal cost and to immediate effect. Sharing this data with consumers by an e-mail alert would warn us whenever someone else might be hijacking our credit. If an individual didn't apply for the credit being taken in his name, this early warning would be a red flag to potential victims of identity theft to alert the authorities and the creditor being defrauded.

Credit reporting bureaus are in the business of trading information on our credit. In a national credit market, this system means that the financial services industry can package and trade our debts, because financing taken anywhere in the country can be compared directly with financing taken anywhere else based on credit scores.

Our personal information is the commodity of the credit report industry, which gains from packaging and trading our personal information. The credit report companies would like to treat the potential to warn consumers and minimize abuse of the credit bureau system as one more profit center.

Those who grant credit based on credit reports, as well as those consumers whose credit is hijacked, are all victims of identity theft. Charging consumers for monitoring alerts that are sold as a premium service and only reach a small fraction of the consumers who are at risk is not serving our interest in protecting against this abuse.

This $50 billion financial fraud is susceptible to a quick technology fix by the credit bureaus that act as trustees of our sensitive financial information. We should expect the scandal of identity theft, aided by misuse of credit reports, be put to a quick end by those who profit from trading in our personally identifiable information. By taking a simple step using technology, credit bureaus could help every consumer ensure their credit information is accurate and protected.

Mark A. Shiffrin, a lawyer, is a former Connecticut state consumer protection commissioner. Avi Silberschatz is Sidney J. Weinberg Professor and chairman of computer science at Yale.

[Source: http://www.courant.com/news/opinion/op_ed/hc-shiffrin0312.artmar12,0,1627129.story]

Think before you swipe credit card for cash

What’s the worst thing to do with your credit card? Use it to withdraw cash from the ATM, says a financial expert. In your monthly credit card statement, there is a mention of cash limit.

That is the extent to which one could withdraw cash using a credit card. But the googly is the interest rates. It’s actually a very expensive proposition to withdraw cash as the interest rates on such withdrawals fall in the range of 40% on an annual basis.

Usually, the credit card company mentions the interest rate as a percentage per month which typically varies from 2.7-2.85% per month.

And since this interest is compounded monthly, the effective annual rate of interest tends to be anywhere from 38 to 40% per annum.

Essentially, credit card companies charge the same interest rates for cash withdrawals made through credit cards and for rolling over credit card balances.

But if one pays the entire amount on due date, one gets around 30-45 days of interest free credit.

But what is important to know is that rule doesn’t apply in case of cash withdrawals; the credit card company levies the interest rate the moment you withdraw the cash.

Cash withdrawals can also attract an additional withdrawal fee. This charge falls in the range of 3-3.5% of the withdrawn amount.

That will be added along with the interest rate to your bill. Therefore, unless you have emergency needs, do not withdraw cash on your credit card.
The better option though is to go for a personal loan.

Says RL Prasad, general manager and head of cards and personal loans at Standard Chartered Bank, “You should look at this option as the last resort. If it’s a planned expenditure and you don’t have sufficient liquidity then a personal loan is be a viable option.”

Credit card cash withdrawals vs personal loan

Personal loan is a better option as the average interest rate on personal loans is between 15-20% per annum. The only handicap however, is that it takes around 7-10 working days for the banks to process personal loans.

For the uninitiated, every credit card statement has a billing date. For example, if your credit card payment is due on March 15 then the bill would have been dated around February 27.

So if you purchase anything on February 28 or later, that payment would be due only on April 15. So you get some time to cough up that money to pay off the dues.

If you are unable to pay the outstanding amount, then the credit card company charges a month rate of 2.95% of the total amount. But this breather doesn’t exist on these cash withdrawals.