When credit or debit card fraud occurs, financial institutions generally take a few steps to investigate and report the fraud. Although the exact steps can vary, the process is relatively similar in most situations. Whether you’re a curious consumer or a banking professional who wants to compare your financial institutions investigation and reporting process to the rest of the industry, take a look at this overview of the steps involved.
Credit Card Fraud Detection
Before you can investigate or report fraud, you need to know that it’s happened. Often, the customer notices the fraud first and calls the financial institution, or they may report their card lost or stolen. Unfortunately, however, customers can take a while to notice an issue.
For instance, if they lose their debit or credit card in a store, they may not notice it’s missing until they try to use the card hours or even days later. If the number gets stolen, the cardholder may not notice an issue until they review their statement. By that time, the thief may have made dozens of transactions. If just the number is stolen, the cardholder gets a much bigger window of time to report the issue without incurring any personal financial responsibility for the losses.
To protect your financial institution, you shouldn’t wait for customers to notice fraud. That introduces delays into the process and potentially increases the total amount of losses. Ideally, you should have solutions in place that can detect credit or debit card fraud long before it occurs. Tools that detect credit and debit card fraud get to know your customers and their spending patterns. Then, they alert you when fraud is suspected due to aberrations in common patterns.
Collecting Details from the Customer
Depending on the situation, the customer may have to provide some details about the fraud. For instance, if the customer alleges that just the number was stolen, they may have to prove the card was in their possession. Beyond that, they may need to share information that helps to determine whether the transaction was actually fraud or merely a disputed transaction.
Generally, credit and debit card fraud involves unknown people or businesses making charges on the card or stealing the cardholder’s information to obtain a new card or open another account. In contrast, disputed transactions tend to involve known parties. For instance, if someone makes a payment to their electricity company every month but then they claim the charge is too high one month, that tends to fall in the category of a disputed transaction rather than a fraudulent transaction.
Bank Investigation
Once the customer has reported the fraudulent transaction, the bank has 30 days to respond. In most cases, banks have 90 days to investigate the fraud. The bank may report the fraud to the local authorities, contact the Federal Bureau of Investigation (FBI) if identity theft is involved, or work with the Federal Trade Commission (FTC) for fraudulent transactions over $2,000.
Beyond that, most financial institutions have an internal investigator who looks through electronic transaction records and uses forensic accounting to look for fraud. For instance, if the customer lives in Ohio and hasn’t been traveling lately, a slew of charges from an IP address in Australia can indicate fraud has occurred on their account. Similarly, unusual amounts to strange vendors at odd times can also indicate fraud. Internal fraud investigators compare potentially fraudulent transactions to the customer’s usual spending patterns.
Reporting Fraud
As indicated above, financial institutions can report credit and debit card fraud to a variety of legal entities, and they may also report the fraud to industry groups that collect information on fraudulent activities and popular scams. At the same time, consumers can make reports to local, state, or federal agencies.
To protect themselves, consumers should also alert the credit bureaus, and they may want to temporarily freeze their credit so that no one can open an account or make changes without the consumer being notified directly first. After suspected fraud or data breaches, banks may even want to offer credit monitoring protection to customers. Credit monitoring protects the customer, which indirectly protects the bank. At the same time, offerings like this also help to safeguard the bank’s reputation as an entity that cares about its customers.
Unfortunately, fraud investigations often end up empty handed, and while banking customers may be liable for some fraud, financial institutions end up bearing most of the costs. To minimize losses, you need tools that detect fraud long before you or your customers notice an issue.
At SQN Banking Systems, we offer the credit card fraud detection and prevention tools you need to run your financial institution carefully. We have solutions that help with credit and debit card fraud as well as all kinds of other transactions. To learn more, contact us today.