When New York City police and prosecutors recently announced they had charged more than 100 people in what they described as the largest identity theft bust in U.S. history, they also blamed U.S. credit card issuers for relying on outdated technology that makes Americans cardholders especially vulnerable to thieves. That's a problem we investigated in our June 2011 Consumer Reports story “House of Cards.”
As we explained, American credit- and debit-card data are usually stored unencrypted on a... When New York City police and prosecutors recently announced they had charged more than 100 people in what they described as the largest identity theft bust in U.S. history, they also blamed U.S. credit card issuers for relying on outdated technology that makes Americans cardholders especially vulnerable to thieves. That's a problem we investigated in our June 2011 Consumer Reports story “House of Cards.”
As we explained, American credit- and debit-card data are usually stored unencrypted on a magnetic stripe on the back of each card, which thieves can easily and cheaply copy—a process known as skimming. The U.S. and some non-industrialized countries in Africa are among the only nations still relying on magstripe payment cards, which came into wide use in the 1970s.
Most other countries in the world now use or are shifting to “smart cards,” which have multiple layers of security, starting with a computer chip in each card that stores and transmits encrypted data. In the first year after smart cards were introduced in France in 1992, total fraud losses there dropped by 50 percent, and card counterfeiting fell by 78 percent.
In this latest mega-ID-theft case in New York, a global network of thieves is said to have relied on bank tellers and employees in restaurants or stores who allegedly used skimming devices to swipe victims’ credit card information, which then was used to make counterfeit cards.
They defrauded thousands of people from May 2010 through September 2011, racking up an estimated $13 million in fraudulent purchases, according to the charges. In a New York Times account of the press conference announcing the bust, Queens District Attorney Richard A. Brown was quoted as saying credit card companies were “putting too much money into marketing and not enough into security.” He said that the companies “would rather take the losses” than spend what’s needed on security measures designed to avert theft.
American Bankers Association Spokesman John Hall told The Huffington Post that U.S. banks have been reluctant to issue smart cards because it would require retailers to make expensive upgrades to their payment systems, which they have been reluctant to do.
But that’s not necessarily so, as many major retailers are already in the process of converting their payment terminals to accept smart cards and have been actively pushing for card issuers to make the switch because banks actually stick merchants with much of the cost burden for fraud losses.
And they aren’t the only ones nudging the U.S. card issuers. As Deputy Inspector Gregory T. Antonsen, the commander of the New York Police Department’s Identity Theft Squad, told Consumer Reports earlier this year: “We’ve recommended to several of the large financial institutions that the biggest deterrent to skimming would be using the kind of cards that are issued in Europe and Canada with a chip that makes them pretty much impossible to skim, but so far they seem unwilling to do that.”
For the full story on why the U.S. has fallen so far behind in card fraud protection, complete with a video showing how skimming works and how to protect yourself from becoming a victim, check out our June report.
Read more: http://news.consumerreports.org/money/2011/10/outdated-credit-card-technology-contributes-to-id-theft.html

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