In today’s digital age, safeguarding your finances is paramount. Credit card companies play a vital role in shielding users from the rising tide of fraud. With incidents surging in recent years, understanding how these companies protect you is crucial. Let’s explore the evolving landscape of credit card fraud prevention together.
Common Methods for Combating Credit Card Fraud
When you shop for a credit card offer, consider the benefits that matter most to you. And bear in mind that some of these benefits go beyond fraud protection to include preventative measures as well. In some cases, these resources may also serve as sources of support and advocacy in disputes with vendors as well as insurance against calamities when traveling or renting a car.
The benefits below are divided into three key categories: Fraud Protection, Fraud Prevention, and Support Resources.
Identity Guard reports that, with more than 400,000 cases in 2021 alone, credit card theft was the second most common type of fraud reported to authorities. This is a dramatic increase over just 271,823 cases in 2019, says Bankrate.
In other words, credit card fraud is a real and growing problem. Identity thieves are always looking for new ways to exploit cardholders. This means that credit card issuers must provide a constantly evolving set of both protective and preventive solutions for cardholders.
The most common and universal forms of fraud protection are generally those aimed at reducing your liability for financial burdens created by fraud, identity theft, or vendor disputes.
$0 Fraud Liability Protection
In 2015, the federal government passed a mandate that, according to WalletHub, places the onus on all credit card companies to cover the cost for any fraudulent purchases totalling $50 or more. According to WalletHub, “Legally, you cannot be held responsible for more than $50 in unauthorized charges.”
In other words, if your credit card company attempts to hold you responsible for these charges, there’s something fishy going on. Close your credit card account and report the card issuer to the Better Business Bureau. Fortunately, if you have a card with one of the major credit card networks—Visa, Mastercard, American Express, or Discover—you can at least be assured of this basic purchase fraud protection.
While all credit card companies are required to protect users for any fraudulent purchases up to $50, most of the major card providers take this protection a step further. Most popular offers will include total protection against fraudulent use. This includes protection against responsibility for any fraudulent purchases and any fees, penalties, or interest charges incurred as a consequence of these fraudulent purchases.
Before you commit to a credit card offer, find a plan that includes $0 fraud liability protection. Ultimately, the difference in your liability will be marginal—$50 at the most—but there’s no reason you should ever pay out of pocket for credit card fraud. This protection clause ensures that you won’t.
With purchase protection, your credit card company protects you against misrepresentation or fraud by a vendor. According to WalletHub, “If you buy something with your credit card and it breaks or is stolen, your issuer may repair, refund or replace it. Typically, this must happen within 90-120 days of the purchase date.”
This is a line of defense against a seller that provides a faulty product, sends an item that is not as described, sells a counterfeit or stolen item, or otherwise fails to deliver on a sales promise. This is a particularly valuable form of protection if you plan to make purchases from independent vendors online.
Using a credit card can provide a line of protection in the event that your seller does not behave with total integrity. In this sense, purchase protection is a particularly meaningful tool against vendors, service providers or sellers who commit fraud.
Return protection is another way that your credit card company can provide additional support and advocacy when dealing with a difficult or deceptive seller. WalletHub notes that this is a layer of protection offered by just two financial institutions at the time of writing —American Express and Chase Bank.
With return protection, when you, as the cardholder, attempt to “return a new, working item to a store within 60-90 days of purchase and the merchant won’t take it, the credit card company might reimburse you instead.”
As with purchase protection, the purpose of this benefit is to offer buyers a line of defense against sellers who diverge from fair consumer practices like standard returns and refunds. This is a particularly useful benefit for consumers who receive items that, while functional, may not match the quality, authenticity or capability initially described by the seller.
In other words, this is another way that your credit card company can protect you against fraudulent marketing tactics. Anybody who has ever shopped for items like clothing, jewelry or furniture online can tell you that this is a very real and very commonplace risk. While not a common benefit—again, only two financial institutions currently offer return protection—it may be worth seeking out from your credit card offer if you do a lot of online shopping.
While most of the methods itemized above describe ways of reducing the financial burden of fraud on credit card holders, most credit card issuers also take steps to prevent the occurrence of fraud. These measures of prevention vary from one major credit card network to the next, and often rely on specific forms of proprietary technology.
For instance, the Visa credit card network deploys its own strategy of fraud detection that is automatically invoked every single time a purchase is made using your credit card. According to Bankrate, “The Visa credit card network uses what it calls Visa Advanced Authorization to fight fraudsters looking to make purchases in your name. This anti-fraud detection system uses artificial intelligence (AI) and machine learning to analyze hundreds of pieces of data for risk whenever a transaction takes place.”
This detection strategy triangulates data about the type of transaction made, the geo-location of this purchase, your spending history or any other out-of-the-ordinary circumstances including the use of your card for an unusually costly purchase. Taken together, these data points are used to determine a risk score between 0 and 99 for each purchase. High risk scores are reported to the financial institution affiliated with the card in question, ultimately giving this institution the power to approve or reject transactions.
This method has proven so effective at raising red flags before fraudulent purchases can be completed that Visa currently reports a global fraud rate of less than .1%.
Identity verification is becoming increasingly sophisticated, as perhaps best demonstrated by the Identity Check protocol used to the benefit of Mastercard users. Bankrate notes that Mastercard, like Visa, uses AI and machine learning to accumulate purchase data. However, this fraud prevention strategy relies on checks of over 150 transaction variables geared toward confirming that the buyer is indeed the cardholder.
Among the more impressive variables measured by this strategy are those used in online shopping contexts, where “Identity Check looks at screen brightness, user gestures, transaction history and insights from the merchant and the card issuer to authenticate a payment.”
Additional identity verification can also be established using fingerprint and facial recognition where needed.
That silver chip on the front of your credit card has a name. This EMV chip, Bankrate explains, is a “secure tokenization system” designed to reduce the occurrence of fraud by generating a unique code every time a purchase is made using your card. All four major credit card networks include these EMV chips standard on all credit and debit cards. By creating a singular security code for every single purchase, EMV technology gives credit card networks the ability to institute multiple layers of purchase verification.
For instance, American Express uses the combination of chip and pin card to provide each user with a one-time encrypted code that triggers instant account information verification with each purchase. This makes card counterfeiting impossible.
Card Identification Numbers (CIDs)
The Card Identification Number (CID) is another way that credit card companies prevent your card from being skimmed and replicated. Most vendors will require you to provide this three- or four-digit code, which appears somewhere on your credit card—usually on the back—to complete online or mobile purchases. This prevents credit card thieves from completing unauthorized purchases with just a credit card number and expiration date.
This is especially important in the face of high-profile data breaches like the 2019 incident in which hackers accessed the accounts of thousands of Capital One cardholders. Such incidents demonstrate the far-reaching abilities of hackers and data thieves to gain access to user profiles and credit card numbers. While certainly not impervious to penetration themselves, CIDs may serve as a last line of defense against hackers armed only with card numbers and expiration dates.
In addition to the layers of fraud protection and prevention provided by most major credit card networks, many providers also offer additional support resources aimed at empowering consumers. Most of these resources are fully optional, but can add yet another layer of protection as you spend using your credit card.
Rental Car Insurance
Before you set out to rent a car for your next vacation to Costa Rica or business trip, consider opening a credit card that comes with automatic car rental insurance. This gives you the freedom to decline the optional rental insurance fee levied by the car rental company itself. According to WalletHub, “If you rent a car using your credit card and decline the rental agency’s insurance plan, your issuer may reimburse you up to the cash value of the car for collision damage or theft. “
Simply stated, you get to do the responsible thing—that is, insure your rental against unforeseen calamities—without spending an extra dime. While this doesn’t fall directly under the umbrella of fraud protection, it is one more way that your credit card company can protect you against unforeseen hazard—whether that hazard is paying for the consequences of a car accident that isn’t your fault or the hazard is simply overpaying for a car rental’s optional insurance plan.
If you rent vehicles with any type of regularity, this is a support resource that could add up to some meaningful long term savings.
Travel Insurance can actually take a wide variety of forms, and, like rental car insurance is something for which many consumers will actually pay directly out of pocket. Customers of financial institutions like Chase Bank and Citibank, however, can access credit card offers that include travel insurance for an array of items.
WalletHub notes that trip insurance can include a wide range of coverage benefits including “trip accident, trip delay/cancellation, baggage loss/delay, emergency evacuation, emergency medical attention and more.”
Again, while not technically fraud protection, this type of insurance offers cardholders an added layer of protection when making purchases. This, taken together with other methods of protection and prevention outlined here, can ultimately reduce your personal financial liability in the event of the unexpected.
Of course, even with all of these protections, there are still countless risks to your privacy and identity, such as phishing and scams. This is especially true when you shop, bank, or invest online. Beyond the protections provided by your credit card company, make sure you go the extra length to protect yourself.