In some ways, credit cards make our lives easier. When we’re out shopping and arrive at the register, we simply swipe, wait a second, and then go about our day. No more worrying about carrying cash, or not having enough to pay.
But credit cards also come with big drawbacks, like the widespread problem of fraud.
In fact, between credit and debit cards, 17% of all Americans have fallen victim to fraud at some point in their life. And although each victim only lost a median of $399, credit card fraud has a worldwide annual impact of more than $5.5 billion (with a B)!
Just what is credit card fraud though? How does it happen? Does your credit card company offer any built-in protection? As a consumer, is there anything you can do to prevent it?
You’ve got a lot of questions, and we’re here to help you find answers. It’s a big subject though, so where to begin? Let’s start with the definition of credit card fraud.
What is Credit Card Fraud? Are There Different Types?
Credit card fraud is defined as “theft and fraud committed using or involving a payment card, such as a credit card or debit card, as a fraudulent source of funds in a transaction. The purpose may be to obtain goods without paying, or to obtain unauthorized funds from an account.”
As you can see, this is a very broad definition. It really only identifies what happens after someone gets ahold of your credit card information, not exactly how they obtain it.
The reality is that credit card fraud can reference dozens of different scenarios, but here are the three most common ways that criminals steal your card info:
Credit card fraud is often closely tied with identity theft, which involves taking someone’s information, pretending to be them, and stealing their money in the process. Criminals can get this information from many different sources, including phishing schemes or other types of email fraud, calling you and pretending to be a representative from your bank, or even sifting through your trash.
Then, these crooks typically do one of two things:
1) Application fraud takes place when a criminal steals or fakes a credit card application using someone else’s information. They open an account in this person’s name and then promptly max it out. Or,
2) An account takeover is similar to application fraud, except that the scammer uses stolen information to take over an existing account, versus opening a new one.
Remember the Target debacle from 2013, where more than 40 million shoppers’ credit card numbers were stolen?
This was part of an elaborate skimming scheme, where crooks installed small electronic devices on thousands of Target credit card machines. Each time a customer’s card was swiped, a magnetic reader recorded the data, sent it over to the criminals, where it was then sold to other thieves or used to make counterfeit cards.
From there, crooks will perform a variety of types of fraud, such as Card Not Present (CNP) scams, which occurs primarily online.
Unexpected Repeat Billing
While technically not “fraud,” if hundreds (perhaps even thousands) of HighYa readers have anything to say about it, unexpected recurring billing often makes them feel scammed. And since we talk a lot about “legal scam” tactics, we felt this would be especially relevant to our readers.
Unexpected repeat billing (also known as a membership or autoship program) is a relatively recent addition to common credit card “fraud” tactics used by unscrupulous companies. This involves obtaining your credit card information through a trial offer of some sort, and then quickly billing you outrageously high prices.
Afterward, you’ll continue receiving a fresh supply of the product on a regular basis and your card will be charged accordingly each time. And when customers call to cancel or request a refund, they’re often met with purposely poor customer service that provides no help at all.
For an in-depth look at how this process works, we’d recommend reading Think That Free Trial is a Good Idea? and Dealing with Unethical Customer Service? Get Your Credit Card Company Involved.
Compared to these other methods, the key difference here is that you’re willingly handing over your information. You’re also willingly entering into a legally binding agreement, although the details of this agreement can be hidden deep within the Terms & Conditions where you’re unlikely to look.
If you throw your hands up in frustration and decide to contact your credit card carrier, you might find they side with the company, as most banks place the burden of due diligence on you, the consumer. Keep this in mind, because we’ll come back around to it shortly.
Despite this, do credit card companies provide their customers with any kind of fraud protection? Let’s dive in.
What Kind of Fraud Protection Does Your Credit Card Provide?
All major credit card companies provide their customers with at least some level of protection against fraudulent charges. In fact, as you’ll see next, they’re all very similar.
Here’s the thing though: Even within the same vendor (such as AMEX), the level of fraud protection available to you can vary depending on the specific type of card you carry; e.g. Platinum, Blue, rewards cards, etc.
To further complicate the issue, there are often differences in fraud protection for credit and debit cards. In general, credit cards offer more robust protection than debit cards, since they often cover signature and PIN-based transactions.
But many debit cards are only covered for PIN-based transactions, and if they’re used to withdraw money at an ATM, it can be up to the bank whether or not they’ll cover it.
While we’ll cover each of the four major credit card companies here, it’s important to remember that this is a high-level overview. So if you suspect fraudulent activity on your account and need information about what to do, we’d recommend reviewing your user agreement and contacting the bank immediately.
Visa will monitor your account for any unusual activity and immediately alert you if it occurs. Any suspected fraudulent charges will then be put on hold.
To help prevent fraud, Visa cards feature chip technology and other account verification measures. And if your card is used without your permission, Visa provides a Zero Liability Policy, so you won’t have to worry about being responsible for unauthorized charges (as long as you notify your financial institution immediately).
MasterCard offers their customers “sophisticated tools that monitor, detect and fight fraud at every step of the purchasing process, even before you purchase.” This includes chip technology, zero liability fraud protection, and fraud alerts.
In order to file a fraudulent charges claim, you will need to have:
- used reasonable care in protecting your card from loss or theft; and
- promptly reported to your financial institution when you knew that your MasterCard was lost or stolen.
American Express claims they have a “sophisticated monitoring system designed to detect fraudulent activity and protect your from Card from misuse.”
This includes pre-purchase verification, monitoring for suspicious transactions and irregular activity, and sending immediate alerts when this occurs. These services are in addition to their other online protection and security measures.
Like MasterCard, American Express states, “If you are a victim of online fraud, have taken reasonable care to protect your account details, and provide any necessary information to our Fraud Department, you won't be held responsible for any fraudulent charges, so you can shop online with confidence.” For more in-depth information, be sure to read through their FAQ.
Similarly, Discover offers 24/7 account monitoring for suspicious activity, account alerts via email, phone, and text, and a $0 Fraud Liability Guarantee. If charges are found to be unauthorized, you won’t be responsible.
To prevent fraud, Discover cards also feature chip technology (although there are some security concerns over this), in addition to several online features that keep your information secure.
After reading through all of this, you probably noticed the word “unauthorized charges” frequently came up. What does this mean, and does it have any impact on what you’re responsible for paying in the event of fraud?
Unauthorized Charges: The Heart of the Matter
Remember when we previously talked about unexpected billing, and how this can work against you when filing a claim with your credit card company? Here’s where we come back around to it.
On the surface, credit card companies do a decent job of outlining what they consider fraud; i.e. unauthorized charges. What they often don’t provide, though, is a definition for “unauthorized.” Sure, it might seem obvious, but it’s important that we understand exactly where we’re going here.
According to the US Comptroller’s office defines unauthorized charges as:
“When someone other than the cardholder or a person that has the actual, implied, or apparent authority to use the credit card uses a credit card and the cardholder receives no benefit from the use.”
If you signed up for a free trial or autoship program, did you pick up on what this means? Since you willingly handed over your credit card information to the company, and willingly entered into a recurring shipment agreement, this can work against a judgment in your favor.
In other words, the odds might not be on your side. And according to numerous HighYa reader reviews, it’s a very real possibility that you’ll still be liable for existing charges.
Sure, the bank might cancel your existing card and reissue another to prevent future charges, but you might be on the hook for a couple hundred dollars (or more).
Pro tip: Filing a dispute related to fraudulent credit card charges can be a tedious, lengthy, and involved process. The awesome news is that you can learn all the basics by reading Your Complete Guide To Disputing Credit Card Charges!
Is there a way to prevent all this from happening in the first place?
Common Sense Tips for Preventing Credit Card Fraud
Despite all the technology and manpower devoted to monitoring your credit cards for fraud, the truth is that common sense is often the best method of preventing it from occurring to begin with.
Perhaps one of the most effective methods is by putting a security freeze on your credit file. This means that anyone attempting to open a new line of credit (among other things) will have to go through a detailed security process in order to proceed.
Other Effective Methods
Other methods include never giving out your credit card information to someone you don’t know (unless you contacted a company directly, of course), always keeping an eye on your card at the register, never signing a blank receipt, and reviewing your statements as soon as they’re received.
Watch Out for Public Wi-Fi
Do you use free public Wi-Fi? If so, remember to never enter your credit card information over an open network. That’s just asking for trouble.
How To Spot a Skimming Device
When you’re out shopping or at an ATM, look for signs of tampering (e.g. glue, scuff marks, loose sections, areas that don’t match the rest of the machine, etc.) on the swipe device.
What To Do if You’re Already a Victim
Despite taking these precautions, if fraud does occur on your credit card, time is of the essence. Immediately report this activity (as well as if your card is lost or stolen) to the bank, or you could be making the situation worse every second that ticks by.
By waiting too long, this could end up costing your dearly, as you might end up responsible for many of the charges.
At this same time, be sure to also ask your credit card company about any additional fraud protection services available, on top of the basic protection already they already provide.
Want one more tip that can help prevent others from becoming a victim of credit card fraud?
Share Your Experience, Prevent Credit Card Fraud
Sharing is caring, right? First, help put this information in as many people’s hands as possible by sharing it with your friends, family, and social media network.
Then, tell us about you! Have you been a victim of credit card fraud? Have you worked for a bank and helped customer dispute fraudulent charges? Tell us about your experience and let us know about any tips we might have missed.
Together, we can help others fight credit card fraud!
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