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]

Credit Card Follies

By Kevin Drum

(Political Animal) CREDIT CARD FOLLIES....What's a bank to do when its profits fall thanks to the subprime debacle and a slowdown in consumer borrowing? You guessed it:

Hundreds of thousands of Capital One and Bank of America cardholders have been notified in recent months that their interest rates are going up — in some cases to as much as 28% — even though they haven't been missing payments.

...."They need to raise rates because they can't raise fees anymore," [David] Robertson said. "It's politically untenable."

Politics also seems to be behind a subtle shift in language that's appeared in the terms and conditions of several top card issuers. Increasingly, lawmakers have been taking a skeptical view of banks' long-standing insistence that they can raise people's rates at any time for any reason.

Citibank announced last year that it would no longer make this claim. Instead, the bank now says people's rates may rise because of "general market conditions." Similarly, Capital One introduced language last year asserting that cardholders' rates could go up "if market conditions change." More broadly, BofA declares that credit card rates could increase due to "market conditions, business strategies or for any reason." [Italics mine.]

...."The card issuers are moving from a risk-management strategy to a revenue-generating strategy," [Robertson] said. "Credit cards are consistently the most profitable retail banking product," Robertson observed. "The growth is not there anymore. And with a recession coming down the pike, there's no expectation of more spending by consumers. The industry needs to raise prices to keep profits where they need to be."

The net result of this, of course, will be to scare the crap out of every credit card owner in the country, which will lead to even less consumer borrowing, which in turn will lead to even bigger problems for the banks. In other words, credit card issuers aren't just evil, they're stupid too. If Democrats in Congress had any guts at all (I know, I know), they would have long since introduced legislation to put an end to this and dared Republicans to vote against it. The campaign ads practically write themselves, don't they?

Egg, Citigroup could face probe over credit card claims - report

LONDON, Feb. 11, 2008 (Thomson Financial delivered by Newstex) -- Egg and its owner Citigroup (NYSE:C) Inc could face an investigation over allegations that the UK internet bank cancelled credit cards because holders consistently paid up in time, according to a report.

The UK's Financial Services Authority has referred a British lawmaker's complaint about the issue to the Office of Fair Trading, The Guardian reported.

Last month, Egg said it planned to end the customer agreements of a proportion of its credit card portfolio.

It said the 161,000 card holders affected had a 'higher than acceptable risk profile', according to The Guardian.

However, many of those said they paid their bills in full every month, never went over their limit and had excellent credit ratings.

Egg denies the claims alleging that it made the move because the customers were not making it enough money, the newspaper said.

The Labour Party lawmaker who made the complaint, Nigel Griffiths MP, said he was 'very pleased' about the FSA's action.

Citigroup acquired Egg from UK insurer Prudential PLC (NYSE:PUK PR) (NYSE:PUK PRA) (NYSE:PUK) for 1.13 bln usd in cash last year.

Copyright Thomson Financial News Limited 2007. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.

Prepaid credit cards

A prepaid credit card is not a credit card,^[5] as no credit is offered by the card issuer: the card-holder spends money which has been "stored" via a prior deposit by the card-holder or someone else, such as a parent or employer. However, it carries a credit-card brand (Visa, MasterCard, American Express or Discover) and can be used in similar ways just as if it were a regular credit card. ^{[5] [6]}

After purchasing the card, the cardholder loads it with any amount of money, up to the predetermined card limit ^[7] and then uses the card to make purchases the same way as a typical credit card. Prepaid cards can be issued to minors (above 13) since there is no credit line involved. The main advantage over secured credit cards (see above section) is that you are not required to come up with $500 or more to open an account. ^[8] With prepaid credit cards you are not charged any interest but you are often charged a purchasing fee plus monthly fees after an arbitrary time period. Many other fees also usually apply to a prepaid card.^[5]

Prepaid credit cards are sometimes marketed to teenagers^[5] for shopping online without having their parents complete the transaction.^{[9][10] [11][12]}

Because of the many fees that apply to obtaining and using credit-card-branded prepaid cards, the Financial Consumer Agency of Canada describes them as "an expensive way to spend your own money"^[13]. The agency publishes a booklet, "Pre-paid cards"^[14], which explains the advantages and disadvantages of this type of prepaid card.

Transaction steps

Authorization: In the event of a chargeback (when there's an error in processing the transaction or the cardholder disputes the transaction), the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.

Parties involved

• Cardholder: The owner of the card used to make a purchase; the consumer.
• Card-issuing bank: The financial institution or other organization that issued the credit card to the cardholder. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. American Express and Discover were previously the only card-issuing banks for their respective brands, but as of 2007, this is no longer the case.
• Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder
• Acquiring bank: The financial institution accepting payment for the products or services on behalf of the merchant.
• Independent sales organization: Resellers (to merchants) of the services of the acquiring bank.
• Merchant account: This could refer to the acquiring bank or the independent sales organization, but in general is the organization that the merchant deals with.
• Credit Card association: An association of card-issuing banks such as Visa, MasterCard, Discover, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks.
• Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may operate multiple networks. Transaction processing networks include: Cardnet, Nabanco, Omaha, Paymentech, NDC Atlanta, Nova, Vital, Concord EFSnet, and VisaNet.^[2]
• Affinity partner: Some institutions lend their name to an issuer to attract customers that have a strong relationship with that institution, and get paid a fee or a percentage of the balance for each card issued using their name. Examples of typical affinity partners are sports teams, universities and charities.

The flow of information and money between these parties — always through the card associations — is known as the interchange, and it consists of a few steps.

Grace period

A credit card's grace period is the time the customer has to pay the balance before interest is charged to the balance. Grace periods vary, but usually range from 20 to 30 days depending on the type of credit card and the issuing bank. Some policies allow for reinstatement after certain conditions are met. Usually, if a customer is late paying the balance, finance charges will be calculated and the grace period does not apply. Finance charge(s) incurred depends on the grace period and balance, with most credit cards there is no grace period if there's any outstanding balance from the previous billing cycle or statement (i.e. interest is applied on both the previous balance and new transactions). However, there are some credit cards that will only apply finance charge on the previous or old balance, excluding new transactions.