Credit card fraud goes online

Credit card fraud goes online

McCormick, Roy C

Combined losses for the credit card industry and individual cardholders are running in excess of $2 billion annually.


The Technological Revolution is greatly improving the working and living activities of people all over the world-as did the earlier Industrial Revolution. We who are involved in publishing and printing know this well because advances in electronic equipment, procedures and services have changed how we do business.

As with all good things, there are some drawbacks. The unauthorized use of credit cards, often initiated by sophisticated credit card fraud groups, has skyrocketed. The Federal Trade Commission reports that combined losses for the credit card industry and individual cardholders are running in excess of $2 billion annually. The problem is currently exacerbated by the innovative and rapid increase in credit card purchases online.

Knowledge of the misfortunes of others can help us avoid pitfalls, for example, from following and reporting court decisions involving insurance coverage. On a personal note, my daughter has authorized me to tell what happened to her several weeks ago, to acquaint you with security measures that can minimize the risk of loss associated with credit card use.

Checking the items in her American Express card statement, she found an $830 airline ticket charge of which she had no knowledge. The merchant, specializing in airline and other travel arrangements, had handled the transaction at its Web site. My daughter called American Express immediately.

The upshot was that she received a replacement card with a new number within 36 hours via air express. This was followed by calls and letters confirming that the charge was removed from the account and that the matter was being vigorously pursued by the card company’s fraud operations division.

The merchant supplied the details of the transaction.

The name of a stranger identified was the passenger, method of ticket delivery was “electronic,” and instructions were given to bring a photo ID to the airport check-in.

Specific steps can be taken by cardholders to minimize the potential risk and inconvenience caused by unauthorized and fraudulent use of credit cards. Insurance counselors can assist their clients by encouraging the following practical and reasonable practices:

* Scanning the transactions listed in monthly credit card statements on the day they are received, rather than waiting until making the payment. It is essential that unauthorized charges be reported without delay. Credit card companies can be reached 24 hours a day, 7 days a week, and will take immediate steps to block further charges and pursue fraud investigation. The potential exposure for the cardholder and the card company will be minimized because a business will be alerted and advised that charges will not be accepted when further use of the card is attempted.

Destroying the carbons when making a purchase in person-if the merchant still uses carbon paper. This reduces the possibility that an unauthorized person could lift the numbers.

* Watching to make sure that the code numbers are not recorded by anyone but the seller, waiter, cashier, etc., when a credit card is used.

* Carrying only the card or cards most frequently used. Overall risk is considerably greater when a card case containing numerous cards is lost or stolen.

* Using caution in giving credit card numbers and other identification to unfamiliar companies or salespersons soliciting by phone. Fraud by phone solicitation has become a major concern. Providing a card number is a perfectly acceptable practice, for example, when making reservations by phone with a hotel chain’s central office. But providing such data to unknown solicitors is another story.

* Using discretion in placing credit card account information on the Internet.

While theft is a covered named peril applicable to personal property in homeowners policies, it does not include losses caused by fraud. However, Additional Coverages or Incidental Coverages under Section I, Property Coverages, provides protection for monetary loss caused by fraud of three or four types. Credit card, forgery (of checks, negotiable instruments, etc.) and counterfeit money loss are included. Most policies, including ISO and AAIS forms, extend the protection to bank fund transfer or access device cards.

In the majority of policies, coverage for these specific kinds of fraud is subject to a basic limit of $500, $1,000 or $1,500. The Section I deductible is not applicable. Federal law limits monetary responsibility of an individual to $50 for unauthorized charge under a credit card. Federal law also limits liability under a bank card when loss of the card is reported promptly. In light of this, the basic amount of insurance is considered sufficient for most people if, for example, a wallet containing a number of cards were to be lost.

The limit of insurance may be increased for a modest charge. For reference purposes, the pertinent ISO endorsement is HO 04 53; that for AAIS policies is ML-30. People who maintain large bank accounts are especially vulnerable to forgery and would be better protected by a large amount of insurance. Check forgery is a major problem for banks. They urge special care in the use and protection of checkbooks; also in driver’s license and other cards that serve as personal identification. Fraudulent check passers rarely use their own names and almost always use stolen or “found” identification.

Cardholders/insureds will be gratified to learn that there is an ongoing teamwork effort to combat credit card fraud, including the identification and criminal indictment of highly organized rings. Your insureds will appreciate advice about limitation on their legal liability and the application of insurance as backup protection.

The Federal Communications Commission is monitoring this problem, which is widespread among major credit card companies, merchants who accept cards and the banking industry.

A cardholder contributes to the team effort by:

1. Checking the card account statement promptly upon receipt and immediately reporting an unauthorized charge to the card company. (This is a condition which the cardholder already agreed to anyway when initially receiving the card.);

2. Providing card information by phone only to known merchants from whom purchases have been made; and

3. Submitting account data on the Internet with great care. Everyone wants to protect the convenience of the credit card as well as the use of electronic communications.

The handling of the fraudulent charge on my daughters account by American Express was most impressive. I wouldn’t want to be in the shoes of the perpetrators who are the objects of a vast investigative effort! The record shows that other major credit card companies provide similar professional care using skilled investigators.

The author

Roy C. McCormick is consulting editor of the Policy, Form & Manual Analysis Service (PF&M) published by Rough Notes.

Copyright Rough Notes Co., Inc. Sep 2001

Provided by ProQuest Information and Learning Company. All rights Reserved