Credit Card Fraud

Credit card fraud involves the unauthorized use of someone’s credit card information for the purpose of either charging purchases to the victim’s account or removing funds from the victim’s account. Credit card fraud is regarded as one form of identity theft. With the popularity of online shopping, a criminal no longer needs a physical credit card to make an unauthorized purchase. The cardholder’s name, the credit card number and the expiration date will usually suffice. When a hacker opens a database or the database crashes on its own and releases its users’ credit card information, millions of accounts can become victimized almost immediately. Federal law, however, limits cardholders’ liability to $50 in the event of credit card theft. Most banks will waive this amount if the cardholder signs an affidavit explaining the theft.

Credit card fraud schemes fall into one of two general categories: application fraud and account takeover. The former refers to scammers who open credit card accounts in someone else’s name. This can occur when the criminal obtains enough personal information about the victim to completely fill out the credit card application. Alternatively, the criminal may create counterfeit documents. Such a scheme poses a serious problem because the criminal can make numerous purchases without the victim knowing. The billing statement may not come for a month, if ever.

Account takeovers typically involve the criminal hijacking an existing account. A criminal can pull off this scheme by obtaining enough personal information about the victim to contact the bank or credit card company and having the billing statement location changed. Upon completion, the criminal can report the card lost or stolen and ask the bank or company to send a new card to the new location. The criminal then can make fraudulent purchases on the card.

Another common method used to achieve an account takeover is skimming, which occurs when employees with access to the credit cards of customers record the card information and use the information fraudulently.

The content on this page was developed in partnership with the Legal Information Institute, Cornell Law School.