Hazards of Stolen Credit Cards and How to Protect Your Business


Identity thieves create chaos, clearing out victims’ bank accounts and damaging their credit for years. More than 15 million residents fall prey to identity thieves each year with losses costing consumers and businesses more than $50 billion annually.

The person with the stolen identity isn’t the only one who suffers. When a thief pays for merchandise with a stolen credit card, a business could be liable for accepting that card. In some instances, businesses could lose hundreds or thousands of dollars in merchandise or services, creating potential financial devastation. To keep your business as safe as possible, here are a few things you should do to protect yourself against credit card fraud.

Check Signatures

In the rush to process as many customers as possible, your customers may take shortcuts, especially since many establishments are now set up for the customer to swipe his own card. But it’s important that every credit card transaction be verified, with employees instructed to compare the signature on the back of the card to the signature on the credit card slip. It’s important to carefully check the fine print in your network agreement to make sure you’re following requirements to the letter to avoid being penalized in the event fraud does occur.

Before you implement a strict policy that every employee must ask for ID with each credit card purchase, read your merchant agreement. Both MasterCard and Visa state that merchants cannot require an ID for a properly-signed card. Furthermore, if an unsigned card is presented, your employee should ask for an ID and require that the customer sign it before the payment can be processed.

Safeguard Virtual Transactions

Selling in a card not present environment (online, mail, or telephone) brings a new layer of challenge for merchants. As a result, several providers now advertise that they offer fraud protection as part of their payment solution. This is an increasingly attractive perk for many businesses, which may enjoy a reduced liability thanks to these promises from a payment processing service.

One step all businesses can take in accepting cards from customers online and by phone is to require the card verification number along with the 16-digit card number and expiration date. The verification number is on the back of the card and is much less likely to be a part of a widespread card number theft racket. Additionally, employees should double-check mailing addresses and the spelling of names, especially by phone. Some fraudulent customers can be identified before items are shipped, preventing a business from loss of merchandise.

Check with your payment processing provider to see if Address Verification Service (AVS) is an option for you. AVS automates the process of address verification, matching provided addresses with the address associated with the bank account. If the address doesn’t match, the payment is declined. Your processor likely also has other anti-fraud measures in place that you may not know about if you didn’t carefully read your agreement.

Pay Attention

Some customer buying behaviors may set off red flags for business owners and employees. If someone purchases a large quantity of an item with no concern about the color, size, or style, that person’s credit card should gain extra scrutiny. Both online and store locations can catch some instances of fraud by paying attention to customer details. Is a teenager buying something much older customers normally buy? Is a middle-aged customer purchasing something that is in high demand for much younger customers? By noting typical customer patterns, businesses may be able to identify telltale signs.

If a customer places a large order and seems to be overly concerned with turnaround time, businesses should be wary. Often identity thieves will be in a hurry to obtain merchandise before the credit card is reported as stolen. Don’t be afraid to turn a customer away if your suspicions are heightened. While you may fear losing a customer, the cost to your business isn’t worth retaining a customer who is acting shady. If fraud has already occurred, report it to the card’s issuing bank as quickly as possible to minimize further damage.


Get Insurance

One way a business can protect itself is with commercial crime insurance. This type of insurance, available through many business insurers, will cover your business in the event of fraud, theft, or forgery. This includes customer fraud as well as internal theft, so it can be a huge benefit to any business. For a small addition to your monthly insurance premiums, you can prevent financial losses over time.

Review Your Agreements

The best thing a business can do to protect itself is review its merchant agreements closely. Each card has its own requirements so you’ll need to read all of them. By being aware of your responsibilities, you can ensure that if a case of fraud does occur, you’ll have taken every step required of you. This may save your business hefty fines. Businesses often have shorter timelines for reporting fraudulent activity than consumer accounts have.

Hire Trusted Employees

It’s important that businesses do their part in protecting customer credit cards, as well. Since many cases of credit card theft are conducted by employees, it’s more important than ever that businesses carefully screen each new hire, especially when a new hire will have access to customer credit card data. Unfortunately, even when an employee has undergone a background and reference check, instances of future credit card theft may not be predictable. Many businesses choose not to press charges even when an employee is caught stealing. Instead, it’s important to put measures in place to ensure employees have few opportunities to steal customer credit card numbers.

Since credit card numbers are no longer recorded on receipts, in-store credit card numbers are often not in front of employees long enough for them to be written down. Businesses should be aware, however, of practices like skimming, which highlight the importance of ensuring employees aren’t allowed to take credit cards out of the view of customers. Employees who are tasked with recording credit card information over the phone should be chosen carefully, with detailed procedures in place to ensure the employee isn’t able to easily make copies of those numbers without someone noticing.

Customers are awarded a certain degree of protection when a credit card is stolen, but businesses must protect themselves. By carefully scrutinizing merchant agreements and following those agreements, businesses of all sizes can reduce their own liability when fraudulent activity occurs.

Posted on Friday, May 23rd, 2014