Somebody posing as Drombosky did just that. Yet the morning Citibank called to alert him, Drombosky was not all that worried. He knew that he wouldn’t have to pay for the fraudulent charges.
“They credited it all back,” said Drombosky, 27, of
Losses from credit and debit card fraud in
Data breaches and identity theft have become so common that many people like Drombosky barely blink when they learn their account has been hacked.
Why should they worry? Consumers usually are not directly liable for fraudulent charges. The majority of the cost of credit card fraud falls on banks that issue the cards and merchants. In most cases, federal law limits consumers to paying a maximum
Indirectly, whether through fees or higher prices for goods, the burden of covering fraud costs everyone.
“Consumers do pay,” said
Retailer hack attacks that appear in the news almost daily have a direct link to increased fraud, said
Hackers who steal credit card numbers and other customer data typically offer it for sale on Internet black markets. Other thieves purchase the stolen numbers — at prices that range from
Criminals attempted 61 percent more fraudulent transactions in 2013, after three years in which the numbers had remained relatively flat, according to a survey released in August by LexisNexis and Javelin.
“That’s a big jump, and you’ve got to think they’re connected somehow,” Press said. “There’s just that many more credentials out there.”
The breaches are costly, resulting in expenses to reissue cards, monitor customers’ accounts and cover fraudulent charges.
That would be an astronomical leap in potential damages: When hackers stole credit card information on 100 million customers of the parent firm of
Chips to aid protection
To slow the losses, credit card companies are requiring retailers to purchase machines by October that will read cards containing harder-to-fake computer chips in place of magnetic strips.
The chip in the card issues a unique code for each transaction. Retailers that do not install the technology for consumers to pay with those cards will be liable for any fraud.
Similar changes in
Besides, criminals keep finding new weaknesses, said
“Every time we get better, the criminals evolve,” Hickton told the Tribune-Review. “We need to get smart and get serious real fast.”
The burden of credit card theft on financial institutions largely has gone unnoticed, Hickton said. But as bank losses become more significant, they are becoming everyone’s problem, he added.
Banks that issue credit cards have not had a lot of options, said
“Basically the issuing banks are upset, of course, because they’re out a lot of money,” Anderson said. “They’re pretty much stuck holding the bag.”
A certain amount of fraud costs are built into bank balance sheets. Consumers feel the pain through higher fees, interest rates and penalties, said
“Credit card fees are obviously high for a reason,” he said. “That’s how they’re making up for these costs.”
Burden shifts to merchants
Issuing banks do not bear all of the cost when their customers’ cards are hacked. Responsibility depends on how the purchase was made — and increasingly, it falls to merchants.
If the criminal used an actual card swiped at the cash register, then the bank issuing the card must pay. If the purchase was made online or over the phone, then the bank can take the money back from the merchant, called a “chargeback.”
Point-of-sale charges are more common, and fraud accounts for 15 to
Yet so-called “card-not-present” charges are becoming more frequent, and fraud makes up a larger percentage of the revenue, at
Thanks to the earlier holiday shopping season this year, stores can expect to start seeing chargebacks coming out of their accounts by mid-December, even before Christmas, Press said.
Especially for small businesses, fraud can have serious implications.
“The big guys are bearing the brunt of it, but then you look at things like
Drombosky’s company, Fiks Reflective in
Last year, he lost nearly
When it discovered the fraud, the bank immediately withdrew the money from his account with no warning, draining his balance to near zero, Drombosky said. The loss meant that he could not attend an important trade show in
The experience pushed him to ramp up his security protections. Drombosky said he now spends more time verifying customers’ identification and tracks all orders. That has tripled shipping costs, expenses that he said he cannot afford to shoulder on his own.
“We’re passing most of that on to the consumer,” he said.
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