Ordering Finances Wisely, Part 1: Fraud & Identity Theft

“It’s really amazing that in the age of unbelief, as a smart man called it, there isn’t even more fraud. After all, with no God, there’s no one to ever call you to account, and no accounting at all if you can get away with it.” (Ben Stein1)

Luke 16:11, “Therefore if you have not been faithful in the unrighteous mammon, who will commit to your trust the true riches?”

John 10:10, “The thief…come[s] to steal.”

The objective of this article series is to inform and motivate the Christian to better organize his finances. Because we live in a fallen world and among sinners, and because the Christian is to be a steward of all that the Lord has entrusted to him, we must be wise against the evil intentions of men. In former days, that threat might have been the wayside robber or the con man, but today the threats are more complex. This article addresses two of those threats: credit fraud and identity theft.

Credit fraud

Several years ago I took my brother out to a casual restaurant near my home in Plymouth, MN. We had leisurely meal and lingered to enjoy each other’s company. I volunteered to pick up the tab and provided the waitress my Chase credit card. Shortly she returned it, I added a tip and signed the check and we left.

A typical restaurant charge will display only the meal amount sans tip as a pending change on a credit card or bank website immediately after the charge is rung up. After several days when the payment clears the total restaurant amount including tip will display on a bank or credit card website.

Later that evening I logged onto the Chase website to view my day’s purchases. The restaurant change was indeed pending but there were other pending charges to my account that I had not authorized—both to porn-related websites and services.

“Credit card (or debit card) fraud is a form of identity theft that involves an unauthorized taking of another’s credit card information for the purpose of charging purchases to the account or removing funds from it.”2 Credit card fraud takes one of these forms:

  1. Unauthorized use of another’s credit to procure goods or services. This would be the most common form of credit fraud;
  2. Purchase of goods of services with one’s own credit card knowing that there is insufficient credit to pay for the goods or services procured; or
  3. Sale of goods or services to another knowing that credit fraud is being perpetrated. An example of this would be a store clerk knowingly accepting a fraudulent credit transaction.

A recent Forbes article states that 27% of cardholders have experienced credit fraud over the last years. Anecdotally I have been a victim of credit fraud twice in two years: once in the above cited case and last year on my corporate card. Credit fraud is less prevalent in Europe because those countries use a microchip in the credit and debit cards to enhance transaction security. This technology is called the EMV card and it will soon be common in the United States.3

Significant United States Federal legislation is in place to protect the consumer against credit fraud. “If someone makes unauthorized transactions with your debit card number, but your card is not lost, you are not liable for those transactions if you report them within 60 days of your statement being sent to you.”4

In the case of the fraudulent charges on my Chase card, I called Chase that very day. They canceled that card and issued me a new one and even sent it via FedEx to my home. The charges were not held against me.

Identity theft

Identity Theft is a more devious and dangerous type of credit fraud. It is evidenced in two categories: Account takeover and application fraud. We experienced ID theft in early February after returning from a trip to Florida.

Our bank notified us that the address of our credit card had been changed. When I logged onto our bank account and checked the address for our accounts our credit card had an address in Maurice, Louisiana.5 “Account takeovers typically involve the criminal hijacking of an existing credit card account. Here an offender obtains enough personal information about a victim to change the account’s billing address. The perpetrator then subsequently reports the card lost or stolen in order to obtain a new card and make fraudulent purchases with it.”6

That very week,7 we experienced application fraud. Newegg called our home to inform me that someone called and ordered these items:

  1. A $650 Canon camera
  2. A $25 PlayStation video game
  3. A $20 set of earphones

They opened accounts in my name (with my home address as the billing address!) with Bill Me Later and Newegg Preferred Account to pay for these items.

“Application fraud refers to the unauthorized opening of credit card accounts in another person’s name. This may occur if an offender can obtain enough personal information about the victim to completely fill out the credit card application, or is able to create convincing counterfeit documents.”8

Our response to the two identity theft events was as follows:

  1. In the case of the account takeover, I immediately left work and went to my local bank branch. They canceled all our debit and credit accounts: HSA, ATM/debit card, and credit card. I changed the password on all of our accounts to a much more robust password. (It actually was fairly robust before: both upper and lower case alpha characters, at least one special character, and multiple numeric characters. I changed the authentication code that one is asked when one calls the phone bank—to a much more robust password.)
  2. In the case of the application fraud, we filed a police report with our city. I had to wait several days and then I visited the police department and requested a copy of the police report. This report was later provided to a service we procured called Experian Protect My ID.
  3. Using this service we placed a fraud alert on our credit files at the three major credit-reporting agencies. We also locked our credit to prevent new credit from being opened in our name without the credit-issuing agency contacting me prior to an account being opened.

When I recently traveled to Charlotte on business, I carried less than $30 in cash for a 4-day business trip. A pickpocket could have stolen my wallet and the maximum loss of cash would have been that minor amount of money. In today’s high-technology world, the threats are much more insidious than the pickpocket or the common thief. More could be said about Credit Fraud and Identity Theft but this article explains the basics. Subsequent articles will address organizing one’s finances to both protect against these threats and enhance one’s financial stewardship.

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Bert Perry's picture

One thing to note is that the chip enabled cards are not foolproof--my family has had two instances of credit card fraud in this regard in the past couple of months with such cards.  Using the same cases, it's also worth noting that while the card fraud people are good, you may well be able to figure out things they cannot for multiple reasons, starting with "only you are you" and "you're the one who is going to pay the closest attention to the evidence they find."  I sent a note to a credit card issuer just last night along those lines--they thought they had evidence we'd incurred the charges, but it actually turned out they'd provided the name and address of the perp.

I provided them with the phone number of the applicable police department, and suggested they could be very helpful.  

Aspiring to be a stick in the mud.

Jim's picture

U.S. Bank rolls out checkless account aimed at the underbanked. The Minneapolis firm will open checkless "Safe Debit Accounts" for those outside the financial mainstream

U.S. Bank is the latest financial company to aim for customers outside the financial mainstream by rolling out a bank account for people with as little as $25 to deposit.

On Monday the bank is to announce the checkless "Safe Debit Account," which comes with a debit/ATM card and will not allow overdrafts. It will let customers pay bills, deposit money and use the bank's online and mobile banking platforms.

For now, customers can open an account in a bank branch. Starting in November they will be able to open one online or by phone.

Services such as these are sold as a low-risk way for customers to disentangle themselves from the world of check-cashing firms and payday lenders. They are also a way for banks, in an era of moderate revenue growth, to attract millions of new customers and drive traffic to branches.

"The segment that we're talking about here, the unbanked and the underbanked, is a segment that does have unique needs," said Lynn Heitman, executive vice president and head of consumer products and services at Minneapolis-based U.S. Bank. "It's an open door for them to have an account that allows them to have some stability."

U.S. Bank will charge a $4.95 per month maintenance fee for the accounts.

U.S. Bank is one of the larger banks to roll out a product aimed at the underbanked, but it's not the first.

TCF Financial announced a similar product called ZEO earlier this year. Last year, Cincinnati-based Fifth Third Bank rolled out a service called Express Banking, which offers a checkless account with a debit card, direct deposit and check-cashing with no minimum balance requirement and no chance of an overdraft. A Cleveland bank, KeyBank, has offered a checkless account for more than a decade that doesn't charge overdraft fees.

Pressure from policymakers has helped encourage these moves. Earlier this year, Richard Cordray, director of the Consumer Financial Protection Bureau, urged the nation's 25 largest banks to make accounts that don't charge overdraft fees more broadly available.

Nearly 10 million American households have no relationship with a bank, according to the Federal Deposit Insurance Corp., and another 25 million households are considered "underbanked," meaning they have a bank account but still make use of check-cashing outlets, car title and payday lenders.

In Minnesota, about 346,000 households operate completely or partly outside the financial mainstream, according to a 2013 FDIC report.

Trying to stay afloat without a solid banking relationship can be expensive. It's estimated that Americans who are underserved by banks spent $138 billion on fees and interest in 2014. Families with between $20,000 and $25,000 in annual income typically spend between $1,100 and $2,400 per year on fees and interest that wealthier people don't pay.

Also could be good for a teenager. Note other banks have this product as well.

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