June 16, 2024
Credit card fraud is an unsettling reality for most cardholders. Research suggests that it’s not a matter of if, but when, you’ll fall victim to credit card fraud.
Credit card theft varies: from stolen cards being exploited before being reported missing, to consumers being lured into sharing their card information which is subsequently used for unauthorized purchases. Information can also be jeopardized through colossal data breaches at retailers, bureaus, or agencies, and even severe identity theft when criminals open accounts under another person’s name and accumulate debt.
While comprehensively preventing credit card fraud is challenging, vigilance can minimize risk and potential damage.

Prevent fraud in its tracks by consolidating all your credit card activity in one place with a NerdWallet account. This way, you can swiftly detect any potential red flags.

The Prevalence of Credit Card Fraud

Credit card fraud is classified as a form of identity theft by the Federal Trade Commission. According to the FTC’s 2022 data, since 2017 credit card fraud has consistently been the top-reported type of identity theft, with a brief exception during the COVID-19 pandemic in 2020-21 when fraudulent unemployment benefit claims spiked.
The statistics from the FTC only account for reported cases, leaving many instances unrecorded since they are usually handled by the credit card issuer. However, data from the Federal Reserve offers a glimpse into the exact scope of credit card fraud.
According to the latest Survey of Consumer Payment Choice conducted by the Federal Reserve Bank of Atlanta, in 2020, 3.5% of cardholders claimed to have experienced credit card loss, theft, or fraud in the past year. This figure fluctuates annually and has been as high as 5.7% since 2015, averaging about 4.7% per year.
The survey also reported that approximately 79% of the consumers own at least one credit card. Considering the Census Bureau’s 2020 estimate of 258 million adults in the U.S., that means around 203 million individuals are credit card holders. Using the 4.7% figure, the average number of people affected annually by credit card fraud is about 9.5 million.
Moreover, a 2021 survey by Security.org researchers found out that a staggering 58% of the respondents had experienced credit card fraud at some point in their life, with 9% being victimized four or more times.
Credit card fraud is not merely something that happens to ‘others.’

The Severity of Punishments for Credit Card Fraud

Credit card fraud can be prosecuted at both state and federal levels.
Credit card fraud cases that result in criminal charges are primarily managed at state and local levels, and different states have varying prosecution methods. The degree of punishment depends on several factors, such as the offender’s criminal history, the amount stolen, the presence of criminal intent, and whether the victim was elderly.

Federal Crimes

Credit card fraud escalates to a federal crime if it “affects interstate or foreign commerce,” which is less intricate than it sounds. Even making an online purchase with a stolen card or using a card issued to an out-of-state person can qualify. Federal penalties for using a “device” for fraud—which includes credit cards—can result in up to 20 years imprisonment, fines, and forfeiture of personal assets.
Credit card fraud can also be prosecuted under several other federal crimes, such as computer fraud, mail fraud, wire fraud, and financial institution fraud, which carry penalties up to 30 years imprisonment.

Beating Credit Card Fraud: Protective Measures

When it comes to credit card fraud, federal law usually sets your liability at $50, provided you report unauthorized charges to your credit card issuer promptly. Furthermore, large credit card issuers typically provide zero liability fraud policies, likely resulting in zero liabilities on your part.
However, credit card fraud remains a nuisance. It requires cancelling your current card, contacting your card issuer, awaiting a replacement card, and updating autopay accounts linked to the old card. Financial fraud and identity theft aren’t restricted to credit cards, making it imperative to reduce associated risks. Here’s how:
  • Practice safe online behavior. Be aware of phishing and skimming techniques used by criminals to steal credit card information. For instance, follow an “autopay and everyday” credit card approach whereby you have separate cards for autopay bills and everyday usage. Use smartphone-based payment applications that secure account information using “tokenization.” Also, avoid transactions over public Wi-Fi and utilize robust passwords.

  • Consider freezing your credit reports. If you’re at risk of identity theft, it’s wise to freeze your reports as this prevents criminals from opening new accounts in your name. However, keep monitoring your existing accounts for any fraudulent activity.

  • Promptly report fraudulent activities to the authorities. If you detect fraudulent activity, notify your card issuer, local law enforcement, and the three primary credit bureaus (Equifax, TransUnion, and Experian). Request your issuer to close the compromised card and replace it, and keep a record of fraudulent transactions. Maintain comprehensive notes detailing your interactions with your card issuer and authorities in case of disputes. Continue monitoring your accounts for suspicious activities even after the issue is resolved.