Credit Card Fraud

Credit card fraud is an illegal act an individual commits to defrauding someone who is the actual credit card holder. For example, the purpose might be to buy goods and services or make payments to a third-party account not authorized by the cardholder.

A fraudster may convince the cardholder to authorize the payment by making false promises or taking advantage of a lack of knowledge. The card may also be stolen, lost, or cloned and falls into the hands of fraudsters who unfairly use it. Therefore, it is necessary to report to the bank if misplaced so that it is blocked immediately.

• Credit card fraud illegally transfers funds from the credit card holder's account to the fraudster's account.
• Sometimes the cardholder unknowingly authorizes such transfers due to a lack of information or a false promise.
• The fund may be used to purchase good services or steal money and transfer it to a third party.
• If a card is lost or stolen, it is necessary to report credit card fraud to the bank and block it to prevent misuse immediately.

Credit card fraud primarily occurs due to the use of the internet to make payments and transfer funds. The trend for online money transfers accelerated rapidly after the Covid-19 pandemic, which led to a rise in credit card use and, thus, credit card fraud online. Scammers continue to take advantage of people who transact using remote payment options by devising new and innovative methods.

It causes unwanted problems for both the cardholder and the bank. Money, once lost, cannot be recovered even though the fraudster is caught. Studies show that credit card fraud investigation has increased at an alarming rate because even though prevention methods are being updated continuously, scammers are also devising new ways to commit crimes.

Statistics show that cases of card scams the Federal Trade Commission has to handle are rising alarmingly.

There are many ways to commit credit card-related fraud. They are as follows:

1. Stealing cards – This is a standard method of committing a credit card fraud transaction where the fraudster gets possession of the card and can directly misuse it.
2. Hacking email accounts – Hackers devise programs or software to hack into email accounts because banks send emails to customers with account information.
3. Obtain details by calling the cardholder – Sometimes fraudsters call customers, lure them with gifts or facilities, and convince them to reveal credit card information.
4. Obtain access to the bank account- Sometimes, it is possible to obtain access to the bank account if the fraudster is a person the account holder knows and trusts.
5. Phishing through messages having fraudulent links/codes – Cardholders may get mobile messages or emails containing unknown links, which, if clicked, will directly debit money from bank accounts, which is a standard method of committing credit card fraud online.
6. Skimming and cloning- Many automated teller machines (ATM) or card swiping machines are fitted with devices that copy the card information as soon as it is swiped, later used to design a fake card.
7. Donation request – Cardholders often get calls asking for financial help to save people in need. It is necessary to verify the caller before transferring money in such cases.
8. Scarring cardholders with arrest calls – Scammers try to scare cardholders with pending payments with arrest threats and ask for extra payment as a penalty, which is a false claim.
9. Attracting cardholders with offers and interest reductions – Cardholders get calls offering them reduced interest on pending payments if they transfer some amount to an account number.
10. Claiming overpayment – Sometimes, fraud calls claim that cardholders overpaid for some purchase, for which they will get a refund provided they give their card details.

Let us understand the process through an example.

Example #1

Richard has a savings account with Citibank and is a long-time customer. He is very regular in clearing his credit card dues. He makes all payments online using a credit card and mobile applications and is against cash transactions.

However, he uses the same card for all transactions and stores the login details on his mobile. One day he received a message on his mobile specifying that his credit card due was pending, and he would be charged a penalty for the pending amount. For immediate payment, a link has been provided in the message. Richard is sure that he has cleared his dues.

But simply out of curiosity, he clicks on the link and gets a blank page. He needs help understanding the matter but immediately gets a message from his bank that an excessive amount has been debited, leaving his account balance almost nil.

Richard immediately contacts his relationship manager at Citibank to report the fraud and ensures the account is sealed. A thorough and prompt credit card fraud investigation reveals the scammer’s details. They are a group of tech-savvy people who are immediately put behind bars.

The above case shows that it is crucial always to be alert and not access unknown links.

Example #2

CNBC reports that credit card scams will rise because of the pandemic. The United States accounts for one-third of global card fraud, which will continue growing for two reasons.

The first reason is that a steady rise in online purchases, payments, and transfers leads to excessive use of cards. The second reason is the loss of jobs and source of living, making people prone to adopting unfair means to earn. To avoid unnecessary losses, people must be cautious and keep track of all their online transactions.

There are various ways to detect fraud in credit cards, as listed below:

1. It is necessary to check bank statements and mobile messages frequently to catch any fraud as early as possible.
2. Cardholders should check bills and invoices that they get to ensure that they have done the transaction for which they are paying.
3. It is essential to track credit scores if the individual is a regular card user. Federal law gives the facility of one free credit check report every year.
4. The cardholder should refrain from responding to calls asking for a one-time password (OTP), card information, account information, etc. No credit card company or bank will ever ask for such information.
5. Account holders should verify information related to fake prizes and money transfers before paying for the same.

There are many ways in which it is possible to prevent card fraud. They are as follows:

1. Security of login details – Individuals should never reveal their login details to anyone or write them in places that are easily accessible.
2. Do not hurry while making payment – It is better to be careful and take time during online money transfers.
3. Use mobile wallets – A mobile wallet is a good option because it allows storing a small amount for immediate use. Thus, even if there is fraud, the loss is limited.
4. Using different accounts for separate payments – It is a good idea to use other cards or different accounts to pay or transfer money online.
5. Set transfer limit – It is always best to select a transfer limit in the account so that if fraudsters try to transfer a large amount, it will get blocked.
6. Be careful of fraudulent links and messages – Cardholders should always be careful and not click on unknown links and messages.
7. Do not fall victim to lucrative offers – Scammers lure customers with attractive offers and, in return, ask for money.
8. Report the loss of the card immediately – Cardholders should report credit card fraud to their bank, be loss of the card or online scam without card loss.

A credit card scam is when a scammer steals the cardholder’s account information to withdraw money or make online payments. Identity theft is any fraud that involves the use of an individual’s personal information to gain something. But there are some differences between them, as follows:

This has been a guide to Credit Card Fraud and its definition. We explain its types, examples, detection, prevention, and difference with identity theft. You can learn more about financing from the following articles –

• Wire Fraud
• Tax Fraud
• Financial Crime