Credit Card Fraud (Part III)

Credit Card Crime Profits, Losses & Punishment

Losses

U.S. Federal Law can hold the cardholder victim responsible for up to $50, but the merchant victim is held responsible for 100% plus research and investigation fees levied by the banks. Merchants risk losing their merchandise or services, as well as the research and investigation fees charged by the banks. Merchants in high-risk industries, like unattended automated fuel pumps or Internet sales, anticipate a certain amount of credit card fraud, and set prices accordingly. These higher costs are then passed onto the customer.

Credit Card Companies

In 2003 the Wall Street Journal estimated that the credit card industry generated $500,000,000 in annual revenue in research and investigation fees paid by consumers and businesses. This additional revenue offsets some of the costs incurred by credit card issuing and processing companies' when investigating chargeback claims. Some merchants believe the high revenue generation by the banks from the crime victims, reduce the incentive for the credit card banks to implement procedures to reduce credit card crime. However, the companies which collect these fees are not capable of dictating fraud prevention policies to the rest of the world. Payment transfer associations, like Visa and Mastercard, receive profit from transaction fees calculated as a percentage of the amount of money they transfer. These associations are motivated to enact policies which increase the amount of money transferred by their systems. Credit card fraud has a chilling effect on merchant acceptance of credit cards, motivating merchants to not accept credit card payments to mitigate their risk of loss. These payment transfer associations are therefore motivated to enact policies and enforce regulations which reduce credit card fraud.

Merchants have begun to request changes in State and Federal Laws to protect consumers and merchants from fraud, but the credit card industry has opposed many of the requested laws.

Because all card-accepting merchants and card-carrying customers are bound by contract law, according to the agreements they sign with their processing / issuing banks, respectively, State and Federal law has a smaller role in preventing merchants from being tricked. Payment transfer associations enact regulatory changes, and issuing / acquiring banks, merchants, and cardholders are contractually bound to these new regulations.

The Criminals

Persons that commit credit card crime largely go unpunished and repeatedly victimize consumers and businesses. The Secret Service handles crimes involving the US money supply, they have a limit of $2,000 before investigating each crime. Most credit card criminals know this and keep purchases from any one business below $2,000. With credit card crime occurring across state lines, criminals often are never prosecuted because the dollar amounts are too low for local law enforcement to pay for extradition.