In order to increase their interest rates, many credit card companies offered incentives for making large purchases or on purchases that a certain amount of money could have in return. Though different for different items, these rewards could range from 1% to 10% for any given credit card. Additionally, they offered a fixed, low introductory APR with each credit card purchase until the balance was paid off. Thus, these rewards offered by many credit card companies are often referred to as ‘rebates.’ Why is this? In comparison, other types of payments included other kinds of charges (rental payments, physician and hospital visits, etc.), insurance premiums, interest rate increases, and credit counseling. The more unusual offerings are of higher interest rates and more restrictions on eligibility.
What about other charges such as cash advances, extended warranties, or grace periods? Credit cards companies have many rules and regulations designed to protect consumers from these sorts of charges. With these limitations, consumers are put into confusion as to whether they are paying interest for items because they have purchased them before or for items that they could have purchased once they had the card. Credit card companies such as Visa, MasterCard, and American Express are also subject to so-called hidden charges. These hidden charges are calculated according to the rates consumers pay to the credit cards companies on their credit cards outstanding.
Fraud In Credit Card Companies
The Federal Trade Commission (FTC) reports that as of October 1, 2006, nearly 16 million (out of 30 million) complaints about credit card fraud were reported to it. The most recent data was released by the FTC website on September 26, 2006. The problem began after a report that listed a Visa Security Card as used at the address listed for the unauthorized charge at the time of the complaint. It appears that the authorized use was at the address listed for the card notifying the card’s provider.
In October 2006 the FTC also reported on identity theft and card fraud. More than 1.2 million credit cards were reported to the FTC in 2006. This is a 19 percent increase on 2005. As of September 27, 2006 only two credit cards: American Express Blue from Visa (no mention of other Visa’s cards in the report or any mention of the Blue from Visa or Blue from American Express products), and Citi New Rewards Platinum Select’ – a Platinum Select Card specifically designed for consumers who often carry Platinum credit cards or Platinum MasterCard balances.
The emergence of online shopping has resulted in a growing problem with fraud. The FTC reports that most online credit card fraud is reported to Visa fraud. Many online credit card companies that reported to the FTC do not respond to inquiries for accuracy. In April 2006, nearly all Visa and MasterCard merchants reported to FBI investigations related to online fraud, including identity theft, card fraud, and fraud on financial institutions. More than 30 percent of all Visa card thefts occur on the Internet.
Online fraud has increased by more than 50 percent to nearly 400 percent during the same time period. In April 2006, nearly all of Visa and MasterCard (NYSE:VIN) merchants reported to J.P. Morgan fraud. Fraudsters visit credit.visa.uci.com and steal their information from Internet sites. J.P. Morgan also reported that it had experienced an average of 56 identity fraud investigations per year during the year 2000 to 2004.
Online services such as Visa and MasterCard accept credit cards through email or a service such as mail to accept payments, purchase orders, and purchase by phone. Online ordering is convenient and secure. In addition, many legitimate establishments accept credit cards through their web sites. However, the typical fraudulent charge is slightly higher. The FTC reports that about 54 percent of all fraudulent transactions taken are reported to a credit reporting agency. In addition to that, a majority of fraudulent charges occur through email (58 percent; online ordering is the second highest).
Although information about card fraud is being stolen and sold through mail, data about card fraud is often stored in “lost and stolen” (i.e., a lost item does not actually get lost) or is sold as soon as someone receives it. This simple process allows card providers to offer consumers false and/or inaccurate information, and in many cases charge more than they provide.
Other Fraud Prevention Steps
The FTC advises consumers to implement easy to use consumer protection or consumer protection procedure safety procedures during online transactions. These procedures include reporting certain fraudulent or unusual transactions to the proper authorities, and requiring the parties involved to maintain records. Keeping records allows fraud investigators (even the card providers themselves) to conduct investigations and find new fraudulent or unusual charges.
In addition, the FTC advises that when making or adding a transaction to a shopping basket complete all necessary information prior to sending it. The steps for submitting a transaction are detailed in a section entitled “The Type of Shopping Cart: What to Look For and How to Make It Work For You.