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This guide describes the problem of check and card fraud, and reviews factors that increase the risks of it. It then identifies a series of questions to help you analyze your local problem. Finally, it reviews responses to the problem, and what is known about them from evaluative research and police practice.
The guide covers fraud involving (1) all types of checks and (2) plastic cards, including debit, charge, credit, and "smart" cards. Each can involve a different payment method . While there are some obvious differences between check and card fraud, the limitations and opportunities for fraud and its prevention and control by local police are similar enough to warrant addressing them together. Furthermore, some cards (e.g., debit cards) are used and processed in a similar way to checks, and electronic checks are processed in a similar way to cards, so that the traditional distinction between cards and checks is fast eroding. Table 1 summarizes the essential differences between check and card fraud.
Entry level: requires photocopier or personal computer with standard color printer
Entry level: amateur alterations easily detectable; more advanced card alteration or production requires more costly resources
Conversion to Cash
Can be converted to cash at checkout
Cannot be converted to cash at checkout (except for debit and phone cards)
Retail stores typically require additional ID; banks may not ask for ID if account number on check matches bank records
Additional ID rarely requested
Signature rarely checked, unless check-cashing card required
Signature prime means of verifying card user
Merchant submits check to bank for payment
(Highly simplified): merchant submits card charge to bank, which submits payment request to card issuer, which verifies payment to merchant's bank, which then pays merchant
If bank rejects payment, merchant carries loss and must recoup it from customer; legitimate account owner may be liable, depending on bank's policies
Negotiable: merchant may incur loss, or card issuer may agree to do so; legitimate card owner generally protected from loss
Check acquisition; check payment and cashing; check processing; and bank, business, and consumer environments
Card issuance; card acquisition; checkout; card-not-present sales (usually telephone or online sales); and after the sale (product returns)
Less common with checks, though sophisticated check- counterfeiting rings do exist
Counterfeiting and distribution of credit cards widely adopted by organized crime groups
Table 1 Common Differences between Check and Card Fraud
In 2000, Visa International estimated that the yearly cost of fraud worldwide was about 0.05 cent per every dollar spent. This small amount works out to 300 million pounds in Britain and an estimated $1 billion in the United States. Since 1995, the amount of fraud losses on payment cards has consistently risen in the United Kingdom, 1 and in the United States , the losses from online credit card fraud 2 alone are estimated to reach $3.2 billion in 2007. Over 50 percent of Britons surveyed fear they will be victims of credit card fraud. 3
Card printers and encoders are widely available
Apart from the obvious financial loss caused by check and card fraud, it is a serious crime that requires preventive action. It affects multiple victims and significantly contributes to other types of crime. At an elementary level, fraud is easy to commit, and the chances of apprehension and punishment are slight. Thus check and card fraud is an ideal entry-level crime from which people may graduate to more serious offenses. Other crimes that either feed off check and card fraud or facilitate its commission include the following:
In a Montreal study, the success rate with a totally counterfeit card was 87 percent, and with an altered card, 77 percent. At checkout, the average success rate was 45 percent, although in most of the cases where the sales clerk rejected the card, the offender simply walked away, without being accosted (Mativat and Tremblay 1997). [Abstract only]
In 2002, the Federal Trade Commission reported that the main motives for identity theft were as follows:
To obtain/take over a credit card account: 53%
To acquire telecommunications services: 27%
To obtain/take over a checking account: 17%
A 2000 survey of identity theft victims found that less than half felt their problems had been fully resolved; all but one had gone to the police as a last resort and had received little satisfaction from doing so (CALPIRG 2000). [Full text ]
Thefts from cars may increase as a way to get credit card and personal information if other opportunities to get such information are blocked by improved security measures in the manufacture and processing of plastic cards and checks (Levi 1998). However, in other studies, this "displacement" does not always occur, even within card fraud itself-for example, from using stolen credit cards to counterfeiting cards (Mativat and Tremblay 1997). [Abstract only]
Plastic-card technology is developing rapidly. Issuers are now offering both debit and credit services on one card, are requiring a personal identification number (PIN) for credit cards (introduced in France a decade ago, and in England in 2001), and are replacing magnetic strips with computer chips. Paperless or electronic checks are increasingly used in business-to-business transactions. Criminal use of these different products involves a wide range of skills, activities, and financial investment. The type of fraud will depend on the points of vulnerability targeted in the delivery of services , as outlined in Table 1.
In general, check and card fraud may be divided into two activities: the illegal acquisition of checks and cards, and the illegal use of checks and cards. This distinction is not absolute, since offenders may gain access to some cards (e.g., phone cards) without actually acquiring the cards (e.g., by stealing account numbers).
The following are some of the ways offenders illegally acquire checks and cards:
Levi (1998) has noted that one in five street robbers in London obtain credit or debit cards from their victims.
Fig. 1. U.K. card fraud loss by type of fraud, 2001
Source: Adapted from Association of Payment Clearing Services (2002): www.epaynews.com/statistics/fraud.html.
The following are some of the ways offenders illegally use checks and cards:
Checkout is a crucial point for identity and card authentication
Perhaps the biggest problem for police is that people rarely report check and card fraud to them. In one recent study, only one in four incidents of check and card fraud were reported to the police. 12 It is very likely that you have a check or card fraud problem in your area, but do not know about it. Many credit card issuers promise zero loss to the user if the card is lost or stolen and illegal are charges made. Thus, if cardholders do not suffer financially, they may have less motivation to report the offense to the police. Merchants are also reluctant to report fraud, or even to use fraud prevention techniques at checkout, for fear that it will slow down the purchasing process and negatively affect sales. 13 Thus, fraudsters think their chances of getting caught are very slim. One study reported that some 80 percent of respondents thought it was easy or very easy to carry out credit card fraud. 14
Over 90 percent of people report their lost or stolen card to the card issuer within one day. They rarely, however, report their loss to the police, unless it results from a crime such as pickpocketing, burglary, or mugging (Levi and Handley 1998a). [Full text]
The situation with check fraud is slightly different. Some banks hold the account holder liable for loss. The merchant who accepts the check may also be held responsible, since the bank simply refuses to honor the check if it detects a forgery. (Thus, retailers-especially North American supermarkets, where check cashing is a common service-are often more willing to cooperate with police or develop their own security procedures concerning check fraud.) It is not uncommon for some conflict to arise between merchants and banks as to who should bear the loss. 15 This is a serious problem because, as we will see, cooperation among competing merchants and between merchants and banks is central to preventing and reducing check and card fraud. 16
Banks, large retail stores, and supermarket chains commonly prefer to deal with merchandise loss, employee theft, shoplifting, and check and card fraud internally. 17 There are three significant reasons for this preference:
The check and card fraud that businesses do report to the police is usually committed by repeat or "professional" fraudsters. Or, for whatever reasons, the in-house security wants to transfer responsibility to the criminal justice system.
Understanding the factors that contribute to your problem will help you frame your own local analysis questions, determine good effectiveness measures, recognize key intervention points, and select appropriate responses. You should be aware that most check and card fraud is due to factors beyond police control. Such factors include the following:
A traditional credit card purchase goes something like this: At checkout, the customer gives the card to the sales clerk, who runs it through the computer to check whether the account is legitimate. The clerk then checks whether the customer is the person named on the card (usually by comparing signatures, which are not an especially reliable form of identification, by the way). In a face-to-face situation, the clerk can try to verify the customer's identity. However, with telephone and online purchases, there is no direct way to do so.
Although police face these and other obstacles when addressing check and card fraud, there is much that can be done.
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