When a bank’s chief financial officer tells you that a card company has been caught committing fraud, you may be wondering, “Who is that guy?”
And in the financial industry, it is the CEO who can be the key to securing the bank’s business and protecting its assets.
And that’s why it’s crucial for CEOs to understand their responsibilities to be able to spot fraud, as well as to identify fraud risks that can be addressed.
“If you can’t spot fraud and can’t detect it early, you have no business,” says David D. Buss, a professor of economics at Dartmouth College and a former Federal Reserve board member.
What you need to know about credit card fraudOne way to spot a fraudulent charge is to see if the card company’s website is up-to-date.
In the case of debit cards, a card’s payment history is often included in its credit-processing history.
“In some cases, you’ll get a report that shows whether you’ve received a fraudulent payment, but it doesn’t tell you whether it’s from the bank or the card issuer,” says Jeff Ritter, CEO of Verisign, a provider of identity verification solutions to retailers.
A merchant’s payment record is also available on its website, but a merchant can request a copy by calling the card industry’s consumer fraud hotline, which is staffed by credit card industry professionals.
To spot fraud in the consumer financial system, Buss and his colleagues at Dartmouth and the University of North Carolina at Charlotte created a computer simulation of a card transaction.
The simulation showed that fraudsters would typically try to make fraudulent purchases with the same credit card they used to make a purchase with in the past.
But in a modern-day scenario, a fraudster would be more likely to purchase a debit card and then, later, purchase a credit card.
“A lot of fraud is just about getting the fraud credit card,” Buss says.
“It’s almost like a double-edged sword.
On the one hand, you’re making a fraudulent purchase, and then the cardholder is also making a purchase.”
When fraudsters use fraudulent card purchases to make purchases, they use the card’s expiration date to buy goods and services, and they often use fraudulent information on the card to make transactions.
“This is where we’ve found the most fraud is,” says Ritter.
“Credit card fraud is the most egregious.”
The most common fraud is for people who use fraudulent credit cards to make payments to businesses or individuals.
But fraudsters also use credit cards in other ways, including for identity theft, money laundering, and even illegal activities.
“The biggest risk we see with fraud is with credit card purchases that have been compromised,” says Buss.
“So if a fraud becomes a problem in a credit-fraud scenario, we may see more credit card transactions being compromised.”
How to spot credit card misuseIf you suspect you’re a victim of fraud, your best bet is to contact your credit card company right away and make a complaint.
Bask in the sting of the fraudsters.
“We’re a little bit afraid of the prospect of a credit inquiry,” says Darrin R. Henson, senior vice president of the consumer and credit card industries.
“When the card is used, the fraudster is likely to use that information, too.”
For more information about credit cards, you can call the Federal Trade Commission at 1-877-FTC-HELP (382-4357).
You can also report a fraudulent activity to the U.S. Department of Justice’s Federal Trade Bureau at 1 (800) 473-4261 or the Federal Deposit Insurance Corporation at 1(800) 877-9777.
“Credit card companies have a lot of work to do to ensure their customers are protected,” says Henson.
“But they also have a great responsibility to ensure that they’re doing their job to help their customers make the best decisions for them.”
What do you think?
Is it time to get more involved with financial institutions?
Let us know in the comments below.