Less Optimistic Observer Says New Measures May Backfire : Firms Say Fight Against Credit-Card Fraud Is Paying Off
Last November, a man dining alone in a West Hollywood restaurant paid with a credit card that a restaurant employee found suspicious. When the patron’s second piece of identification also didn’t look legitimate, the sheriff was called and the man was arrested.
That arrest and others like it recently are cited by credit card companies as evidence that extensive anti-counterfeiting efforts they have made in the past two years are paying off.
Credit-card counterfeiting--either creating a fake card from scratch or tampering with an existing card to give it a new number--rose dramatically in the late 1970s and early 1980s. Visa International and MasterCard International report that between 1982 and 1983, their losses from counterfeiting nearly doubled. MasterCard’s alone reached nearly $20 million in 1983 contrasted with less than $200,000 in 1979.
Losses from other forms of credit-card fraud are even greater. The American Bankers Assn. says $200 million is lost to credit-card fraud each year.
For its part, MasterCard now trumpets some victories over counterfeiting. Last month, in fact, it announced that counterfeit losses had dropped in the first six months of 1984 contrasted with the year before.
“We think we’ve made a substantial dent,” says Russell E. Hogg, MasterCard’s president and chief executive. “We honestly feel that we have stopped the upward trend.” To back up those statements, MasterCard cut by 16% the fee that it charges banks and savings institutions to cover counterfeit losses.
Although Visa officials say they don’t have the most recent figures on counterfeiting, “it’s certainly leveling off; it’s not going crazy like it was a few years ago, so we’re very encouraged,” General Manager William D. Neumann says.
However, one respected industry observer isn’t as optimistic. According to Spencer Nilson, publisher of the Nilson Report, a Santa Monica-based news and advisory service for credit-card executives, “counterfeiting, if it takes a short lull isn’t going to stay there very long. . . . It’s too attractive for crooks.”
To protect against counterfeit and fraud, MasterCard and Visa introduced as many as seven new design features on their cards in 1983. One of the most obvious changes is small, intricate background printing--similar to that on the American Express card--on the card’s face. The companies hope that the complexity of the design will discourage potential counterfeiters.
Card holders will also notice small, three-dimensional images--of the company’s logo, for example--attached to cards. Known as “holograms,” they are produced by a laser and are considered difficult for criminals to reproduce.
But Nilson believes that such an assumption may backfire because, although holograms may stop casual counterfeiting, organized crime figures will not be deterred from producing cards with fake holograms, and the average sales clerk or waiter cannot be expected to know the difference.
The introduction of holograms, Nilson says, “gives a handle, really, to organized crime to come up with a card that will look like any other. . . . The cure, in the end, may be worse than without it.”
The card companies, however, note that holograms are just one of several methods they use to fight fraud and counterfeiting. Another consists of terminals that read a magnetic-tape stripe on the back of a card that indicates the number with which the card was originally embossed. Neumann says Visa considers point-of-sale terminals to be “the single most important deterrent to fraud.”
In order to prevent criminals from copying card numbers from discarded carbons of sales receipts, the card companies have been urging customers to insist on having the carbons or ripping them up. Some card companies are switching to carbonless receipts or receipts in which the carbon is attached to the customer’s copy.
Visa and MasterCard have mandated that merchants and banks make such changes by 1986. Since customers may still be issued cards without background printing or holograms, and old receipts with carbon may still be used in stores, few, if any, arrests have yet resulted from changes in card design. And point-of-sale terminals have yet to be installed systemwide, although tests of such systems have looked good, the card companies report.
Nonetheless, the card companies believe that merchants are much more aware now of card-counterfeiting methods and are trying to fight it. The West Hollywood arrest was one of three made by the Sheriff’s Department in October and November last year.
12 Arrested in N.Y.
Although the department had been involved in credit-card fraud investigations before, according to Operations Sgt. Robert Green, the recent cases were the first instances in which merchant suspicion initiated arrests.
Last April, a cooperative effort of the Postal Inspection Service and a task force of card company investigators resulted in the arrest of 12 individuals in New York who were allegedly involved in producing counterfeit cards. In that case, 20,000 well-made counterfeit cards and the offset press on which they were printed were seized.
According to Thomas F. Kelleher, vice president for security and fraud control for MasterCard, the New York operation was selling fake cards and New York driver licenses to go with them. These packages, or “tickets” as they are known, were selling for about $150, he said.
Sometimes merchants themselves contribute to fraud. In December, 1983, MasterCard began keeping a close eye on merchants who reported counterfeiting. Merchants for whom fraud represented 8% of their sales were themselves suspect.
A Federal Offense
And federal legislation passed late in the last session of Congress will involve, on a wider basis than ever before, the FBI and the U.S. Secret Service in investigation of credit card fraud. It is now a federal offense to obtain more that $1,000 worth of goods or services using lost or stolen cards, or to possess 15 or more such cards. Counterfeiting is also a federal crime.
At this point, the Secret Service is not quite ready to handle its new tasks, a spokesman says. But Mike Tarr, an agent in the office of public affairs, says, “We have no reason to believe that we wouldn’t be as successful as we have been with other forms of counterfeit in the past.” Being under the jurisdiction of the Treasury Department, the Secret Service has been responsible for stopping currency counterfeit.
Since the card companies’ fraud control measures will not be totally in place until 1986, and given the time it takes to gather fraud reports, a true assessment of whether fraud and counterfeit have been reduced is at least a year and a half away. In the meantime, the changes implemented beginning in 1983 will become more apparent to card holders.
