The issue of online credit card fraud has become one of the major crimes that can easily be committed using the internet. Due to the lack of policies and laws to prevent the crime, the number of victims continuous to increase since most sale transactions can be completed online using the internet. Online credit card fraud poses damage to the public but requires federal legislation to prevent future crimes. There is lack of corrective mechanisms to deter the proliferation of the online credit card fraud to prevent damage to future victims.
The article of Segal, Ngugi & Mana (2011) explains that the best approach to preempt credit card fraud is to attack the root cause of the problem by protecting the credit card industry from fraud and to establish a system-wide policy against the crime. The authors recommended that credit card companies and banks must build their own self-interested infrastructure that will isolate them from the liabilities attached brought about by credit card fraud (Segal, et al., 2011).
Under 15 U.S. Code Section 1644 on the fraudulent use of credit cards, the law punishes any act that makes use of forged, altered, lost, stolen credit card, or those cards which had been fraudulently obtained when they knew for a fact that the cards were fictitious, reproduction, or counterfeit.
The article of Segal, et al (2011) focused on the effects of the stolen credit cards to card companies or banks as they suffer the loss committed by offenders of online credit card fraud transactions. The article recommended for reforms on laws and state-wide policies that will require data security standards and promote the interest of all stakeholders affected by the credit card fraud. The best approach to stop online credit card fraud is by setting new standards that will provide incentives to credit card companies and banks who comply with the standards (Segal, et al., 2011).
The problem is aggravated when it comes to the purchase of digital products since the credit card companies fail to give sufficient protection to the sellers who accept global payments, (Brabazon et al., 2007). One of the ways to prevent online credit card transactions is to improve the fraud detection on the internet to sustain the viability of the payment system. Most of the banks lose their potential income due to online card fraud, while the cardholders have the obligation to pay the whole amount aside from the high interest rates and fees. Hence, the banks and credit card companies should see to it that fraudulent online transactions are completely eliminated (Chan et al., 1999, p. 67). There should be new laws enacted that will aggressively pursue the fraudsters or the criminals and at the same time, educate the consumers on ways to be protected and avoid becoming victims (Brody, 2014).
There are different laws in every state in the U.S. that punish credit card fraud. Under Florida Statutes 817.60, any person who shall take a credit card from the person or control without the consent of the card holder, or where the person who receives the stolen card has the intention to use the card, sell it and transfer it to another shall be guilty of credit card theft or fraud (Carlan, et al, 2015, p.259). The penalty is misdemeanor in the first degree and imprisonment of one year and a fine of $1,000.
Under the Code of Virginia Section 18.2-195(1), a person is guilty of credit card fraud when he uses the card to defraud another in order to obtain money, goods or services or anything that has value, without the consent of the owner of such credit card, or when such person has known for a fact that such card is already revoked or expired (Carlan, et al, 2015, p.259). The penalties are: Class 1 misdemeanor if the value stolen is $200 or less within a 6-month period, fine of $2,500 or an imprisonment of one year; and Class 6 felony if the amount is above $201 within a six-month period that will include 1 to 5 years of imprisonment and a fine of $2,500 (Carlan, et al, 2015, p.259). Both these laws should be able to broaden the coverage of what comprises online credit card fraud. At the same time, the penalties should be increased to prevent hardened criminals from committing cybercrimes such as stealing credit cards and using them to make online purchases.
Research showed that online merchants in UK expect that 1.8 percent of their online revenue is lost due to credit card fraud and that the identities of the criminals come from various walks of life (Brabazon., et al., 2010, p. 1). These offenders may come from crime organizations or even simple homemakers. The victims of online credit card fraud include individuals, employees working with Fortune 500 companies, and the different organizations. Online credit card fraud is committed using the low-tech dumpster to high-tech hacking using the CreditMaster and Credit Wizard type programs. These programs allow the hackers to obtain the 16 digit sequence of credit card by getting access of the BINs (Bank Identification Numbers). When the credit card numbers are obtained, the hackers now can make several transactions from the online retailers.
Another law that covers online credit card fraud is the Federal Information Security Modernization Act of 2014 (FISMA 2014) that is being implemented by the Department of Homeland Security. The main role of the DHS is to protect the whole information systems in the U.S. The bill that was created during the term of President Obama was originally known as FISMA 2002 where the objective of the law is to create and maintain minimum security controls and measures that will help in securing the federal information systems in the country (Information Management Journal, 2015). The director of the Office of Management and Budget (OMB) is in charge with the implementation of the information security policies, where the DHS was given the power by FISMA to work together with the OMB to prevent cybercrimes. The law still needs to expand its scope by specifically including the acts including online credit card fraud and define the acts that cover the crime. At the same time, the penalties should be increased in order to deter future crimes involving credit card fraud.
According to Bar-Gill & Bubb (2012, p.973), having a credit card involves a certain risk and such risk becomes evident when the cardholder-borrower will default on repayment of his obligations. The issuance of a credit card limit to a cardholder/borrower will mean that the issuer of the card will have to base its decision on the “rational choice theory”, where the optimal credit card contract includes a prices risk, which will depend on the capacity to pay of the cardholder. When an issuer provides a credit card to a specific consumer, the issuer will base the risk based on the information obtained about the consumer as stated in the credit card application and credit bureau information. With such information, the issuer will now estimate the probability of the consumer’s possibility of not being able to repay the loan or obligation (Bar-Gill & Bubb, 2012, p.973-74). Thus, the issuer has to make a rational choice when it comes to setting the credit limits for each customer or card holder.
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 or the CARD Act does not involve imposition of penalties for online fraud, but only sets the risk assessment of the issuer when the cardholder makes a late payment or exceeds the credit limit, which can cause financial distress to the issuer (Bar-Gill & Bubb, 2012, p.974). The banks or credit card companies are expected to become “rational decision-makers” by incorporating such new information into their risk assessments to adjust the price of credit that may include nonpayment of card holder. As a result the, late fees, over-the-limit fees, and default interest rates will be applied (Bar-Gill & Bubb, 2012, p.974).
Thus, there should be other laws enacted in order to deter individuals from committing fraud and will prevent them from using other technological advancement to commit fraud. The rational choice theory provides that people’s actions are acts of self-interest and they make decisions for committing crime after weighing in the potential risks against the rewards they receive in return (Bar-Gill & Bubb, 2012, p. 967-1018). Therefore, it is recommended that there should be new laws enacted to increase penalties to address online credit card fraud that will make it more inconvenient for hackers to increase the risk of fraud before they decide to continue their criminal intentions.
References:
Bar-Gill, O., & Bubb, R. (2012). Credit Card Pricing: The CARD Act and Beyond. Cornell Law Review, 97, 967-1018. doi:10.2139/ssrn.1985948
Brabazon, A., Cahill, J., Keenan, P., & Walsh, D. (2010, July). Identifying online credit card fraud using artificial immune systems. In Evolutionary Computation (CEC), 2010 IEEE Congress on (pp. 1-7). IEEE.
Brody, R. G., Brown, D. M., Chettry, A., & White, W. I. (2014). Proliferation of Credit Card Fraud with Current Technological Advances. Insights to a Changing World Journal, 2014(2), 92-107.
Burns, P., & Stanley, A. (2002). Fraud Management in the Credit Card Industry. SSRN Electronic Journal, 2-16. doi:10.2139/ssrn.927784
Carlan, P., Nored, L.S. and Downey, R.A. (2015). A Brief Introduction to Criminal Law. Burlington, M.A.: Jones and Bartlett.
Chan, P., Fan, W., Prodromidis, A., & Stolfo, S. (1999). Distributed data mining in credit card fraud detection. IEEE Intell. Syst, 14(6), 67-74. doi:10.1109/5254.809570
Chaudhry, E. P., Chaudhry, S. S., Stumpf, A. S., & Sudler, H. (2011). Piracy in cyber space: consumer complicity, pirates, and enterprise enforcement. Enterprise Information Systems 5(2), 255–271.
DHS Cybersecurity Role Continues to Grow. (2015). Information Management Journal, 49(2), 7.
Segal, L., Ngugi, B., & Mana, J. (2011). Credit Card Fraud: A New Perspective on Tackling An Intrasigent Problem. Fordham Journal of Corporate & Financial Law, 16(4), 743-781.
