Credit Card Fraud

According to one estimate, credit card fraud costs credit card companies and card holders over $1.5 billion a year. Credit card consumers are well-protected when it comes to unauthorized or disputed charges on their accounts. Many times the merchant has to absorb the cost of unauthorized charges through a “chargeback”, especially if they did not follow proper procedure.

How fraud occurs

“Skimming:” A cardholder uses their card for a legitimate charge. A dishonest employee swipes the card for the charge, and again on a magnetic card reader. The information obtained from the magnetic card reader is then transferred to a blank magnetic strip and used for fraudulent purchases.

Alternately, the employee can take down the account number, the expiration date and name and use it for phone orders or internet orders.

A thief can steal applications and/or credit cards out of mailboxes and use them to open accounts. It is often only after the person whose name the card was opened in applies for some other type of credit, and is denied, that the fraud is discovered.

Cards are used after they are stolen from the consumer but before the consumer notices they are missing. Lost or stolen wallets and burglaries are frequent ways thieves obtain cards.

Numbers are manufactured using computer software and online databases that create card numbers.

Card numbers are taken from discarded statements, carbon copies or other receipts and used fraudulently.