How Do Banks Handle Credit Card Fraud?

by Annie Sisk - Updated October 27, 2018
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If you’ve ever opened your credit card statement only to ask yourself “What's this charge?” you may have been the victim of credit card fraud or identity theft. That's only one of many ways credit card fraud can occur. Unauthorized debit card charges, as well as unauthorized ATM withdrawals, can also indicate that fraud has occurred. Credit card fraud strikes individuals and businesses alike. After a customer notifies the bank that issued the card of an unauthorized charge or withdrawal, the bank will conduct its own credit card fraud investigation.

Indicators of Credit Card Fraud

The rate of bank card and credit card fraud is on the rise and is at a 20-year high. One form of card fraud, known as “card skimming,” in which thieves steal user data at ATMs, rises annually at a rate of approximately 174 percent for successful “skims.”

That said, bank employees who assist in conducting fraud investigations are skilled at detecting the difference between actual credit card or bank card fraud and charges that are merely disputed. Fraud typically involves a completely unknown individual or business making unauthorized charges against your account, skimming your account data or stealing and manipulating personally identifying information to make a fraudulent charge against your account. It also generally involves individuals or businesses with whom the cardholder has never previously conducted any transactions.

Disputed payments, on the other hand, may involve parties known to each other. If a cardholder’s past statements show regular payments made to the entity or individual accused of fraud, a bank will likely treat the alleged fraud as merely a disputed payment.

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Other potential signifiers of fraud include grossly disproportionate charges. For example, if you normally pay a particular business $100 on the fifth of each month, but suddenly there’s a charge for $3,000 on the eighth, your bank will likely view this with some skepticism. Ideally, the bank will call you and ask for authorization for this unusual charge. If the charge is fraudulent, then the bank can stop the transaction before it causes damage.

It’s best to check each statement for discrepancies as soon as the statement arrives. If you spot any purchases that don’t match your records or any charges that you did not authorize, you’ll be able to notify the bank immediately. This, in turn, helps protect your account from further damage and may help you get your money back sooner.

How Banks Conduct a Credit Card Fraud Investigation

After the cardholder notifies the issuing bank about a disputed charge, the bank will open a credit card fraud investigation.

Among other legislation or statutory law, the Electronic Fund Transfer Act governs the relative rights and obligations of banks and cardholders in the event of credit card fraud. This statute may also limit the bank’s obligation to repay or reimburse a customer for funds lost due to fraud.

The EFT Act requires customers to take certain actions promptly after discovering an unauthorized charge. Those required actions include notifying the card issuer immediately if possible, but no longer than 60 days after the date of the statement. The explanation must also include the precise amount involved, the date of the charge and a description of why the charge is believed to be fraudulent.

The EFT Act requires the bank to investigate the error promptly, and to resolve it within 45 days after that. If the investigation takes over 10 days to complete, and fraud is involved, and not simply a disputed payment, then the bank is obligated to refund the disputed amount. The grace period is extended to 20 days for new customers.

The bank is also obligated to notify the cardholder of its investigative results and conclusion in writing. The cardholder is entitled to ask for and receive copies of any documents the bank gathered or produced during its investigation if those documents were pertinent to its conclusion.

Law Enforcement and Credit Card Fraud

Simultaneously, or at some point shortly after its investigation, the bank may notify the law enforcement agency in the appropriate jurisdiction of the fraudulent item and any other facts it may have uncovered during its investigation.

The FBI may investigate cases of credit card fraud due to identity theft. The 1998 Identity Theft and Assumption Deterrence Act and the 2004 Identity Theft Penalty Enhancement Act criminalize aggravated identity theft and authorize the FBI to investigate or aid in investigations conducted by local law enforcement agencies in certain cases.

However, most cases of credit card fraud and identity theft will be managed entirely by local law enforcement agencies, if at all. Unauthorized charges constitute identity theft, so an impacted cardholder should call local law enforcement authorities as well as the bank itself when the fraud is discovered. Even if law enforcement declines to investigate, insist on filing an official police report. This document can assist you later if you spot further fraud or need to defend against a wrongful collection action against you.

Also, it’s a good idea to notify all three major credit reporting agencies and request a fraud alert to be placed on your file. These alerts place additional monitoring on your account for 90 days, so that any attempts to create credit obligations in your name during that time will be declined unless the creditor verifies your identity with you directly.

About the Author

Annie Sisk is a freelance writer who lives in upstate New York. She holds a B.A. in Speech from Catawba College and a J.D. from USC. She has written extensively for publications and websites in the business, management and legal fields.

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