I've Been Mugged

7 Tips To Avoid A Rejected Credit Card During Vacation Travel

Today, banks are more vigilant than ever about spotting potential fraud. One way banks spot potential fraud includes charges outside of the cardholder's normal usage pattern -- the area where you live, work, and use your credit card. Often, when consumers go on vacation you intentionally travel outside of your area. Nobody wants a credit card purchase denied while traveling, especially when you don't have the cash with you.

So, what can consumers do to avoid having your credit card denied while shopping during vacation? Banks and credit card issuers advise consumers to:

1. Understand where your credit card is accepted outside of the United States. You can visit the customer service section of your bank's or credit card issuer's website. For example: the Help Center in the Discover site lists the regions where that credit card is accepted, including an international Country Acceptance Map. This is also helpful to understand any exchange rates used, and/or any fees or surcharges that might apply for purchases in different currencies. The Visa Travel Preparation Page provides similar information for cardholders traveling internationally.

2. Decide which credit cards you will bring. You may decided to leave at home the credit cards with high foreign transaction fees, don't offer purchase protection insurance, doesn't offer frequent-flyer mileage, and/or aren't accepted in the countries which you will visit. Experts advise consumers to bring at least two credit cards, and use one as a back-up in case your primary card doesn't work.

3. Notify your bank or credit card issuer of your upcoming travel, and the specific locatons where you will use your credit card. For example, Capital One directs its Visa cardholders to call its Customer Service department (1-800-955-7070) before their trip to provide the following information:

• Credit card number
• Travel destination(s): states and/or countries
• Travel start and stop dates
• Which cardholders will be traveling (if multiple people have accounts)

In Capital One's automated voice system, cardholders speak to enter and select voice prompt options. Say "More Options" and then "Report Upcoming Travel" to access the relevant option. Then, you can enter all of the necessary information, or you can speak with a human representative.

Obviously, if your vacation travel itinerary includes several cities and/or countries, you will want to have all of that information ready. When you contact your bank or credit card issuer, they will provide an international customer service phone number you can call while traveling outside the United States, should you have any problems. Last month before my vacation, I used Capital One's automated voice system. My travel itinerary included about six countries, and I found the system pretty easy to use to enter the necessary information.

4. Watch out for PINs. In some regions, automated kiosks require credit cards with smart chips. If your credit card doesn't have this new technology, it may not work.

5. If you want to use your debit card instead, first contact your bank, credit union, or card issuer to report your travel itinerary. Visit their website to find their office and ATM locations in the states or countries you will visit, any other banks they have partnerships with, any fees (e.g., conversion, foreign transaction) that apply, and any PIN number limitations (e.g., fewer digits). Generally, in-network ATM machines have lower fees than out-of-network ATM machines.

Experts advise consumers to keep sufficient cash with you for smaller purchases. The fewer times you use your debit card, the less you expose it to identity theft and fraud risks. If you read this blog regularly, then you already know that I use my debit card only at my bank's ATM machines. To me, it is too risky to use a debit card in a local retail store or gas station, especially in another country. There is no way to know if the card entry pads (or gas station pumps) has been compromised with skimming devices.

6. If you want to use a prepaid card instead, CardHub advises consumers:

"As long as your prepaid card bears the MasterCard or Visa logo and you notify your issuer of your travel plans, you should be able to use it abroad...”

Wise consumers will still check with their card issuer to get a copy of their prepaid card agreement, to find ATM locations in the states or countries you will visit, any other banks they have partnerships with, and any fees (e.g., conversion, foreign transaction) that apply. Again, in-network ATM machines generally have lower/fewer fees than out-of-network ATM machines. Compare the fees for your prepaid card against fees for your credit/debit cards. Understand your rights, protections, and the differences between credi, debit, and prepaid cards. If decided to use a prepaid card, make sure you load enough money onto it before you leave for your trip.

If you are unsure about whether prepaid cards are for you or not, there are plenty of online resources to help you decide. You can learn more by browsing the Prepaid Cards section of this blog. The posts in this blog section contain plenty of links to external sites and resources.

7. Check for foreign travel advisories. These may suggest additional precautions you should take in the countries you will visit.

Having done all of this, you can then travel with peace of mind.

Visa Survey Claims Consumers Lose $1 A Day In Cash

While surfing the web recently, I ran across a news item at Talking Payments, a website for people and companies (e.g., banks, retailers, card issuers, payment processors, etc.) interested in digital payments. The TP news item mentioned a study by Visa that consumers lose, on average, about $1.00 a day.

To learn more about the Visa study, I next visited the Visa Viewpoints website. The August 2012 survey included 5,641 people in Australia, India, Indonesia, Japan, Russia, Singapore, South Africa, South Korea, Taiwan, Thailand, the UAE, and the USA. View the infographic about the study (Adobe PDF). The survey tries to document the "cost" to consumers of using cash by adding cash lost plus idle cash. Some findings:

• In the US: $365 lost cash = $285 in lost foreign currencies after trips + $80 in idle cash lying around your home, office and/or car.
• In the US: men ($331) lose more than women ($245). And, younger people ($165) lose more than older people ($135).
• Lost cash varies across countries: Singapore ($656), Australia ($361), Japan ($349), and Russia ($137)

At first read, this seems very interesting. The implication of this study is that consumers who use payment cards (e.g., credit, debit, or prepaid) won't lose cash daily. Losing $1.00 a day in cash equals about $30 a month, or $365 a year.

Do you lose $1.00 a day in cash? I don't. I know this as I check the cash in my pocket at the end of the day -- everyday. When I receive change in the form of bills, I place that change in my wallet immediately. And, I don't consider idle cash as "lost." Maybe you do, but I don't. So, I am wondering exactly what consumers really lose $1.00 a day cash, and if people really lose that much cash daily.

One of the footnotes in the Visa inforgraphic reads:

"2. Foreign currencies given as tips given away in airports and/or misplaced."

What? So, a portion of the supposedly lost foreign currencies includes tips. I don't consider tips as lost money. When traveling, I tip bellhops, taxi drivers, and others who help me with my luggage. That's not lost money, That is paying for services received. Sometimes, I have foreign currencies left over from a trip, but that amount is nowhere near $285. It's under $5.

What's really going on here?

In my view, several things. First, banks really want to capture usage from consumers who don't have traditional bank accounts, or have only one account (e.g., checking or savings). Second, banks really want consumers to migrate to prepaid cards where there are fewer regulations for them; which means fewer or weaker consumer protections and consumer rights. That includes banks working with employers to provide payroll cards and banking services via prepaid cards, and/or health care spending accounts via prepaid cards. To learn more, read the list of prepaid card fees in this blog post, the payroll cards from Bank of America, and the Walmart MoneyCard.

To me, the study methodology compiled numbers in a way to inflate the amounts lost to justify these business goals.

Third, even if you lose as much as $1.00 a day in cash, a fair comparison is to consider the fees associated with prepaid cards, and if those those fees are greater than the cash you really lose. CNN Money found that basic prepaid card fees are about an average of $300 per year. That is almost as much as the supposed cash lost by consumers in the US, Australia, and Japan. Those average prepaid fees exceed the cash lost by consumers in several countries.

Both CNN Money and Consumer Reports found a wide variety of fees when it investigated prepaid cards: activation fees, monthly fees, reload fees, cash withdrawal fees, inactivity fees, online payment fees, paper statement fees, customer service phone call fees, and more.

What do you think of the Visa lost cash study?

Chicago Theft Ring Received Sentences For Card Skimming Crimes

In a Chicago court, several defendants were sentenced for card skimming thefts and fraud. The sentences ranged from six years of prison time for the ringleader to two years of probation for other members of the theft ring.

The thieves, working with employees at several fast-food restaurants in Chicago, had allegedly swiped consumers' debit/credit cards through small portable readers to obtain their card numbers. The theft ring then allegedly created fake cards with the stolen card numbers and purchased about $200,000 in merchandise.

Affected consumers had accounts at several banks: Chase, Citibank, Fifth Third Bank Harris Bank, U.S. Bank, Bank of America, and American Express. Reportedly, the banks assisted local law enforcement with the investigations. The seven defendants included:

• Joseph Woods, 33 (the ringleader)
• William Washington, 31
• Alex Houston, 23
• Britain Woods, 34
• Jenette Farrar, 35
• Essence Houston, 29
• Kenyetta Davis, 33,

Congratulations to both local law enforcement and the judicial system.

Update: Schnucks Data Breach Exposed 2.4 Million Cards

Back in March 2013, this blog reported about the Schnucks supermarket data breach. On Monday, the St. Louis Business Journal reported:

"Over a three-month period, up to 2.4 million credit and debit cards used at 79 Schnucks stores may have been compromised..."

Two civiil lawsuits have been filed against the company. Now we know more than we did in March. Still, not good.

The CFPB Consumer Complaints Database Does What It Was Designed To Do

In March 2012, the Consumer Financial Protection Bureau (CFPB) began accepting complaints from consumers about bank accounts, including checking, savings, CDs, and related financial products and services. Consumers were able to submit complaints about poor customer service experiences with banks and financial institutions.

Later during 2012, the CFPB began accepting complaints about student loans, credit cards, and credit reporting. In April 2013, the CFPB began accepting complaints about money transfers. In March 2013, the CFPB expanded the database to include mortgage complaints received since December 1, 2011. This expansion also included the addition of complaints about bank accounts private student loans, and other consumer loans received since March 1, 2012.

In March 2013, the CFPB went live with its Consumer Complaints Database. Some facts about it:

• Contains complaints submitted by more than 90,000 consumers
• Includes 450 companies
• Total complaints received - 131,500
• Complaints cover bank accounts, mortgages, student loans, credit cards, and related consumer loans
• Complaints about credit reporting (e.g., credit reports, credit reporting agencies) will be added later
• 48% of complaints were submited through the CFPB website
• 9% of complaints were submitted bia telephone
• 32% of complaints were received from other rgulators and agencies
• At February 28, 2013, the CFPB sent 109,200 complaints (83%) to companies for review and response. Companies have already responded to 104,100 (95%) of those complaints sent

A typical complaint includes:

"... he type of complaint, the date of submission, the consumer’s ZIP code, and the company that the complaint concerns. The database also includes information about the actions taken on a complaint by those companies – whether the company’s response was timely, how the company responded, and whether the consumer disputed the company’s response. A consumer’s identity and other personal information is not included in the data."

So, similar to reports provided the BBB, the CFPB also tracks the status of complaint resolutionl. The CFPB goes further and includes resolution amounts.

In its summary report, the CFPB listed complaints by financial product type:

The CFPB has received 30,600 credit card complaints. The analysis of credit card complaints received by type:

Credit Card Complaint Type	%
Billing Disputes	15%
Annual Percentage Rate (APR) or interest rate	10%
Identity Theft, Fraud, Embezzlement	8%
Credit Reporting	7%
Closing, Cancel Account	6%
Other	6%
Collection Practices	5%
Late Fee	4%
Credit Card Protection, Debt Protection	4%
Collection Debt Dispute	4%
Total: top 10 credit card complaint types	69%

Of the 30,600 credit card complaints received, the CFPB has forwarded 27,700 (84%) to financial institutions for review and response, and forwarded 10% to other regulatory agencies. 5% of credit card complaints are considered incomplete, and 1% are pending. Companies have already responded to 24,800 (96%) of the complaints forwarded. The CFPB also reported:

"Since December 2011, companies have also had the option of reporting the amount of monetary relief, if any. The median amount of relief reported was approximately $125 with $25 being the most common amount of relief for the approximately 5,300 credit card complaints where companies reported relief. Consumers have disputed approximately 4,200 company responses (18%) to credit card complaints."

The types of mortgage complaints received by the CFPB:

The types of bank account and service complaints received by the CFPB:

The types of student loan complaints received by the CFPB:

The types of consumer loan complaints received by the CFPB:

The types of credit reporting complaints received by the CFPB:

Also, BusinessWeek summed it up quite nicely the impacts of the CFPB Consumer Complaints Database upon responses by financial companies:

"Response times have sped up by 3& percent since the database came online... Steven Ramirez, CEO of data-mining consultancy Beyond the Arc, says his financial industry clients are asking him to find patterns in the CFPB data that show where they’re lagging."

Transparency and information are critical to a healthy, functioning marketplace. It helps everyone: both consumers and financial companies. It helpfs financial institutions improve their customer service, which can lower their costs by reducing account turnover and by retaining customers they'd otherwise lose.

With more information, consumers can make better informed decisions about the products and services they purchase. I like that there is now another option for consumers, besides filing a lawsuit or doing nothing. Consumers can now log complaints which the CFPB forwards to banks and financial institutions for review and resolution.

No business is ever too big to avoid responding to customer complaints. To use a sports analogy: while the playing field is still far from being level, the CFPB Consumer Complaints Database removes a lot of the tilt in the field.

Thanks to the CFPB and its staff for all of their excellent, hard work. Learn more about the CFPB Consumer Complaints Database.

Data Breach At Schnucks Supermarkets Affects Customers And Their Banks

St. Louis-based KSDK television reported a data breach at Schuncks supermarkets. The supermarket chain isn't yet sure exactly where (e.g., which stores) and how the breach occurred (e.g., in the store or with a debit/credit card processor). The breach occurred about a week ago.

Schnucks operates stores in Missouri, Illinos, Iowa, and Indiana. Customers have already seen unauthorized charges on their debit/credit cards. A representative from Montgomery Bank reported that about 600 of their accountholders have already filed fraud claims. Some customers wonder why the store has not posted alerts in its stores, so shoppers can use cash instead:

“They’re just letting people use their cards and not saying anything.”

Reportedly, the retailer has hired a forensics technology firm to assist it with a breach investigation. It sounds to me like the company' was caught unprepared and its post-breach response needs improvement. Customers need to be notified prompty to take appropriate action to avoid or minimize identity theft and fraud.

Payment Processors: A New I've Been Mugged Topic

When consumers purchase a product or service with some form of plastic (e.g., credit cards, debit cards, prepaid cards) and their mobile device, usually several companies are involved in completing that transaction: getting the money to the retailer (online or brick-and-mortar). While many consumers may believe that only their bank is involved in processing the transaction, the reality is that more companies are often involved.

One type of company involved are payment processors, companies that process these financial transactions. Sometimes these payment processor companies experience data breaches where sensitive customer information is lost or stolen. With recent events in the banking industry, and the spread of prepaid debit cards, this new topic can help you more easily read about and understand what is happening within the banking and retail industries.

I have tagged this new topic retroactively to archived blog posts, so you read and understand the types of information available. See the new "Payment Processors" topic. I hope that you find it useful.

The Companies Involved In Payment Transactions When Consumers Buy Items

When consumers pay for products and services, today they have a wide variety of options. To make these options work, a variety of companies are involved behind the scenes in the payment transactions: the companies money and information flow through after a consumer purchases something at the checkout register. Consumers may not realize the wide variety of different companies involved.

Companies involved in the payment transactions flow often have their onw privacy policy, and data collection of consumers' sensitive information -- driven by their agreement with the retailer or bank. And, each company involved may experience data breaches where consumers' sensitive information is exposed or stolen:

	Payment Method
Company Type	Cash	Credit Card	Debit Card	Retailer's Prepaid Card (1)	Bank Prepaid Card (2)	Prepaid Card: FSA (3)	Smart Phone
Brick-&-mortar retail store	No	Yes	Yes	Yes	Yes	Yes	Yes
Online retail website	n/a	Yes	Yes	Yes	Yes	Yes	n/a
Retailer's partners &/or affiliates (4)	n/a	Yes	Yes	Yes	Yes	Yes	Yes
Your bank	n/a	Yes	Yes	n/a	Yes	Yes	Yes
Retailer's bank	n/a	Yes	Yes	Yes	Yes	Yes	Yes
Payments Processor (5)	No	Yes	Yes	Yes	Yes (6)	Yes	Yes
Your Employer	n/a	n/a	n/a	n/a	Yes	Yes	Yes
Healthcare Vendor (7)	n/a	n/a	n/a	n/a	No	Yes	n/a
Wireless Provider	n/a	n/a	n/a	n/a	n/a	n/a	Yes
Mobile Device Manufacturer	n/a	n/a	n/a	n/a	n/a	n/a	Yes
Mobile Device Operating System Developer (8)	n/a	n/a	n/a	n/a	n/a	n/a	Yes
Mobile App Developer (8)	n/a	n/a	n/a	n/a	n/a	n/a	Yes
App Store	n/a	n/a	n/a	n/a	n/a	n/a	Yes

Footnotes:

1. Includes gift cards offered by retailers that are good only at that retailer's stores.
2. Includes general-purpose prepaid cards usually offered by banks
3. Includes prepaid cards used by employers to adminster healthcare Flexible Spending Accounts
4. Includes outsourced vendors that administer a retailer's email marketing programs, cloud-based storage services, customer relationship management databases, mobile marketing services, product fulfillment, and/or data mining services; plus companies that perform co-marketing campaigns
5. The bank and/or company that processes the debit/credit card transactions
6. Applies to employers that pay employees via a payroll debit cards
7. Some employers outsource the administration of their healthcare Flexible Spending Account (FSA) program to an external vendor, and issue participating employees a special prepaid card
8. The company that develops and maintains this software mobile devices

What do you think about the above chart?

FDIC Publishes Money Guide For Young Adults And Teens

The fall issue of the quarterly Consumer News newsletter published by the Federal Deposit Insurance Corporation (FDIC) includes a money guide for young adults and teenage children. Topics include:

• Choosing and using an account for everyday banking;
• Mobile banking by smart phone;
• Avoiding mistakes with credit cards;
• Building a good credit record;
• Obtaining and repaying student loans;
• Getting a good deal on an auto loan;
• Recovering from debt or bill-payment problems;
• Saving money to meet specific goals, made easier with the help of automated services; and
• Guarding against fraud, including identity theft.

Congress created the FDIC in 1933. The agency insures deposits at the nation's 7,181 banks and savings associations. It ensures the soundness of these institutions by identifying, monitoring and addressing risks. The FDIC is funded by fees it charges to the banks its oversees.

The section of the guide about how to avoid costly mistakes with credit cards includes sound advice:

"1. Read the fine print. Before you apply for a credit card, read all the terms and conditions... 2. You can avoid fees by being aware of your card’s credit limit. If you want your credit card issuer to permit transactions over your credit limit to go through, you must notify your lender that you want that service in advance and will pay the resulting fees... 3. Try to pay the entire balance in full and on time every month. That way, you will avoid interest charges and save money... 4. Think twice before applying for more credit cards. Special promotions, such as low introductory rates or discounts on purchases, make it tempting to apply for additional credit cards. But every time you apply for a card, it appears on your credit report. Multiple applications (called “inquiries” on a credit report) or new cards opened within a short time period can lower your credit score... 5. Take advantage of automated alerts from your card issuer. Many lenders and other companies can send customers messages by cell phone or e-mail, such as payment reminders, balance notifications to let you know if you’re close to your credit limit..."

The section about online banking with your smart phone includes several valuable tips:

"1. Ask your bank about the mobile banking services it offers and how much they may cost... 2. Understand your potential liability for unauthorized transactions... 3. Also be aware that the funds you place on a prepaid card may or may not be protected by FDIC insurance if the bank that holds the money (for you and other customers) were to fail... 4. As with any activity conducted online, keep security in mind. Protect your mobile device with a password that is hard for others to guess. Don’t lend your smartphone to others... Quickly report any unauthorized transactions or other suspicious activity."

You can read the money guide online or download a printable copy (Adobe PDF; 892K Bytes).

American Express Centurion Bank To Pay $112 Million To Settle Deceptive Credit Card Marketing And Debt Collection Practices

American Express Centurion Bank has agreed to pay $112 million to settle allegations of deceptive credit card marketing and debt collection practices. The Consumer Financial Protection Bureau (CFPB) and the Federal Deposit Insurance Corporation (FDIC) announced the settlement this week.

The FDIC, the Utah Department of Financial Institutions (UDFI), the CFPB, and the Office of the Comptroller of the Currency (OCC), and the Board of Governors of the Federal Reserve System had all took separate actions against the bank. The settlement agreement requires the bank to pay $85 million to reimburse more than 250,000 affected consumers, and to pay $27 million in civil penalties.

The investigations found violations between 2003 and the spring of 2012. The affected consumers included people who had signed up for the American Express "Blue Sky"credit card program. The bank promised them $300 in bonus points that were never provided. According to the CFPB:

"... American Express Centurion Bank and American Express Bank, FSB billed late fees on certain cards based on a percentage of the debt in violation of the Credit CARD Act... American Express Centurion Bank used a credit scoring system that treated charge card applicants differently on the basis of age. For a period of time, the bank did not fully implement the system for applicants over the age of 35. This violated the Equal Credit Opportunity Act because it requires credit scoring systems that take age into account to be properly designed and implemented... American Express Centurion Bank and American Express Bank, FSB failed to report the existence of certain customer disputes to credit bureaus, which is a violation of the Fair Credit Reporting Act... All three of the American Express subsidiaries deceived consumers into believing there were certain benefits to paying off old debt. Consumers were wrongly told that if they paid off the old debt, the payment would be reported to credit bureaus and could improve their credit scores. In fact, American Express was not reporting the payments and the debts were so old that even if they had tried to report them, many of the payments would not have appeared on these consumers’ credit reports or affected their credit scores..."

American Express Centurion Bank, a subsidiary of American Express Travel Related Services Inc., is based in Salt Lake City, Utah. In a press release, the CFPB emphasized that affected consumers do not need to do anything to receive payments:

"...If the consumer no longer holds the American Express card, American Express will mail a check or credit any outstanding balance.Customers who were promised $300 for signing up for a Blue Sky Credit Card will get the $300. Consumers who paid an illegal late fee will be reimbursed, with interest. Consumers who paid old debt in response to deceptive promises to report payment to credit bureaus will be reimbursed the money they paid plus interest. Consumers who were promised their debt would be forgiven but were denied new American Express cards because the debt was not really forgiven, will receive $100 and a pre-approved offer for a new card with terms we and the FDIC find acceptable. If the consumer already paid the waived or forgiven amount in order to get a new card, they will be refunded that amount plus interest."

[Correction: an earlier version mentioned $102 million. The correct amount of reimbursements and penalties equals $112 million.]

Survey: FDIC Releases Results From Latest Survey Of UnBanked And UnderBanked Consumers

Yesterday, the Federal Deposit Insurance Corporation (FDIC) released the results of its "2011 National Survey of Unbanked and Underbanked Households." The FDIC conducts this survey every two years, in a partnership with the U.S. Bureau of the Census. Key findings from the survey:

• "8.2 percent of U.S. households are unbanked. This represents one in 12 households in the nation, or nearly 10 million in total. The proportion of unbanked households increased slightly since the 2009 survey. The estimated 0.6 percentage point increase represents an additional 821,000 unbanked households."
• "20.1 percent of U.S. households are underbanked. This represents one in five households, or 24 million households with 51 million adults. The 2011 underbanked rate in 2011 is higher than the 2009 rate of 18.2 percent..."
• "29.3 percent of households do not have a savings account, while about 10 percent do not have a checking account. About two-thirds of households have both checking and savings accounts."
• "One-quarter of households have used at least one AFS product in the last year, and almost one in ten households have used two or more AFS. In all, 12 percent of households used an AFS product in the last 30 days, including four in ten unbanked and underbanked households."

The survey included responses from about 45,000 households. The term "unbanked" refers to consumers who do not have a checking account nor a savings account. the term "underbanked" refers to consumers who have either a checking account or savings account, but not both. This is important because banks have targeted both unbanked and underbanked consumers with financial products and services-- typically prepaid cards and variations such as flexible spending health-care cards and payroll cards.

These prepaid cards, which often have numerous fees, and offer fewer rights for consumers than both credit cards and debit cards. Industry research has documented the perception by consumers, many of whom have bank accounts, that prepaid cards are a desirable method to avoid the expensive overdraft fees with debit cards. Some additional findings from the survey:

"The highest unbanked and underbanked rates are found among non-Asian minorities, lower-income households, younger households, and unemployed households. Close to half of all households in these groups are unbanked or underbanked compared to slightly more than one-quarter of all households... Among unbanked households, slightly more than half have never had a bank account. Relatively high proportions of Hispanic (14.7 percent) and foreign-born noncitizen households (18.9 percent) have never had an account. The most common reasons why households report they do not have bank accounts are that they feel they do not have enough money for an account, or they do not need or want one."

The specific banking rates by demographic groups:

Demographic Group	UnBanked %	Underbanked %	Fully Banked %
All Households	8.1	20.1	68.8
Black households	21.4	33.9	41.6
Foreign-born, non-citizens	22.2	28.9	45.8
Households experiencing unemployment	22.5	28.0	47.5
Lower income households (less than $15,000)	28.2	21.6	47.6
Unmarried female head of households	19.1	29.5	48.4
Hispanic households	20.1	28.6	48.7
Households with people under age 24	17.4	31.0	49.7

By targeting unbanked and underbanked households, banks are trying to replace pay-day lenders and check cashing services, often referred to as "Alternative Financial Services" (AFS). The survey reported:

"AFS transaction products (i.e., non-bank money orders, non-bank check cashing, and non-bank remittances) are considerably more widely used than AFS credit products (i.e., payday loans, pawn shops, rent-to-own stores, and refund anticipation loans). In the last year, 23.3 percent of households used transaction AFS and 6.0 percent used AFS credit products. The relationship between household banking status and AFS use is complex. A non-trivial share of unbanked households (29.5 percent) do not use any of the AFS providers asked about in the survey, suggesting they rely primarily on cash. However, overall, unbanked households are more active AFS users than underbanked households."

Also, I found these survey results interesting:

"Having a bank account does not guarantee long-term participation in the banking system. Households can and do cycle in and out the banking system over time. For example, nearly half of unbanked households had an account in the past, and nearly half (48.2 percent) of these report that they are likely to join the banking system again in the future... Households with banking experience appear to have more positive perceptions of having an account and rely less on AFS. Unbanked households that previously had a relationship with a financial institution are more likely to see value in having a bank account than unbanked households without this relationship. Previously banked households are more likely to want to open an account in the future..."

Download the FDIC survey (Adobe PDF, 7.9 MBytes).

Will A Credit Card Or a Debit Card Protect You From Fraud Better?

[Editor's note: today's guest post is by Odysseas Papadimitriou, a personal finance industry expert and CEO of the credit card comparison website Card Hub as well as the new personal finance social network Wallet Hub. I have written previously about CardHub.com, and hope to see the site develop more tools and information to help consumers make informed decisions about financial products. Consumers often ask whether debit cards or credit cards are better. Today, Mr. Papadimitriou answers that question regarding fraud prevention.]

By Odysseas Papadimitriou

We all work hard, pay obscene amounts in taxes, have seemingly endless bills to pay, and certainly don’t want to be handing out money to strangers or serving as the financial backing for common criminals. That’s why I regularly hear from consumers who are terrified of falling victim to fraud and are wondering about the best ways to safeguard their finances, especially whether a credit card or debit card will better protect them.

Spoiler Alert: The combination of federal laws and policies instituted by the major networks limit liability for unauthorized purchases made with either a credit card or a debit card, often to $0.

In other words, even if someone does get ahold of your card or account information, you probably won’t ultimately be out any money. That, combined with the fact that fraud only affects about 0.005% of all credit and debit card transactions, means it isn’t as big of a concern as many people think.

Credit vs. Debit

With the above being said, there are differences between credit cards and debit cards when it comes to fraud. First of all, you won’t be liable for any fraudulent credit card transactions, whereas you may or may not be liable for debit card transactions, depending on how quickly you report the fraud and whether or not the transactions in question were completed with a signature or your account’s PIN.

In addition, the decision between a credit card and a debit card will affect how difficult fraud is to deal with from a logistical standpoint. The reason has to do with the fundamental differences between these products.

When you make a purchase with a debit card, funds are automatically removed from your account. On the other hand, the bank initially foots the bill when you pay with credit, and you aren’t required to spend any of your own money for days.

Therefore, you can usually sort out credit card fraud before it affects the rest of your life or requires you to retrieve any money. The same cannot be said for debit card fraud, as you might not notice the fraudulent activity before you are required to cut checks for other monthly obligations; if they bounce, you’ll have even more to sort out.

Other Anti-Fraud Tips

While using a credit card can help simplify fraud fallout, there are a number free and easy ways that you can proactively safeguard your finances.

• Check your credit reports: Everyone is entitled to a copy of each of their three major credit reports (i.e. Experian, Equifax, and TransUnion) once every 12 months, and reviewing them is a good way to ensure that no one has opened any financial accounts under your name.
• Lock your mailbox & shred documents: Thieves have been known to raid people’s mailboxes (especially when they’re out of town) and trash in search of direct mail credit card offers, replacement cards, and financial information they can use to open accounts in other people’s names.
• Choose secure passwords: You don’t want someone to be able to hack into your e-mail or online banking account just because they know your child or pet’s name. You should ideally use a combination of letters, numbers, and selective capitalization and update your passwords every couple of months.
• Be wary of giving out financial information: The best policy is to only give sensitive financial information to people you contact, rather than the other way around. This allows you to ensure you know who you’re dealing with and drastically reduces your chances of falling for a scam.

Final Thoughts

You should ultimately take three things from this article: 1) Fraud isn’t as problematic as the local news makes it out to be; 2) Credit cards protect you from fraud better than debit cards; and 3) There are a number of easy ways that you can protect yourself on a daily basis. In other words, you should be vigilant in protecting your money but not let the fear of fraud consume you.

What should be of greater concern is choosing the right financial products and managing them responsibly. Consumers are on pace to incur $50 billion in credit card debt for the second straight year, and not only is budgeting therefore in order, but there are also a number of excellent credit card offers out there that can help lower the financial burden.

Global Payments Takes $84 Million Charge For Its Data Breach

The Wall Street Journal reported that the Global Payments will cost it $84.4 million. Earlier this year, the Atlanta-based company experienced a data breach where payment information for about 1.5 million credit- and debit-cards was stolen. The breach could cost the company an additional $25 to $30 million in 2013.

There definitely are consequences when companies fail to protect sensitive consumer information.

Consumers Pay With Methods Other Than Cash

Some statistics about consumers use of cash versus other payment methods:

"Last year 27 percent of all point-of-sale purchases were made with cash and that number is expected to drop to 23 percent by 2017... plastic cards purchases comprised 66 percent of all in-person sales, with nearly half of them, or 31 percent, made with debit cards, according to Javelin. Last year shoppers used credit cards for 29 percent of point-of-sale purchases; Javelin expects that number to rise to 33 percent by 2017. Shoppers deployed gift cards and prepaid cards for 6 percent of purchases made with plastic last year. A mere 7 percent of transactions involved use of a paper check..."

The Huffington Post article also mentioned a few retail stores than no longer accept cash.

5 Things You Should Know About Prepaid Cards

Right now, there probably are three different types of plastic in your wallet or purse. Each type has different rules, disclosures, government regulations, and fees. So, wise consumers use the best type of plastic instead of cash.

Most consumers are familiar with credit cards and debit cards -- the first two types of plastic. Credit cards include an interest rate applied to all purchases, plus a variety of fees (e.g., overdraft, annual usage). Debit cards are offered by banks to their account-holders to access money in their checking and savings accounts.

Prepaid cards often look like debit cards but have several important differences. Prepaid cards must have value stored or "loaded" onto them before they can be used. Usually, consumers use cash to add value to a prepaid card. Then, the consumer uses the prepaid card for purchases, which are deducted from the balance on the card until there is no value left on the prepaid card. Then, more value must be added to the card before it can be used again.

Retail stores, restaurants and malls offer prepaid cards, usually called gift cards. Chances are you may have already received a prepaid card as a gift. I've received and given several prepaid cards as gifts. Customers use the Dunkin' Donuts prepaid card are the chain's retail stores. Prepaid cards from The Old Spaghetti Factory, Starbucks, and Target all operate similarly. Some retailers use their prepaid cards to track customers' purchases for rewards for loyalty programs.

Besides retail stores, many other companies and entities offer prepaid cards. Some employers pay their employees via prepaid cards, often called payroll cards. These payroll cards are designed for employees who don't have checking and savings accounts. Behind every payroll card is a bank that handles the transactions.

Some employers offer their employees prepaid cards only for qualified healthcare spending purchases. Some golf clubs offer prepaid cards for their members to use at the club's golf store and restaurant.

Some banks offer prepaid cards, too, for consumers who lack checking and savings accounts. With all of these prepaid cards in use, it is important for consumers to to know the advantages and disadvantages. There is a pretty good CNN Money article that discusses what consumers should know about prepaid cards:

"Watch out for the fees: The average prepaid card charges nearly $300 in basic fees a year, such as monthly charges, ATM fees and reloading fees, a recent NerdWallet study found... many prepaid cards also charge activation fees, transaction fees, bill payment fees, declined transaction fees, inactivity fees, customer service fees and paper statement fees."

"They don't build credit: Using a prepaid card doesn't help you build credit with the three major credit bureaus... don't be fooled into thinking they are doing anything to boost your credit score."

To browse the entire list of five tips, read the CNN Money article. To learn more about the differences between the three types of plastic in your wallet/purse, read the FDIC alert about consumers' rights. You can also select Prepaid Cards in the tag cloud in the near right column.

What has been your experience? What prepaid cards have you used?

Data Breach At Opening Ceremony

BankInfo Security reported details of a data breach at Opening Ceremony, a New York-based clothing and shoe retailer. Hackers inserted malicious software on the company's website server.

The data stolen included the payment card information of customers who purchased products online between Feb. 16 and March 21. the company has already notified customers affected by the breach. In a May 4 letter to affected customers (Adobe PDF), Opening Ceremony has contracted with ID Experts for complimenary credit monitoring and resolution services.

 

Report Analyzes Breach Notifications Affecting Massachusetts Residents

Last week, the Massachusetts Office of Consumer Affairs and Business Regulation (OCABR) released its findings from an analysis of four years of data breach notifications reported to the state. A chief finding was that sensitive data often was not encrypted.

Any businesses or entities storing consumers' personal information has been required since Oct. 31, 2007 to report data breaches to the OCABR. Through September 30, 2011, the OCABR received 1,833 breach notices affecting about 3.2 mikllion people, or an average breach size of 1,727 stolen or lost records. 73% (1,336) of the breaches involved electronic files and affected 97% of breach victims.

The financial services industry reported the most breaches (955) during the last four years, affecting 901,156 people. Most of these breaches were the credit- and debit-card transactions at processing centers and retail stores. The health care industry has had fewer breaches (214), but affected far more people ( 983,746), including the South Shore Hospital breach in 2010.

In March 2010, new laws went into effect requiring entities that store, own, or license personal information about Massachusetts residents to develop, implement, and maintain a comprehensive written information security program (WISP) describing how it will protect sensitive information. the new law required entities to encrypt sensitive information if it is transmitted over public networks, the Internet, or carried on portable devices.

The of breaches each year have remained pretty steady, ranging from a low of about 415 to a high of about 470. Other findings:

"... stolen or lost portable electronic devices are most often not secure. Of the 365 devices reported lost or stolen, only 13 were encrypted. The lost devices led to exposure for 409,572 people. By contrast, the 27 encrypted machines kept information secure for 24,269 people... of the 75 lost or misplaced portable devices reported; only one was encrypted, compromising 1.2 million pieces of information. Of the 290 stolen portable devices stolen, 12 were encrypted, protecting 4,110 pieces of information. The 277 unencrypted devices exposed 220,000 pieces of information."

The types of devices lost/stolen included desktop computers and computer tapes. The types of portable devices lost or stolen included laptop computers, thumb drives, and storage discs (CDs). The report concluded:

"If all portable devices were encrypted from 2007 to 2011, the number of residents whose personal information was compromised would be remarkably lower by 47 % or 1,490,308 people. If all portable devices were encrypted from march 1, 2010 the number of compromised residents would have decreased by 29 percent or 909,992 people... compliance with the encryption requirement is a powerful to to safeguard the personal information of millions of residents"

Download the OCABR data breach report (Adobe PDF, 948K bytes).

Consumer Reports Reviews Several Prepaid Cards

This blog previously warned consumers about the differences between the three types of plastic in your wallets/pursues. Consumer Reports published the findings of its review of several prepaid cards, and concluded:

"... although fees are beginning to come down, they aren't always disclosed upfront. Moreover, prepaid cards offer weaker consumer protections than those provided by traditional debit cards..."

Some of the higher fees Consumer Reports found with prepaid cards:

• Activation or initiation fees ranging from from $3 to $14.95.
• Monthly fees as high as $10
• Fees to get cash as high as $2.50 per withdrawal
• Fees to contact customer service as high as $2.99 per call.

Obviously, consumers should ask for and read closely the terms and conditions or prepaid card agreement before purchasing a prepaid card. It is wise to understand the different types of prepaid cards.

Related posts:

• Your Rights And The Differences Between The Three Types Of Plastic In Your Wallet Or Purse
• How To Evaluate a Health Care Debit Card Plan From Your Employer
• Bank of America Merchant Services And Money Network Announce New Payroll Solution
• Move Your Money To... Walmart? A Good Deal?
• How To File A Complaint About A Bank

Hackers Target Facebook Users With New Malware Tool To Steal Credit Card Information

In case you haven't heard, scammers and identity thieves have targeted social networking users. Trusteer reported a new scam by identity theives using a new version of the "Ice IX" malware.

After a Facebook member (within an infected computer) has logged into their Facebook account, the "Ice IX" malware spawns a new browser with a fake Facebook page which prompts users to enter credit card information for supposed additional data security protection. Of course, no security protection is provided, and the malware steals both the consumer's credit card information and other sensitive personal data stored on your computer.

This is another fine example of the creativity and persistence of scammers and identity thieves. Visit the Trusteer website to view screen images of the fake Facebook page. To learn more about how to protect yourself when using Facebook.com and its mobile apps, see the links in the "Using Facebook Safely" module in the near-right column.

Global Payments Breach Affects 1.5 Million Consumers

Last week, debit and credit card payments processor Global Payments Inc. announced that its systems had been breached by hackers and perhaps as many as 3 million credit and debit card numbers had been stolen. Global Payments processes transactions for Visa and MasterCard for retailers and card issuers.

In a statement released Sunday, Global Payments revised downard the number of stolen cards:

"... it identified and self-reported unauthorized access into its processing system. The company believes that the affected portion of its processing system is confined to North America and less than 1,500,000 card numbers may have been exported. The investigation to date has revealed that Track 2 card data may have been stolen, but that cardholder names, addresses and social security numbers were not obtained..."

The company has not disclosed how hackers breached its systems, nor the duration of the breach. The company's Monday-morning conference call focused on earnings and left little time for questions about the breach details.

The term "Track 2" refers to certain data elements stored in the magnetic strip on the back of debit and credit cards. Also on Sunday, Visa removed Global Payments from its list of "compliant service providers." Forbes magazine reported that the company expects to quickly correct the Visa compliance issue:

"Global Payments chief executive Paul Garcia is quoted in the company’s statement as saying that “We are making rapid progress toward bringing this issue to a close,” and emphasized that all major brands of cards still allow Global Payments to act as a payment processor."

After a breach like this, card issuers (e.g., banks, credit unions, retailers) will usually notify directly those cardholders with stolen account information, and whether replacement cards and accounts will be issued. And the card issuers usually seek reimbursement from the payments processor to cover the costs of issuing replacement cards to consumers.

Another payments processor, Heartland Payment Systems, experienced a much larger breach in 2008, after which multiple lawsuits resulted as card issuers provided replacement cards and accounts. With a reported 800,000 merchants and 3.5% market share, Global Payments is a smaller payments processor, when compared to First Data Corporation's 22.6% market share.

The largest banks, like Bank of America, have subsidiaries with joint venture arrangement with processor First Data to process card transactions. It seems to me that hackers have smartly figured out a way to steal valid credit/debit card information is to attack the transaction processors instead of retailers, like T.J.Maxx, or banks directly.

I called Global Payments to see how many retailers they may have lost already due to the breach and their inability to process Visa transactions. The public relations rep referred inquiries to the company's data breach site: www.2012securityupdate.com, which includes this statement to its merchants/retail clients:

"We are still processing all of your transactions, including Visa transactions, and will continue to work with the card associations in response to this incident."

Time will tell if and how long that continues. The company's breach web site also advises affected cardholders who suspect fraud to monitor their accounts, contact their card issuer, and place a Fraud Alert on their credit reports.

The Global Payments breach highlights the fact that several companies are involved in debit/credit card transaction flow, from the time yo swipe your card until when payment is completed. And, the security of that transaction flow is only as strong as the weakest link, or company, in the flow.