Credit Cards » Credit Card News » Weak Credit Card Security Increases Credit Card Fraud Risk
Date June 16, 2009

Weak Credit Card Security Increases Credit Card Fraud Risk

If you are a credit cardholder, surely one of your main concerns is the security of your credit card transactions. Credit card fraud is a very real and very common threat that has victimized many a cardholder. Nobody wants to be victimized by a seemingly random crime that has the effect of stealing your credit identity and charging you with the purchases of someone else.

Weak Credit Card Security Increases Credit Card Fraud RiskSecurity wise, credit card transactions in the United States needs a lot of work, security experts say. The existing setup for credit card transactions are optimized for speed and convenience, not security. These are, after all the major requirements that credit card companies and merchants need to meet the demands of credit card purchases. While credit card companies are implementing security checks, they are not as robust as security experts would expect them to be.

As serious a risk as credit card fraud is, you would expect there to be tighter measures to keep it in check. Currently, the U.S. sees more than 50 billion credit card transactions per year, a major security risk. Surprisingly, the government has left it to the credit card companies themselves to design the proper security rules to keep these transactions secure.

In 2006, American Express, Discover, JCB International, Mastercard and Visa created the Payment Card Industry Security Standards Council. Through this, they created a uniform set of security rules for credit card transactions applicable to merchants. The result was the PCI standard which still exists today as the standard for security that every merchant doing credit card transactions must attain.

According to Avivah Litan, an analyst from Gartner Inc., security upgrades for PCI compliance have cost retailers and other involved payment processors around $2 billion. PCI compliance has also gained widespread acceptance with 93% of the major U.S. retailers and 88% of medium retailers having PCI compliance.

Unfortunately, many security experts have found that the PCI compliance standards are too lenient and does not really reflect the actual security risks involved. Furthermore, PCI compliance audits are known to be inconsistent. Certification courses are also merely cursory and can take as short as a weekend. Bigger retailers can also provide PCI compliance evidence by themselves which makes the process open to major mistakes and fraudulent evidence. Also, retailers having less than 6 million annual transactions are allowed to do evaluations on themselves. These comprise around 99% of all retailers.

All of this means that whenever you use your credit card transaction, you are basically gambling against the odds that the merchant your are using has secured the transaction for you. As long as credit card transaction remains this lax, you probably should consider cash payments as your primary payment option.

Date June 7, 2009

Interchange Fees Finally Getting Some Attention From Legislators

When the credit card bill was released, merchants were less than pleased that they had been left out.

Interchange Fees Finally Getting Some Attention From LegislatorsWhile addressing many unfair credit industry practices such as unfairly high interest rates and fees and obfuscated business practices, the credit car bill left out merchant’s pet credit industry peeve: interchange fees.

Merchants pay an interchange fee every time their customers buy from them using credit cards. These fees average at about 1.75 percent of a credit cardholder’s purchase fees. Depending on the credit card company, interchange fees can range from 1.6 percent to more than 2 percent. Interchange fees end up being quite a burden for merchants. Part of the fees also are also being passed on to consumers which end up increasing merchandise prices.

A new measure being focused on in Washington called the Credit Card Fair Fee Act is expected to address the issue of interchange fees. The legislation will focus on giving negotiation powers to merchants so that they can arrange for reduced costs with their banks regarding credit card purchases. Currently, the legislation has just been introduced in the House of Representatives of the U.S. If it turns out to be successful, it will lighten the burden of interchange fees from a whole range of merchants such as restaurants, shops and service stations.

Currently, Mastercard and Visa, the two major payment networks, have power over setting the fee structure for credit card payments. They also control around three fourths of the total number of transactions for general purpose cards. American Express and Discover use their own system.

Complaints about the system have been coming from merchants for a long time and lawmakers have recently joined in. The major complaint is that merchants are blocked from negotiating a more advantageous fee structure for themselves with the Mastercard and Visa payment networks. There have also been complaints about collusion among banks to control the fee structure to their advantage and to block negotiations for lower fees from merchants.

If this new interchange fee bill is enacted, merchants will have more power to negotiate with banks for terms and rates. The Department of Justice will also have an antitrust attorney present during these negotiations.

When the credit card bill was passed recently, the credit industry heaved a sigh of relief over the fact that did not touch interchange fees, at least. However, with this new Credit Card Fair Fee Act making the rounds in the House, the industry may be facing another challenge as credit card companies seek to minimize their losses and restore profits amidst increasing defaults and declining spending.

Date May 18, 2009

Answers to Some Banking Practices that Puzzled You

Overdrawing

You might have wondered why, when you make ATM withdrawals or debit purchases that are higher than your available balance in the bank, the transaction goes through.

Answers to Some Banking Practices that Puzzled YouIt might seem like the bank is playing the fool but, in reality, this practice is the direct result of banks wising up over the years. In the past, banks would most likely have cut you off if you overdrew your account. Nowadays, they let it through because they’ve learned that they can earn more by charging you special fees for overdrawing your account.

The same also goes when you go over you credit card limit. If you go over the limit of your card, your bank will allow it but you will then be charged a fee for it.

Minimum Amounts and Surcharges

In your purchasing experience, you may have encountered merchants who specifically require a minimum amount before they allow you to use your credit card. Some merchants also have surcharges if your purchase amount is below a specified value.

These are actually not rules from the credit companies and these merchants may actually be breaking the rules. Major credit companies such as MasterCard and Visa don’t allow requiring a minimum amount from cardholders. They also don’t allow surcharging, though there are exceptions with government and educational institutions. Most merchants may not be aware of these rules, however. They usually get their card terminals from third parties. They are, however, aware that they pay increasingly higher percentage of purchases as the transaction amount gets lower. Thus, they invent lower limits for credit card purchases or add surcharges.

0% Balance-Transfers

0% balance-transfers seem to be the perfect solution to handling your debt problems. It’s quite simple. If you have a debt in a credit card line with XX% interest rates, you move it to a card that is offering a 0% interest rate for a limited time, usually 12 months. The question is; how does the bank see profit?

First off, just by transferring the amount, you will already pay a fee. Then, after you transfer, you miss a single payment and that 0% interest rate jumps to 20% or more. You might also go over the 12-month limit and then you’ll end up with a rate of around 16% or more. Another possibility is that you make the minimum monthly payments for the whole 12 months and you try to move to another 0% interest card. However, the requirements will be tougher and you won’t qualify. Thus, you keep your card and you pay off your debt. After your debts are paid off, you keep your card and the bank continues to earn from you.