Credit card forgery reports underscore value of homeowners fraud protection

Rough Notes, Jul 1994 by McCormick, Roy C

The many television viewers tuned into a recent NBC "Dateline," program anchored by Stone Phillips and Jane Pauley, learned of an unprecedented threat to their credit card accounts. That threat, hopefully, was nipped in the bud by the combined efforts of investigative and law enforcement agencies nationwide.

The television report showed how a group of skilled people had successfully duplicated major credit cards, using the names and account numbers of persons holding legitimately issued cards. Although the perpetrators were identified and apprehended, thousands of dollars in charges had been run up on accounts of numerous cardholders. It is understandable that there was concern on the part of many in the television audience. What can be done?

Card companies, though having continuously improved the design and materials used in the manufacture of their cards with security in mind, are studying ways to prevent counterfeiting, the new threat.

Insurance agents can make a positive contribution by: stressing what their insureds can do to minimize or prevent fraudulent use of their cards; discussing the scope of the exposure and reviewing the protection included in a homeowners policy for loss that might result from such an occurrence and other types of fraud. Preventive measures include the following:

* Check monthly credit card statements promptly upon their receipt. (Don't delay looking at them until payment is due.) Report unauthorized charges immediately.

* Notify the card company without delay when a card is lost or stolen. The potential exposure for the cardholder and the card company will be minimized, as a business to which the card is presented will be alerted and advised that charges will not be accepted.

* When a credit card is used, watch to make sure that the code numbers are not recorded by anyone but the clerk or cashier.

* When signing for a purchase, destroy carbons used to make copies. The increasing use of no-carbon paper, fortunately, is reducing the risk associated with carbons.

* Use caution in giving credit card numbers to unknown companies or salespersons soliciting by phone. Fraud by telephone solicitation is a major concern. Providing card numbers is a perfectly acceptable practice, for example, when making reservations by phone with a motel chain's central office. But providing such data to unknown solicitors is an unacceptable risk.

The discussion of the subject with the insured will logically move to the coverage for fraud included in the homeowners policy, a feature with which he or she is likely not familiar (or only vaguely so) and will find reassuring.

Coverage for loss arising from the unauthorized use of credit cards is provided in the American Association of Insurance Services (AAIS) forms in Section I Property Coverage under Incidental Property Coverages. It is provided in ISO forms as Additional Coverages, and in similar subsections in independently drafted forms. It is notable that the specified limit of insurance is applicable, in addition to credit cards, to fund transfer (bank machine) cards, forgery (of checks, etc.) and counterfeit money.

Coverage for these specific kinds of fraud is subject to a limit in the majority of policies of either $500 or $1,000. The Section I deductible is not applicable. Federal law dating back to the 1960s established a monetary responsibility limit of $50 for an individual for unauthorized charges under a credit card. Accordingly, the basic $500 or $1,000 amount of insurance is considered sufficient for the number of cards carried by most people.

The limit of insurance, however, may be increased for a modest charge. People who maintain large bank accounts are especially vulnerable to forgery and would be better protected by a higher amount of insurance.

Check forgery is a big problem for banks. They urge extreme care in the retention and protection of checkbooks as well as licenses and cards that serve as personal identification. They advise that fraudulent check passers rarely, if ever, use their own names and practically always use stolen or found identification.

A word is in order about fund transfer cards, to which "incidental property coverages" or "additional coverages" in Section I of homeowners policies also apply. They are covered in AAIS policies by virtue of being included in the definition of "credit card;" in ISO forms, by inclusion in the insuring agreement. Issued by banks to their customers, the cards are widely used for insertion in bank machines to accomplish numerous transactions, including cash withdrawal.

It is especially important that holders of fund transfer cards issued by banks not write their personal codes or access numbers on the cards, or keep them where they are easily available to a would-be wrongdoer. Card and number in the wrong hands could deplete a bank account. The basic coverage limit is generally sufficient, as federal law limits the cardholder's liability for fraudulent charges when such charges and card loss are reported promptly.