If you're a credit card holder, chances are pretty high that you'll become a victim of credit card theft or fraud at some point in your life, especially as e-commerce and other online payment activities become increasingly common.
Even beyond personal transactions, massive data breaches — like the recent one from Equifax that affected more than 145 million people — can leave your consumer information open to theft and fraud of all kinds, including the unauthorized opening of new credit cards.
Theft and fraud can happen on a smaller scale, too: Your wallet can be stolen, or a family member can use your Social Security number to open a new card in your name.
To avoid becoming a victim, vigilance is key.
How likely are you to be victimized?
The number of total identity fraud victims in the U.S., which partially includes credit card fraud victims, reached an all-time high of 15.4 million people in 2016, according to a recent study from Javelin Strategy and Research. The study estimates that fraud losses for 2016 were around $16 billion.
“The number of total identity fraud victims in the U.S., which partially includes credit card fraud victims, reached an all-time high of 15.4 million people in 2016, according to a recent study.”
Specifically, the study cites large increases in 2016 for both "card-not-present" fraud — transactions such as online purchases that don't require a physical card to be swiped — as well as "account takeover," when a fraudster gains control of a bank account or card and makes unauthorized transactions. According to Javelin, CNP fraud rose by 40% in 2016, and account takeover incidents increased by 31% from the previous year.
Overall, credit card fraud accounted for 32.7% of total identity theft complaints in the calendar years 2014 through 2016, according to a report released by the Federal Trade Commission. Consumers in Michigan, Florida, Delaware, California and Illinois reported the highest rates of identity theft complaints per 100,000 people in 2016, according to that report.
How severely is credit card theft and fraud punished?
Different states prosecute fraud differently. In addition to the identity theft itself, criminals can be punished under federal law for using devices that facilitate fraudulent activity, such as skimmers or other counterfeit access devices. Minor offenses can result in fines, jail time, or both, but felony-level credit card theft and fraud can lead to prison.
“Minor offenses can result in fines, jail time, or both, but felony-level credit card theft and fraud can lead to prison.”
The severity of punishment depends on a multitude of factors, including the fraudster’s criminal history, the amount stolen, whether he or she had criminal intent (as opposed to an accidental misuse of credit card information) and whether the victim was elderly. In some states, if the severity of the crime warrants a felony conviction, the felony is broken down into different classes, typically based on the state’s identity theft laws. Go here for more information on state credit card fraud laws.
If a loved one used your identity to rack up credit card debt but you don’t want to get them in trouble, it may be possible to resolve the issue without reporting them to the authorities. However, if you don’t have documentation from law enforcement that your identity was stolen, future creditors may hold you accountable for your loved one’s credit malpractice.
How to protect yourself from credit card fraud
First, let's start with the good news: When it comes to credit card fraud, your liability under federal law is typically capped at $50, assuming you report unauthorized charges to your card issuer in a timely manner. Moreover, because most major credit card issuers offer zero liability fraud policies, you'll likely end up owing nothing in these cases.
“When it comes to credit card fraud, your liability under federal law is typically capped at $50, assuming you report unauthorized charges to your card issuer in a timely manner.”
But that doesn't mean credit card fraud isn't still a headache. It involves contacting your issuer, canceling your current card, waiting for a new one in the mail and subbing the new number into all autopay accounts linked to the old card. Plus, financial fraud and identity theft aren't limited to credit cards, so reducing your risk is always a good idea. Here are some steps:
Follow good safety practices. Phishing and skimming are popular methods that criminals use to steal credit card numbers, so learn how to protect yourself against such tactics. Additionally, consider an "autopay and every day" credit card strategy, in which you designate one card solely for autopay accounts like bills and subscriptions, while using another for everyday purchases. That way, the card that pays your important bills isn't in your pocket and exposed "to the wild." You also might benefit from a smartphone-based payment app, which shields your account information via "tokenization." And use common sense: Avoid making credit card transactions over public Wi-Fi, and make your passwords difficult to guess.
Consider freezing your credit reports. If you think you may be vulnerable to identity theft, freezing your reports will prevent criminals from opening new accounts in your name. Keep an eye on your currently open accounts, however, as they will still be active and open to fraudulent purchases if a criminal has your information.
Contact authorities as soon as you notice fraudulent activity. Notify your credit card issuer, the police and the three major credit bureaus (Equifax, Transunion and Experian) if you’ve become a victim of fraud or theft. Have your issuer close the compromised card and send you a new one, but keep records of the fraudulent transactions. Keep notes about your conversations with your issuer and the authorities in case the timeline of your disclosure is ever disputed. Even after the situation is resolved, keep a close eye on your accounts to make sure no other fraudulent activity slips through the cracks.