Assault with a plastic weapon - credit card fraud

Nation's Business, May, 1984 by Mary-Margaret Wantuck

ROBBERS ARMED with machine guns and wearing ski masks stole 6,000 credit cards from the California plant that had made them. Only half have been recovered.

Several men rented motel rooms near Benton Harbor, Mich., and began telephoning orders to stores for merchandise. They charged the orders to fraudulently obtained credit card numbers. The merchandise was delivered to the motel and quickly fenced. The ring's take was up to $25,000 a week before the law caught up with it.

In Florida, credit card counterfeiters paid hotel, retail and car-rental employes $5 each for carbon slips showing names and account numbers of cardholders.

A woman's telephone credit card was stolen from her purse while she was visiting New York City, and she later received a phone bill for nearly $195,000 in calls charged to her account.

Those incidents are just a sampling of thousands upon thousands that, taken together, constitute the fastest-growing crime against business in America today: credit card fraud.

"It is now easier, safer and more profitable to steal with a credit card than with a gun," says Larry Schwartz, president of the Fraud and Theft Information Bureau of Boynton Beach, Fla. His firm helps businesses, law enforcement agencies and cardholders fight credit card fraud. "It's like a fire raging out of control," he says.

The potential for fraud is enormous: In the United States alone, companies and financial institutions have issued some 600 million cards to 116 million people.

These cards can be used in person, or the name and number can be written on mail orders or telephoned to a wide range of vendors. The cards can also be counterfeited, lost, stolen from the holder or diverted from the mails. Names and account numbers can be obtained in a variety of ways for use in illegal purchases. Estimates of the losses from credit card fraud range from $500 million to $3 billion a year.

Such losses are a relatively small part of total credit card transactions, but the sharply increasing growth rate of the fraud concerns law enforcement officials and businesses.

VISA and MasterCard losses alone were up 50 percent from 1982 to 1983--from $135 million to $200 million--according to the American Bankers Association. Both card companies are owned by bank consortiums.

American Telephone & Telegraph Company reports that telephone calls made through illegal use of credit card numbers were up an estimated 37 percent last year--from $69.5 million the year before to approximately $95 million.

Growth in credit card fraud is spurring a massive counterattack by businesses that issue and accept cards. This counterattack ranges from improving security at the point of sale to incorporation of high technology security features in the cards themselves.

Daniel Brigham, a spokesman for VISA International, says use of cards stolen from the holders accounts for 35.9 percent of illegal transactions. These transactions average $650. The next most common abuse, accounting for 29.2 percent of illegal transactions, is with cards that holders have lost. The average use here totals $1,047. The next category, at 24 percent, is diversion of cards sent through the mails. This involves the highest average dollar lost--$1,919. Counterfeit cards account for only 11.2 percent of the fraud but result in the second-highest dollar loss--an average of $1,102 per card.

Typically, lost and stolen cards go through three cycles of fraud. They are first used for large purchases with a quick resale value, such as expensive jewelry. Once the dollar limit on such a card is reached, the criminals switch to lower-price transactions that do not involve validation by a sales clerk, thus bypassing a checkup showing that the credit limit has been reached.

VISA and MasterCard do not require validation for purchases under $50 and $75, respectively, and they absorb fraudulent charges within those limits. Under the law, the holder of a credit card is required to pay no more than $50 of illegal charges, provided the loss or theft is reported.

Once all use of the lost or stolen card has been blocked by notices to merchants, it enters the counterfeit category, where it is recycled for a final time with a new name and account number. A principal use of such cards, VISA reports, is to buy merchandise for resale through storefront fencing operations posing as legitimate discount merchants.

More than 93 percent of fraudulent credit card activity occurs in 12 states: New York (mainly New York City), Florida, New Jersey, California, Massachusetts, Pennsylvania, Connecticut, Texas, Illinois, Michigan, Virginia and Nevada.

In addition to fraud, credit card counterfeiting has spawned violence and even murder. After one man told a federal grand jury of organized crime's involvement in such activities, his wife, 9-year-old stepson and 26-year-old nephew were all slain.

VISA's Brigham says that, as recently as 1981, his company's "counterfeit losses were not even statistically measurable." By last year, however, they stood at $20 million, nearly double the 1982 total.