Credit Card Fraud and How to Avoid It

By Louise Tillotson. Last updated 14 October 2011. 4 comments
Photo: Don Hankins

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Credit card fraud affects thousands of people every year. During 2009, in the UK alone, £440.3 million was lost due to fraudulent actions on stolen or cloned credit cards. In addition to this, £59 million was lost after tech-savvy criminals developed sophisticated malware programs designed to hack into online banking accounts.

But despite these frighteningly high figures, the cost of UK fraud has actually fallen by 28% from the previous year. And 2010 is seeing a further decrease, although official figures will not be known until early 2011. The decrease comes at a time when more people than ever are using credit cards and online banking, so it would suggest that consumers are becoming familiar with the types of fraud and how to spot (and avoid) them. (See also: How to Avoid Phishing Scams)

Types of Credit Card Fraud

The most widespread form of credit card fraud in the UK is Card-not-Present fraud. This has grown alongside the rising popularity of internet shopping, as an online retailer does not see the card being used and therefore cannot always determine the authenticity. A fraudster of this type can obtain a card through mail fraud, skimming/cloning, or theft — then use it to buy goods online. They may even buy from the same sites as their victim, to reduce the risk of banks flagging unusual activity.

Mail fraud involves the criminal intercepting mail from their intended victim's bank or building. The fraudster can then register the card themselves and use it. People who live in buildings with a communal mailbox are particularly susceptible to this type of fraud.

Skimming is the term given to the practice of scanning a credit card using a device designed to harvest card details. These details can then be used to create a cloned card which may be sold to other fraudsters or used for CNP fraud.

The most common place for skimming to occur is in a bar or restaurant, where customers have to hand their card over to the waiting staff in order to pay the bill. The card is taken by the staff and processed — but a corrupt employee may carry a skimming device which they pass the card through before doing the actual transaction.

Often, the victim isn't aware that anything untoward had taken place until they receive a statement showing unfamiliar transactions. At this stage, the criminals may have been obtaining credit in the victim's name — another form of fraud known as identity theft or application fraud. Someone with a good credit score may not know this is happening until they apply for credit themselves and get refused.

Due to the sophisticated nature of some of the devices used by criminals, it can be difficult to detect fraud. But there are steps everyone can take to lessen the chances of falling foul of the fraudsters.

Detecting and Avoiding Fraud

  • Only use trusted online sites, which display either https in the URL or have a locked padlock symbol in the status bar on the lower right. Sites that have these use an advanced form of encryption which prevents thieves from harvesting data as it's being sent from server to server.
  • Using a PO box instead of a communal mailbox can lessen the chances of mail fraud. If this isn't possible, some banks may allow customers to collect cards from their local branch.
  • Verified by Visa is a payment system set up to prevent card fraudsters committing CNP fraud. It's a way for online retailers to confirm a buyer's identity at time of checkout, by way of a special security password known only to the card holder. The password is chosen by the consumer when they register with VbV. When purchasing from a site which uses VbV, 3 digits or characters from the 6+ character password will be asked for, and the entire password is never entered. This is currently one of the most secure ways to buy online, as more and more e-merchants are signing up to the scheme.

Banks are becoming more intelligent when it comes to fraud detection, and are able to recognize certain behavioral patterns on a customer's account which raises security issues. These can include a series of small transactions (usually under £2) or usually large amounts being withdrawn. The former is one way in which fraudsters can tell if it's worth using a card, so banks are being trained to recognize this as a warning sign.

It's recommended that if a consumer genuinely intends to withdraw a large amount from their account they contact their bank beforehand to inform them of the fact. This can then prevent any anti-fraud measures, such as a block being put in place for that instance.

Legal Rights and Responsibilities

In the UK, if money has been lost as a result of fraud, the card holder is only liable for repaying the first £50, provided the fraud is genuine and not as a result of negligence (i.e., leaving the card on a bus or in an unattended bag). Reporting the fraud as soon as it's discovered increases the chance of money being recovered and the perpetrators being caught.

The fraud department of each card provider should be contacted along with the police. Any online banking passwords should be changed and the credit reference agencies notified; they will place a fraud alert on the affected file in case the thief tries to commit application fraud.

The Consequences of Fraud

A victim of fraud may be left feeling vulnerable and afraid to trust anyone outside their close circle of family and friends. If you or someone you know has suffered at the hands of a fraudster, don't feel like you are alone. Seek advice and counseling and follow the preventative steps above to restore your peace of mind.

This is a guest post by Louise Tillotson. Louise is a financial writer in the UK and her work has appeared on several websites, including as a credit card applications guide for Moneysupermarket. She has also written several pieces on Voices in Finance and related sites and runs a local community blog and site network called Flintshire Families.

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Guest's picture

Rather than using a P.O. Box, you could also get a mailbox that locks. These have become more popular in recent years and will keep thieves out of your mail.

Guest's picture

One problem with this Chris is that the postman doesn't always put your post into the letter box properly, so you have your bills and letters hanging out the slot.

Guest's picture

There is one sure fire way to avoid credit card fraud. Don't have one. :)

Guest's picture

Here is a new peppy 1-minute video giving people advice on the responsible use of debit, ATM and credit cards.

"Card Tricks Revealed: How Not To Burn Money"