Debit Card Fraud More Widespread Than Banks Believe

Newspaper article

By: Sandra Cordon

Date: June 3, 2005

Source: The Globe and Mail (http://www.globeandmail.com).

About the Author: Sandra Cordon is a contributor to The Globe and Mail, a leading Canadian daily newspaper with a circulation of over one million.

INTRODUCTION

They may look very similar, but credit and debit cards are quite different. Both are plastic cards with a magnetic strip encoding details of the owner's account and they are generally used with a PIN (Personal Identification Number). But a credit card is linked to money lent to its owner by a bank, while debit card money comes directly from his or her account. Both can be used either at an ATM machine, which dispenses cash (although a charge will be made if a credit card is used) in a shop, restaurant or other retail outlet, over the phone, for mail order, and on the Internet.

Credit and debit cards have been available for over thirty years now, but it is only relatively recently that there has been so many outlets for their use. Their convenience has made them increasingly popular—some people carry ten or more plastic bank cards and the use of paper checks is becoming almost a rarity. Banks like cards too, because they can charge customers for using them and merchants for accepting them. But there is a downside because it is all too easy for criminals to steal money from a credit or debit card, however careful the owner is. Credit and debit card fraud may seem like victimless crimes—compared to robbing someone for their cash—because it is commonly assumed that the bank always pays for any losses. This is not so, particularly where debit card fraud is concerned, as the article below points out.

PRIMARY SOURCE

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SIGNIFICANCE

The U.S. Electronic Funds Transfer Act, which controls electronic payments, says that personal liability for debit card fraud could be as much as five hundred dollars if the problem is not reported to the bank within forty-eight hours. Within this time, liability is limited to fifty dollars. However, the victim of debit card fraud may end up with their account being drained of funds—even to their overdraft limit—if they delay reporting any loss or fraud. The problem is that some methods of fraud are not simple loss or theft. The skimming technique mentioned in the article is only one of the ways in which a card criminal works. Some unscrupulous merchants will make extra copies of debit card slips and send these off to the bank to extract extra payments which will be charged to the owner. Criminals may hunt for discarded slips and sell details to counterfeiters or use them to order goods which are then shipped to another address. The card owner would not be aware of these operations until their bank statement arrived, which could be some days or weeks later. Credit card owners enjoy better protection—usually their liability is limited to fifty dollars.

New technologies are trying to beat the creation and circulation of counterfeit cards, however. For example, a holograph—which is a three-dimensional, laser produced optical device that changes its color and image as the card is tilted—is used on most major credit cards. Ultra-violet ink, which is visible only under ultra-violet light, can be used to display the bank's logo. Retinal eye scanners, which links a card to its owner at an ATM, are also being gradually introduced. Perhaps the biggest development, however, is the use of the Chip and PIN system, which eliminates the need for a signature when a card is used. The use of Chip and PIN has already led to a decrease of thirteen percent in total card fraud losses in Britain between 2004 and 2005.

However, internet fraud—including debit card fraud—continues to grow around the world. Secure shopping sites help but it is always safer to use a credit, rather than debit, card when purchasing online. Not only are losses limited to fifty dollars, but credit card owners are also protected against faulty purchases and goods that do not arrive. Until the law is amended to give debit card owners the same rights as those of credit card owners, then the former need to exercise their plastic with caution. Part of this, as the article above implies, involves banks moving into line with courts—and assuming the victim of fraud is innocent, rather than guilty, while the matter is being investigated.

FURTHER RESOURCES

Web sites

U.S. Public Interest Research Group. "PIRG Consumer Fact Sheet." 〈http://www.pirg.org/consumer/banks/debit/debitcards1.htm〉 (accessed March 27, 2006).

Card Watch. "Card Watch Raises Awareness of All Types of Plastic Card Fraud" 〈http://www.cardwatch.org.uk/〉 (accessed March 27, 2006).

Federal Reserve Bank of San Francisco. "Plastic Fraud." 〈http://www.frbsf.org/publications/consumer/plastic.html〉 (accessed March 27, 2006).