Identity Theft

While the new high-tech world offers many advantages to consumers, it also spawns credit card fraud through identify theft. (See related item on public education in the next section.) In an excellent article in the Independent Bankers, Kelly Chills explains how one scam works and how to help prevent it. The key to the scam is a miniature hand-held device that can read magnetic strips on the back of credit cards. Selling for around $100, they are readily available. They are known in the street as wedges.

Dishonest clerks in stores and restaurants use wedges to swipe customers' credit cards when they are submitted to charge bills. The device can replicate the two magnetic stripes on the backs of credit cards: one having the customer's name, account number and expiration date; the other, the account data but not the customer's name. With the capture of these data, the "skimmer" can add them to a credit card for use at stores everywhere. Jan Glibly, special agent with the U.S Secret Service, has estimated that skimming now accounts for about 20 percent of credit card fraud, up from only one percent ten years ago.

Alert customers and clerks can help catch skimmers. A customer at Bloomingdales noticed that the clerk had swiped his card twice (once on his wedge) and reported it to security. A clerk at a Staples store checked the embossed name on the card and noted that it did not match the name on the printed tape that was derived from the magnetic stripe on the phony card. Visa and MasterCard have added a special three-digit number to the signature panel on the front of the card. Consumers asking for a change of address or ordering a new card are required to cite the number. A more sophisticated approach is to use neural-network technology to track cardholders' activities to pick up unusual usage patterns.