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Aging Card Technology Drives Rise In Credit Fraud

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Aging Card Technology Drives Rise In Credit Fraud

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Aging Card Technology Drives Rise In Credit Fraud

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Credit and debit card fraud are on the rise. According to one survey, nearly a third of American consumers have reported credit card fraud in the past five years.

To find out what might be done about this, we've called Andrea Rock. She's senior editor at Consumer Reports, and she's been writing about credit card security or the lack thereof.

Thanks for joining us.

Ms. ANDREA ROCK (Consumer Reports): Thank you.

KELLY: Well, let me start by asking, why is card fraud rising so sharply? And the problem seems to mostly involve debit cards. Is that right?

Ms. ROCK: Well, yes. The credit and debit cards that most Americans use are really surprisingly vulnerable to fraud because unlike cards in most of the rest of the world, they rely on outdated technology. The account information that's needed to make a transaction on American cards is stored unencrypted on a magnetic stripe on the back of each card, and that's very easy for thieves to cheaply copy and produce counterfeit cards. And as you mentioned, debit cards are particularly appealing to them because they allow them to just get their hands on cold hard cash more quickly than credit cards.

KELLY: So Europeans, for example, or places in just about everywhere else in the world I gather, instead of having the cards we have with the magnetic stripe you mentioned, they have actually a security chip that's embedded in the card. Now why is that so much better?

Ms. ROCK: It's actually part of multiple layers of security, but it's less easy to copy, the data that's on it is encrypted, it's - often includes an identifying code that changes with each transaction. And for a lot of the cards, whether you're making a debit or a credit card purchase, you're also required to enter a PIN number, which is why they're sometimes called chip and PIN cards.

KELLY: Well, so if this technology is so much better, the chip technology, why don't we have it here in the States?

Ms. ROCK: Well, banks and some of the other financial players in the card industry in the U.S. claim that losses due to fraud here don't yet exceed the cost they'd incur in switching to the new technology. There is a change beginning to occur that some of the big-name retailers, including McDonald's, Walgreens, Kroger, Sears, are now pushing for an upgrade to the better card technology used in Europe and the rest of the world. And some of the biggest, Best Buy, Home Depot and Wal-Mart are already in the process of installing the new sales terminals that can process the smart-chip cards.

KELLY: So let me make sure I'm hearing you correctly. It is banks that would have to pick up most of the tab for switching to the new chip technology.

Ms. ROCK: Banks and merchants. Merchants also have to incur the cost of switching their sales terminals. But despite that cost, they're willing to do that because of the clear improvement in security. When this technology for cards was introduced in France way back in 1992, total fraud losses there dropped by 50 percent and card counterfeiting by 78 percent. So it makes a significant difference.

KELLY: Well, for now, as people wait for U.S. banks and retailers to catch up on the technology, is there anything people should be doing to protect themselves?

Ms. ROCK: Yes. It's better to use a credit card rather than a debit in general because even though card issuers extend zero liability policies for card losses to both credit and debit cardholders, that's a voluntary policy and under the law, the liability for unauthorized transactions is greater for debit card holders. If you are at an ATM and you do need to enter your PIN, what you want to do is take your other hand and cover the keypad as you're entering it, because the way they're capturing the PINs often is from pinhole video cameras that are aimed at the keypads to see what number youre typing.

KELLY: Well, thanks so much.

Ms. ROCK: Thank you again.

KELLY: That's Andrea Rock, senior editor at Consumer Reports.

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