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Credit Card Fraud
I've been meaning to write this for quite some time. It's a subject that just aggrevates the shit out of me because of the lack of concern from our credit card providers and our countries fine law enforcement agencies. I know why the credit card companies are not concerned, but I'm perplexed by the lack of response from local law enforcement. I've been processing web-based credit card purchases for a number of years now and I'm pretty sure of the reasons behind the lack of concern.
Credit Card companies process millions of transactions each year for thousands of merchants. Each of these merchants sign an agreement where they agree to surrender a percentage of each transaction price as a fee for the processing. The percentage can be as low as 1 percent or as high as possibly 5 or 6 percent. It just depends on the deal the merchant can make. The larger merchants pay less of a percentage where the smaller merchants pay more. It's based on the number of transactions each year and the average price of each transaction. Each credit card company also has fees it charges on a monthly basis for providing the service. Needless to say, credit card processing companies make huge amounts of money from their arrangements.
When an individual places an order on the internet, he/she submits his/her credit card information to pay for the purchase. Along with that information, they submit personal information to allow the card to be verified so that the merchant can have some assurance that the individual using the credit card is actually the individual the card belongs to. The merchant then processes the credit card sale and gets an approval from the credit card processing company. You would think that once the merchant has the approval from the credit card processor, that they would then be relieved from responsibility for a fraudulent order. That is not the case. Our wonderful credit card companies advertise how a user will never be responsible for fradulent charges over $50.00 and make it sound like they will take care of the problems and eat the fraud. That couldn't be further from the truth. Here is how it works.
When a charge is contested as fraud by the card owner, the credit card company sends a notice to the merchant to make them aware of the fraud. The merchant is then given a period of days to respond with their information about the charge and who made it and where it was shipped to. Once the waiting period is over, the credit card company back charges the merchant for the total price of the purchase. Note that I said total price, not the amount the merchant got after paying their percentages to the credit card company for processing. The credit card company also charges an additional fee for having to process the fraud charge. This fee usually runs about $30.00. So if you follow the transaction charges, the merchant has to refund the fraudulent charge completely, pay the original percentage for processing the transaction, plus pay an additional fee for the chargeback. Make a note of the fact that the credit card company never pays for any of the fraud, plus they get to keep their orignal processing fee along with an additional fee of approximately $30.00 for each fraud chargeback. This amounts to thousands, if not millions of dollars each year that the credit card companies make from fraud. This is why the credit card companies will never try to stop fraud. They make money on both sides of the transaction. It's a slick way to boost their bottom line and appear to be magnanimous to the credit card users.
As far as law enforcement goes, I'm not really sure why they don't go after the credit card fraud on the internet. I imagine it's because they just don't have the staff to put on it. I would also assume that they don't have people on staff with the skillset to locate and chase down these fraudulent card users. My company has given a local law enforcement agency all the information it needed to arrest and convict a credit card thief, but they were uninterested in prosecuting. They just didn't care about it. Again, I wonder if maybe they were just overwhelmed with the complexity of the prosecution and the amount of web savvy they would need to take the case.
I've also sent some inquiries to the FBI and received a canned e-mail that asked for more information. They said even with the additional information that it would take some time before anyone looked into it. I guess they are tied up trying to keep terrorists from blowing up sections of our country and I would like them to keep that in check, but the regularity with which I get fraudulent charges from Nigeria and Israel could suggest terrorists are using credit card fraud as a way of generating money for their causes. It wouldn't suprise me at all. Of course they could just be your run of the mill thieves, but they are definitely well organized.
I'm not sure what the answer is to all of the wide spread fraud on the internet, but I do know that until the credit card companies and law enforcement take it seriously, it's here to stay.