Card Fraud: Discover the Possibilities

Article excerpt

4:10 PM: A CUSTOMER APPROACHES an employee at Tops Appliance City in Hanover, NJ, and requests the most expensive VCR and camcorder in stock. The customer does not inquire about the product's features and, amazingly, does not haggle for a price reduction. Store loss prevention is alerted that a fraudulent transaction may be taking place.

4:15 pm: Surveillance cameras zoom onto the customer's face. Instantly, several photos are taken.

4:20 pm: The customer hands a newly issued MasterCard to the cashier. Loss prevention personnel instruct the cashier to stall the customer while verification with the issuing bank is obtained.

4:25 pm: Bank security calls the phone number of the accountholder and finds him home. This information is relayed immediately to store personnel.

4:26 pm: A store loss prevention representative takes possession of the card and directs the suspect to a secure area to wait for the police to arrive.

4:27 pm: The suspect tries to escape and has to be forcibly subdued.

4:29 pm: A taxicab, parked nearby, is discovered to be occupied by an accomplice. Eleven additional stolen credit cards are found in the accomplice's possession. All have been stolen from the mail. Potential loss for this fraud attempt: $2,200. Unused credit limit of all recovered cards: $55,000.

This scenario plays itself out day after day. A credit card is stolen, merchandise is obtained fraudulently, and retailers, banks, and cardholders suffer economic loss. Occasionally, someone is arrested.

Credit card abuse is an easy score for criminals: Personal identification is not required as it is with checks; the acceptance of credit cards is practically universal (a card issued from a bank in Colorado raises no eyebrows when used in Mexico); and current authorization procedures imposed at the point of sale are designed to focus primarily on credit limit controls that are irrelevant to detecting and preventing fraud.

The problem involves many participants, is driven by conflicting motives, and spans innumerable jurisdictions. Security precautions are often enfeebled by banks in pursuit of market share, consumers reluctant to accept cumbersome interactive prevention measures, and the fact that crimes cross jurisdictions.

Even when federal jurisdiction is invoked by the US Postal Inspector's Office or the Secret Service, lack of adequate staff and changing priorities shift resources away from fraud interdiction efforts. Moreover, credit card fraud is a faceless crime. The injury inflicted is purely economic and falls most heavily on large financial institutions or retail businesses.

In 1989, the retail industry reported shrinkage totaling $2.2 billion. By comparison, Visa and MasterCard reported losses(1) associated with credit card fraud in the United States for 1991 of half a billion dollars. Credit card fraud is expected to increase, eclipsing all other retailer reported external losses, such as shoplifting, bad checks, and counterfeit currency.

Unfortunately, the macroeconomic conditions associated with credit card fraud obstruct the adoption of any progressive short-term solutions. For example, a major factor influencing the opportunity for credit fraud is the sheer volume of cards in circulation. Worldwide, 1.5 billion credit cards generated more than seven billion transactions in 1991, of which three billion were transacted in the United States.(2)

According to Dennis Carrol, the assistant vice president of security and manager of investigations for First Card Services (FCS), a credit card issuer, it is not uncommon for FCS to have 1.4 million cards in the US mail on any given day. As long as the available supply of hot cards remains constant, demand will persist. People trafficking in stolen plastic (primary offenders) sell an account for cash (to secondary offenders) based on its credit limit.

Cards are discounted on the street from $50 to $300. …