We start off this week with some news about identity fraud. And it is not good news, is that right?
A recent study by Javelin Strategy & Research and identity-theft protection firm Lifelock found that more people were victims of identity fraud last year than at any point in over a decade. The study showed a dramatic 18% increase in identity fraud from 2015, involving some 15.4 million American consumers in 2016, and resulting in $16 billion in total losses. And much of this can be chalked up to credit card fraud, in spite of increased security measures that have been rolled out over the past few years, including credit cards with security chips.
Are the chip cards not working?
Actually, chip cards are working. Traditional retailers that have switched over to chip and pin cards have seen a dramatic reduction in cases of fraudulent purchases. Mastercard said counterfeit card fraud is down at its top 5 EMV-enabled merchants by more than 60 percent since October 2015.
And chip usage has helped bring down the amount of losses on existing card fraud to $961 on average per incident in 2016, down 2% from a year prior and down 30% from 2013. So the move to chip cards has worked for consumers, retailers and card companies where is has been implemented. However, 64% of storefront merchants still only accept cards’ magnetic stripe.
So why is identity fraud going up?
Despite the success of chip cards, the majority cases of identity fraud still involved credit cards. How can this be? Two words: online shopping. We are seeing a significant surge in “card not present” purchase fraud – that is, when purchases are made without swiping or inserting a physical card.
Obviously, those situations are most commonly encountered during online shopping. The study found a key contributor to the uptick in credit card fraud was a 15% rise in cases of fraudulent purchases online, where consumers try to purchase something on counterfeit or unsecure websites, and end up volunteering their personal information.
Once they have your information, what are they doing with it?
There are a few ways fraudsters use your information. The most common is to duplicate your credit card. Called “existing-card” fraud, this involves criminals taking your card information and creating counterfeit debit and credit cards. That tactic saw a new record this past year. The second route fraudsters can take is called new account fraud, in which new accounts are opened in consumers’ names without their knowledge or knowledge by the lender.
This type of fraud also saw a significant rise, jumping 40% to 1.8 million in 2016. Finally, fraudsters can use your stolen information and identity to simply take over an account, be it a bank account or a credit card. The number of cases of consumers reporting this type of identity theft increased by over one-fifth to 1.4 million cases last year.
How can we prevent this from happening to us?
There are a few things you can do to protect yourself. First, avoid making any purchases on public or unsecured wi-fi connections. I know it is convenient to pop online when you are at a restaurant, but public connections expose your information, particularly those that are not secured.
Second, check to make sure the site is secure when you are purchasing. All websites that you are making purchases on should start with https://. If there is no s, do not provide you information!
Third, stick to reputable websites when providing your credit card info, not random sites with names like reallycheapconcerttickets.com. Finally, track your purchases and your credit reports. If you don’t monitor your statements, you are not going to be able to catch fraud and report it.
Mellody is President of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.