82 posts categorized "Debit Cards" Feed

Move Your Money To... Walmart? A Good Deal?

This blog has covered extensively the ways banks have "mugged" consumers via higher fees, higher interest rates, traps, and tricks. I was surprised to read in the Tuesday the New York Times a report about some consumers moving their money to Walmart Money Centers, instead of to banks or credit unions. Move your money to Walmart? Really?

After reading the newspaper article, I visited the Walmart Money Centers website to learn more:

Screen image of Walmart Money Centers website

By offering several a la carte banking services (e.g., debit card, money transfers, bill pay, money orders, credit cards, check cashing, and checks), Walmart has wormed its way into banking. If it walks like a duck, sounds like a duck, and smells like a duck -- then it must be a duck. How was this allowed to happen?

Apparently, many consumers who don't have a checking account (e.g., referred to as the "unbanked") are using Walmart Money Centers to cash they paychecks, since the fees are lower than at many banks. I have mixed feelings about this. Here's why:

Advantages:

  • It benefits consumers to have a competitive choice since Walmart Money Centers offer lower check-cashing fees than banks and payday lenders. That could create a downward pressure on banks to lower their fees to remain competitive
  • I see the benefit to Walmart of paying its associates via Walmart debit cards. This removes or lowers the middle-man processor costs

Now, the disadvantages.

First, "banking" with Walmart is still very expensive for consumers. A $3.00 fee to cash a $800.00 weekly paycheck is really an effective annual interest rate of 19.5% ($3/$800 x 52 pay periods per year). That same $3.00 fee on a $400 weekly paycheck equals a 39% effective annual interest rate.

The Walmart MoneyCard (e.g., debit card) is expensive, too. The $3.00 fee to load money onto a card, plus the $3.00 monthly maintenance fee is really an effective annual interest rate of 18% (assuming a $300 paycheck and 26 pay periods per year). So, a consumer is paying 18% to access their own money. What? That 18% is a rate similar to many credit cards, where a consumer can avoid the interest charges by paying their balance in full at the end of the month.

While Walmart Money Centers may seem like an attractive option, it's really expensive "banking." Better to find a credit union with free checking and save both the $78 in annual check-cashing fees and $108 in annual debit card fees.

Second, I can understand the benefits for Walmart of paying its associates via Walmart debit cards. The benefits for Walmart Associates are questionable at best, given the above debit-card fees. The lack of banking choice is troublesome:

"Walmart associates may receive their pay either by direct deposit or through the First Data Money Network program and may access their wages through the Money Network MasterCard Paycard(R) or Money Network(TM) Checks."

This reminds me of the old "company store" practice from the 1800's where companies forced their employees to shop only at the company store, and kept them in debt bondage -- only it's worse today. How? Keep reading.

Third, the lack of disclosure and transparency is extremely troubling. If a consumer left Bank of America for a Walmart Money Center, then you are still banking with some of the same companies that perform outsourced, back-office financial transactions. According to a 2009 Reuters press release:

"Walmart, MasterCard Worldwide and First Data today announced a new, more sustainable payroll program designed to reduce the number of paper paychecks and pay stubs distributed each year to Walmart and Sam's Club associates... "

Alert readers will remember that First Data is a joint venture partner with Banc of America Merchant Services to process BofA debit card transactions. When I asked Bank of America to explain this joint venture, they declined to comment. And, there's more.

Wal-mart operates its Money Centers by outsourcing functions to Moneygram. According to Hoovers, Moneygram:

"... sells MoneyGram-branded cash transfers and money orders at some 227,000 locations around the globe. It is the leading provider of money orders in the US, issuing some 175 million annually. Wal-Mart is MoneyGram's largest money-transfer and money order agent, accounting for more than a quarter of the company's revenues. MoneyGram also offers in-person and electronic bill payment services, letting users pay everything from mortgages to utilities, and processes official checks for financial institutions."

In September, Fitch Ratings announced in a press release:

"MoneyGram has been informed that it is being investigated by a federal grand jury in connection with its consumer anti-fraud and anti-money laundering program matters for the period 2004 to early 2009. A prior similar investigation led to MoneyGram paying an $18 million fine..."

Thomas H. Lee Partners and Goldman Sachs own about 85% of MoneyGram.

Fourth, I thought that Walmart was prohibited from banking. The New York Times reported:

"Four years ago, Wal-Mart abandoned its plans to obtain a long-sought federal bank charter amid opposition from the banking industry and lawmakers, who feared the huge retailer would drive small bankers out of business and potentially conflate its banking and retail operations. Ever since, Wal-Mart has been quietly building up à la carte financial services, becoming a force among the unbanked and “unhappily banked,” as one Wal-Mart executive put it."

Fifth, the fine print about the Walmart MoneyCard states the following about its debit card:

"The Card is issued by GE Money Bank, member FDIC, pursuant to a license from Visa, U.S.A. Additional services provided by Green Dot Corporation. Not available in all states. Issuance fee, monthly fee, and other fees apply..."

This means that Walmart outsources its debit card operations to GE Money Bank, where cardholders' money and accounts are insured by the Federal Deposit Insurance Corporation (FDIC) which insures banks. So, the FDIC is effectively insuring Walmart! I'll bet you didn't know that. Neither did I until I read the fine print. How did this happen?

I hope the New York Times reports more about all of this.

My main point: if consumers choose to "bank" at Walmart Money Centers, you should know who you really are doing business with. The Walmart brand name appears the retail stores, but several outsourced companies actually process its financial transactions -- just like the big banks.

Me? Walmart Money Centers do not appeal to me for both the reasons above, and plus several Walmart business practices. Hence, I have boycotted Walmart since 2000.

What do you think? Are Walmart Money Centers a good option? If you have moved your money to Walmart, share your experiences.


Some Banks Reverse Decisions To Add New Debit Card Fees

[9:28 AM EST] A prior blog post announced plans by several banks to add new fees for consumers who use debit cards. In a press release on Friday, October 28, Wells Fargo bank announced that it was ending its five-state test program with a $3.00 per month debit card fee. According to a bank spokesperson:

"As we adjust to changes in our business, we will continue to stay attuned to what our customers want..."

In a press release yesterday, Sun Trust Banks announced the termination of its Check Card fees for its Everyday Checking customers, effective November 2, 2011. And, customers who had already been charged the monthly debit card fee will receive a refund. Customers will not need to take any action to receive the refund. According to a Sun Trust Banks spokesperson:

"We believe banking is a relationship business and recognize the importance of responding to client preferences... We've listened to our clients' feedback and will provide the convenience and security of check cards at no additional charge as part of all of our checking accounts."

On Friday, the Los Angeles Times newspaper reported:

"... JPMorgan Chase said that after its own eight-month testing of $3 monthly debit card fees it had decided against imposing them on its customers. Citibank, US Bank and Union Bank are among other major institutions that have now taken the no-debit-fee pledge."

Yes. Listening to your customers is always wise. Doing so sooner could have saved these banks a lot of time, effort, money, and embarrassment.

What about Bank of America? I checked the bank's online Newsroom for a press release or an announcement, but didn't see any. The same Los Angeles Times article also reported:

"Earlier Friday, Bank of America backpedaled, saying it would make it easier for its customers to avoid the fee by waiving the charge if they also used BofA credit cards, maintained minimum account balances or made certain direct deposits. Details of the revised plan had not been finalized, a person familiar with the changes said."

What? That doesn't sound any different than what a Bank of America spokesperson told me previously. It seems the bank's position really hasn't changed, despite plenty of consumer feedback otherwise. This is unsatisfactory. To learn about how to find a bank to move your money to, read this article.

If you are unsure about whether to keep your money at Bank of America, I strongly suggest that you read this Truth-out article.

[November 1, 2011 1:00 PM EST Update: The Boston Globe newspaper reported that bank of America has stopped its plans to charge checking account customers a monthly $5.00 debit card fee.]


8 Ways To Avoid The New Banking Fees

Some consumers have decided not to move their money to a credit union or community bank. If you are one of those customers, you are probably wondering what you can do to avoid those new, hefty fees including the new debit card fees.

There is an article at Bankrate.com which provides eight tips on how to avoid these new banking fees. If you can, to avoid the new monthly debit-card fees use your debit card only only at your bank's ATM machines. Don't use your debit card to make purchases at retail stores or online websites. Bankrate.com advises:

  • Know the rules at your bank for when fees are applied and to which accounts
  • Read all notices you bank sends. Things change and you have to keep up
  • Consider moving your money to an online bank (e.g., a bank that does not have any brick-and-mortar branch offices
  • Add services like direct deposit and paperless statements
  • Consolidate your accounts to meet any minimums for accounts that aren't charged fees
  • Talk with a bank representative in-person and ask them to waive the fees

To learn more, read the Bankrate.coom article.


Details And Transparency Matter As Banks Introduce New Debit Card Fees

While many news sources reported about the plan by Bank of America (BofA) to charge its customers a new $5.00 monthly debit-card fee starting next year, details seem to be scarce. Early reports were short on details, such as this Chicago Tribune report on September 30:

"Customers will pay $5 each month they use a debit card for a purchase. No charge for using BofA automated teller machines. Fee to be phased in starting early next year. Doesn't apply to customers with, for instance, a BofA mortgage or $20,000 in combined BofA and Merrill Lynch accounts..."

As a bank customer, I want to know:

  • The exact start date in 2012 the new fees start
  • Which checking account customers will be affected
  • The rollout schedule (e.g., nationwide or selective by state) for the new fee
  • Ways to avoid the new fee
  • The actions, if any, the bank took to try to avoid charging customers the new fee

Supposedly, customers who use their debit cards only at ATM machines would not be charged the new monthly fee. Now that BofA has raised the issue of monthly debit-card fees, other banks are considering similar new fees. MSN Money reported:

"Wells Fargo begins testing a $3 monthly fee on Oct. 14 in Georgia, Nevada, New Mexico, Oregon and Washington; JPMorgan Chase is testing a $3 fee in Wisconsin; Regions Bank will impose a $3 fee beginning Oct. 1; and SunTrust is already charging a $5 monthly fee for using a debit card."

USAA Bank used these events as an opportunity to emphasize that its checking and debit-card accounts will remain free.

To learn more so I can decide what to do, I visited the Checking Accounts section of the BofA website to read about the new fee. It didn't mention the new fee. I also checked the BofA online Newsroom which did not include any content or press releases about the new fee. When I signed into my online BofA account, the website didn't display any notices about the new fee.

So, I visited a local BofA branch to learn more. The customer service representative I spoke with was very polite and asked me what I knew. I summarized the news reports I had read and asked her for details. She mentioned that the new fee will apply next year to debit-card customers with basic checking accounts, who use their debit card for purchases. I explained to her that I do not use my debit card for purchases due to skimming devicies at many retailers, such as supermarket terminals and gas station pumps.

She then explained briefly that customers with premium and platinum level accounts would not be charged the new monthly debit-card fee, even when using their debit cards for purchases. There was nothing in writing, and the chart of various checking account plans she pointed to did not mention the new fee.

She then asked for my account number so we could review my account. It turned out that I have a Platinum level account, so my account won't be charged the new monthly debit-card fee. While this was good news for me, I know that not everyone has a premium-level account which exempts them from the new fee.

Regardless, I feel that BofA has done an extremely poor job of communicating details about the new debit-card fee to its customers. Maybe other banks have done a better job. BofA used the news media instead of communicating directly to customers, first. Either a bank values its customers or it doesn't. I have the impression that it doesn't.

The BofA hasn't disclosed what percentage of its customers will be affected by the new fee. My guess: Most. After preforming several online searches and reading through at least 16 news reports, I finally found this Time Magazine report which confirmed what I had heard:

"In an email, BofA spokeswoman Anne Pace said the fee applies to MyAccess, Essentials, eBanking and Enhanced accounts. Customers with Platinum Privileges, Premium and Advantage accounts won’t have to pay the fee; these are all accounts aimed at customers with five-figure balances or other big-ticket ties to the bank like a home mortgage. “In addition, Wealth Management/Merrill Lynch and US Trust clients will not be charged the fee...”

So, if you have are rich, have a mortgage or investments with, or have several accounts with BofA, you can avoid this new fee -- and many other fees. If you are poor or don't have much money, well tough luck.

Many BofA consumers are concerned. Some are furious. Some feel resentful because the BofA and other banks received bailouts during the recession, and senior bank executives have received huge bonuses and compensation.

Some view this new fee as expensive. Given high employment in many parts of the country, I agree with this. About 120,000 BofA customers in 50 states have signed an online petition demanding that the bank cancel the new fee.

Some BofA customers have moved their money to local community banks or to credit unions. One Arizona credit union has seen a 20% increase in new applications over the weekend. I would imagine that a larger number of customers are considering a move of their money to a community bank or to a credit union.

I contacted BofA's Public Relations department about this. Spokesperson Betty Riess emphasized the bank's commitment to transparency and clear communications. She mentioned that, "... it's still early on" and the new fee wouldn't start until "early next year." She said that the bank would notify affected customers at least 30 days before the new fee goes into effect, and that the new fee would be rolled out in phases across the country.

Just to be clear, I am not defending any of the banks that plan to charge this new monthly fee. While banks have a right to make a reasonable profit, we consumers have a right to demand quality customer service at reasonable prices. We consumers have experienced lots of price hikes, starting with huge credit-card interest rate increases in 2009. And, the debit-cards distributed by American banks use obsolete technology.

Frankly, the banks have broken consumer trust. BofA hasn't provided me anything in writing about the new debit fees, so they could still change the terms of deal between now and next year. This situation does not promote trust.

What else might be going on? The issues I see:

  1. Double Charges
  2. Lack of Transparency

Double Charges

Consider this: Online transactions are what make the Internet go. In other words, electronic payments are what make buying and selling on the Internet possible, and attractive. With this new fee, banks are screwing around with the electronic economy.

Think of it this way: When you use your debit card to pay online at a retailer's website, the new debit-card fee adds a cost to that transaction for consumers, even though the cost of that online transaction was, in theory, already included into the cost of the retailer's product or service. You could say consumers are getting charged twice.

The double charges definitely apply if retailers don't lower their prices commensurate with the new, lower swipe fees. Will retailers lower product prices given the lower debit-card swipe fees?

The National Retail Federation commented about this, since its members benefited from the legislation that lowered debit-card swipe fees:

“Retailers across the nation are developing a wide range of innovative ways to pass these savings along to their customers with lower prices and better value... Change won’t come overnight, but consumers will definitely benefit... Every time Congress takes a step to protect consumers, the banks use it as an excuse to raise fees. We’ve seen it when Congress limited late fees and overdraft fees and now we’re seeing it with swipe fees. Just as merchants and consumers are about to get some relief, they’re doing it again. That doesn’t mean Congress shouldn’t pass consumer protection laws. It speaks more to the nature of the card industry than to whether swipe fee reform should have been passed.”

I am hopeful that retailers will lower their prices. Lower prices mean greater product sales. And greater sales could translate into more jobs for consumers. So, we'll see during the coming months what happens. If retailers don't lower their product prices, then consumers have been "mugged" yet again.

Lack of Transparency

Since the previously higher swipe fees were paid to the banks by retailers or merchants, the banks seemed to have made a calculation that since they can't charge merchants more, they can charge consumers more to make up the lost revenues. This caused me to think about who receives the debit-card swipe-fee revenues.

So, I searched online for "merchant services," since that is the business function where banks provide banking services to businesses. One link I found was the Merchant Services section of the BofA website, where BofA provides checking accounts to businesses. That read like pretty standard stuff.

A more interesting link I found was a link to a description of "Banc of America Merchant Services LLC" at the Hoovers website, which stated:

"The next time you swipe your card and it clears, you might thank Banc of America Merchant Services. A 2009 joint venture between Bank of America and First Data, it is one of the largest processors of electronic payments in the US. The firm handles more than 7 billion check and credit, debit, stored value, payroll, and electronic benefits transfer card transactions..."

Screen image of Hoovers public page about Banc of America Merchant Services LLC When banks claim that the "economics of debit cards have changed," it's a reference to the banking legislation that capped swipe fees at about 21 cents per debit transaction, from a prior high of 43 cents. Does each online transaction really use 21 cents worth of electricity? I doubt it. Are their administrative costs that high? I doubt it. If their costs are that high, what are they doing to lower those costs? And if they aren't doing anything to lower those costs, then maybe they shouldn't be in business anyway.

So, the BofA outsources its debit-card transaction function to another company: Banc of America Merchant Services. Many consumers might be surprised to learn that BofA outsources this function to another company. Companies often claim that outsourcing is done to lower costs, but in this instance that doesn't seem to be the case, since this outsourcing isn't discussed.

My point: BofA partnered with another company to create a separate company that actually processes debit-card transactions, and it shares in those debit-card transaction revenues. Some people might call this double-dipping. I recognize its partner's name from prior blog posts: First Data.

This raised more questions for me than it answered. I now wonder who gets the revenues from the new debit-card fees the banks plan to charge consumers. Does the revenue from this new fee go to the BofA or to Banc of America Merchant Services? Or does it all go to First Data?

Also, there is the ethical question: Is it right for banks to charge consumers for a transaction function that previously was a merchant services function? It seems to me that the banks should resolve the profitability of their merchant services operations between themselves, transaction processors, and merchants. How might banks do this?

The banks seem very creative at introducing new fees. The banks could have created another new fee for their merchants, and charged merchants directly with this new fee. Or the banks could have lowered their internal costs by outsourcing to different vendors. Perhaps the costs the banks pay to outsourcing vendors for debit transaction costs is too high.

I asked Riess about this and she said that the debit-card fee revenes go to the BofA. She didn't elaborate beyond that general answer. She said she couldn't discuss what actions BofA might have taken to lower its costs before adding the new debit-card fee. She said that she couldn't discuss the questions I raised about Banc of America Merchant Services. I don't know if she couldn't discuss due to a lack of knowledge, or an internal directive.

Consumers might want to ask their banks to explain what debit-card transaction processing venture their bank engages in, and exactly where the money collected from debit-card fees go.

I am not a banking expert, but something funky is going on. It just doesn't pass the smell test.

It seems that rather than try to lower their debit-card transaction costs, the banks "punted the football" and simply want to charge consumers to make up the lost revenues, without explaining to their customers first:

  • Their debit-card transaction processing ventures,
  • The steps they have taken to cut costs so they don't have to raise prices, and
  • The steps they have taken to make up their alleged revenue shortfall with merchants rather than with consumers

This lack of communication indicates that the banks are not being honest nor transparent about what is really going on.

What else might be going on? The New York Times reported:

"Bank of America probably has bigger problems than any of its competitors. So it stands to reason that it would make a bolder move. After all, it is dealing with a pile of troubled mortgages, legal fallout from the sales of bonds made from those loans and questions about how it serviced its home mortgages."

Perhaps, but this does not give the banks a free pass on the questionable merchant-services revenue situation I described above. I'd like to see BofA and its executives act in a more respectful and transparent manner to customers. That means communicating to customers first about what is happening, and acting in an accountable manner for past decisions (e.g., Countrywide, foreclosure documentation shortcuts) without penalizing its customers for poor decisions its executives made.

Resources

If you have decided to move your money out of BofA or your current bank, MSN Money advises consumers to look for banks with "switch kits," and to follow these five steps:

  1. Choose your new bank
  2. Open your new bank account first
  3. Change your direct deposit
  4. Close your old bank account after all outstanding checks have cleared.
  5. Set up automatic payments online at your new bank

More resources to help you find a new bank:

What is your opinion of the new debit-card fees? Or about the double charges and lack of transparency? If you have moved your money to a community bank or credit union, share your experience below.


Banks To Expand Their Selling of Consumers' Shopping Data

In response to regulation limiting banks' fees, banks plan to replace their lost revenues by selling consumers' shopping habits and data. If you consider how you currently use your debit cards, banks are able to collect an amazing amount of data about where you shop, when you shop, and how much you spend on various types of items.

If you are like most people, you use your debit card to pay for everything: food, clothing, entertainment, travel, medicine, doctor's visits, liquor, and more. Combine that data with your phone calling patters and the geo-locations in your smart phone, and its a comprehensive database of where you go, when you go, where you shop, what you buy, and how much you spend.

CNN Money reported:

"Merchants pay banks an average fee of 10% to 15% of the purchase price of a product each time a customer uses a discount that's generated from the bank's data, according to Cardlytics, an intermediary that works with both banks and retailers. Typically, the bank takes a 25% cut of that fee and pays the rest to an intermediary, like Cardlytics. So if a customer buys a $1,000 couch, the merchant pays a fee of up to $150 to the bank and the bank walks away with $37.50."

How the new deals will look to consumers based on the consumer data collection:

"Say you use your Citi-issued debit card to buy a pair of shoes at Nordstrom, and then Citi sells that information to a series of retailers. As a result, you receive a coupon from Macy's for a 20% discount on shoes at its store. The coupon is delivered by Citi, however, not from Macy's. To redeem the coupon, you must respond by text, e-mail or by checking off a box next to the offer on your online bank statement. Once you go into Macy's to buy the shoes, Citi will retroactively credit your account for the 20% discount."

Anytime I read a phrase like, "retroactively credit" alarm bells go off. I want to know how quickly the credit is applied and what might affect the timing or amount of the credit. That means reading the fine print for any cardholder agreements.

Some consumers like the deals and discounts they get for giving up personal information and privacy. Experts speculate that some consumers make prefer these deals over those available at online social networking website deals, like Groupon.

If you read this blog regularly, then these new fees should be no surprise. How did we get to here? Banks already compile databases about your spending with your credit cards. Learn more about the history of how banks made money from credit cards.

After banks raised the interest rates on credit cards in 2009, many consuemrs shifted their purchases to debit cards. Then, banks increased fees on a variety of actions, such as checking account overdrafts. After many consumer complaints, the U.S. Congress resopnded with legislation limiting the feeds banks can charge for debit cards and credit cards.

You could call this latest move by the banks an escapation in the race to get your money, versus you keeping your money.

As I see it, it all boils down to consumer choice: you decide how much of your personal information to disclose, and for what in return. Your shopping purchases and habits are definitely personal information. A discounted product isn't a "savings" as you still need to spend money. Remember, the debit-card shopping data collection by many banks will happen whether you take advantage of these new deals or not.

What consumers can do if you don't like the data collection:

  • Read the fine print for your card agreement, especially when your bank updates its terms of use and privacy policies (online at its website, or in your monthly credit card statement). That will provide clues about how much privacy you don't have, the companies the bank will sell your shopping data to, and options for you to opt-out of e-mail and snail-mail marketing offers.
  • If you want to keep purchases private, use your debit card at ATM machines to withdraw cash and shop with cash at retailers. There there is no shopping data attached to your debit card.
  • Move your money to a local bank or credit union with better service and more favorable privacy terms
  • Be a smart shopper with mobile banking and "mobile wallets" -- purchases made with your smart phone. First, make sure that anti-malware is intalled on your smart phone. Second, only install trustworthy apps that have privacy policies. Otherwise, leaky apps will compromise your personal information and money.

What is your opinion of this? If you have found a bank, with a favorable privacy policy, that doesn't sell your debit-card shopping data, share the bank name or website address below.


New ATM Scam Tactic: Glued Keyboards

The San Franciso Examiner reported a new ATM scam where thieves used glue to disable the "Clear," "Enter," and "Cancel" buttons on bank ATM machine keyboards. Apparently, the scam works like this:

  1. A bank customer visits an ATM as they normally would. After entering their PIN on the keyboard, the customer realizes that certain keys don't work
  2. The customer abandons the ATM machine without canceling the "live" transaction session, and goes inside the bank branch for assistance
  3. While the customer is inside the bank branch, the thief walks up to the ATM machine and uses the "live" transaction session to drain the victim's bank account of cash

In this scam, thieves didn't have to steal your debit card and PIN. They just used a "live" ATM transaction session that the customer didn't cancel appropriately.

What consumers should do if you encounter an ATM machine with a tampered keyboard? Experts advise consumers to:

  • Use the touch-screen selections to cancel your ATM transaction session. Then, go into the bank branch for assistance
  • Many ATM machines have a phone for assistance. Use that phone, if you don't want to leave the ATM machine
  • Use ATM machines in protected, well-lighted locations; idealy inside bank branches during normal banking hours
  • Use ATM machines with controls that you are familiar with. Know both the keyboard and touch-screen options to complete (or cancel) a transaction session
  • Monitor your bank accounts for fraudulent entries
  • Learn how to recognize ATM machines that have been tampered
  • Watch this video of a thief installing an ATM machine skimming device
  • Be alert, since some thieves attach skimming devices to the ATM booth door-entry mechanisms
  • If you see or encounter the thief, do not approach him/her. Instead, call local law enforcement

Have you encountered an ATM machine with a tampered keyboard? What did you do?


Banking With Obsolete Debit/Credit Card Technology

I have reported a lot in this blog about skimming: where identity thieves plant devices inside gas pumps at gas stations and attached to bank ATM machines to steal consumers' credit- and debit card account information. The thieves then make cloned cards with the stolen data and drain consumers' bank accounts.

I was disappointed to read in the June 2011 issue of Consumer Reports that banks in the United States use an old, obsolete technology for our credit- and debit cards:

"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. 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 1970's."

So, we consumers bank in 2011 with 1970's technology. You may perform mobile banking with your state-of-the-art 2011 smart phone or tablet computer, but that card in your wallet or purse is still 1970's technology. If you travel outside the United States, perhaps you may have already noticed the problem:

"China has announced that it will no longer produce or accept [magstripe] cards after 2015... The European Central Bank has recommended that banks stop issuing magstripe cards after 2012."

So, the rest of the planet is moving towards newer debit/credit-card technology that offers far more security. The newer cards are called EMV "smart cards" with embedded computer chips that store and transmitt encrypted data with a unique identifier for each transaction. Encrypted data makes it more difficult for identity criminals.

According to Bank Info Security, ATM skimming losses far exceed gas station pump loses. ATM skimming losses average $350,000 per day in the United States. In Europe, 95% of the bank ATM machines are EMV compliant and bank ATM losses dropped 14% in 2010 in 22 countries: Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Liechtenstein, Luxembourg, Malta, the Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, and the United Kingdom.

Experts have seen ATM losses increase in Europe where identity criminals have created bogus EMV debit/credit cards with consumer bank account data stolen from magnetic-strip cards. So the thieves are smart and persistant... enough to use 1970's technology to hack 2011 technology.

Why aren't banks in the United States moving with the rest of the planet to newer card technology? that would seem to be the logical step, as it would help everyone worldwide: banks and consumers alike. According to Consumer Reports:

"The [identity theft and fraud] losses for banks do not yet exceed the costs of a switch-over, although merchants say that's because they usually shoulder much of the cost burden from fraud."

I don't use a telephone built in the 1970's. I don't drive a car built in the 1970's. And, I wouldn't want to either, and I'll bet that you feel the same way. Consumers should not have to bank with debit- and credit-card technology from the 1970's when newer, more advanced, and more secure technology exists.

If this bothers you (and I surely hope that it does), write to your elected officials in the U.S. Congress and demand action. And, ask your bank why its uses old technology. I am curious what answers you'll hear.


Police Bust Debit Card Skimming Thieves In Mountain View California

I like to acknowledge the efforts of law enforcement to fight identity theft and fraud. Earlier this month, the Santa Clara County District Attorney's Office charged Boris Tumasyan, 24, and Sarkis Sarkisyan, 23, from Glendale, California with operating a debit/credit card skimming operation.

On December 6,, a gas station employee first found the skimming device attached to a circuit board inside a gas station pump, after opening the pump to investigate an error message. To catch the thieves, local law enforcment attached an alarm to notify them when the gas station pump was opened.

"Tumasyan and Sarkisyan were arrested on December 17, 2010 after the alarm was triggered. Officers searched their van and found keys that opened the gas pump and address information for several other area gas stations. Further investigation by REACT – a Bay Area high-technology and identity theft task force – found six identical skimmers hidden inside gas pumps at five locations in Mountain View and Los Altos. REACT conducted a forensic examination of those skimmers and found over 3,600 individual credit card numbers."

Debit/credit cardholders were fortunate in that local law enforcement caught the thieves before they could retrieve and use the stolen card information. This type of crime is impossible for consumers to detect because the skimming device is installed out of sight and inside the gas station pump.

As I have written before, to avoid getting "mugged" at gas station pumps, consumer must protect their PIN. Experts advise that consumers should:

  1. Pay at the pump using the "credit" option and not the "debit" option. This provides you with greater protections, liability limited to $50, and you don't use your PIN. Plus, you receive loyalty points if your credit card has a loyalty program.
  2. If you want to pay using the "debit" option, don't pay at the pump. Go inside the gas station and pay at the cashier's window with your debit card. If a "signature debit" is available, use that option instead of your PIN.
  3. If things look sketchy, pay with cash since that never discloses your bank account information.

What do I do? I pay with cash, especially if I am at a gas station I don't shop at regularly. It is impossible to tell if a gas station pump has been tampered with or not. I use my debit card only at my bank's ATM machines.

Congratulations to local law enforcement.


Identity Thieves Modify Their Bank ATM Skimming Approach

Since I started writing this blog in 2007, I have learned that identity thieves are creative and persistent. The news story below is another example.

The Krebs on Security blog reported a few instances where identity thieves have installed skimming devices that are no longer attached to the ATM machine. How is this possible? The thieves installed the debit card skimming device inside the door-reader entry mechanism.

Many ATM machines are inside a small booth behind a locked door. This requires bank customers to insert their debit card in the door-reader to open the locked door to the booth. So the thieves installed the skimming device inside the door-reader mechanism, instead of over the card slot of the ATM machine. The camera to record your PIN number is installed on a wall outside the ATM booth.

At the Krebs on Security blog, you can view pictures of an opened door-reader mechanism with the skimming device attached. This skimming device installation is impossible for consumers to detect, just like skimming devices thieves installed inside gas-station pumps.

Why are identity thieves so persistent at hacking bank ATM machines? That's where the money is. Experts estimate that consumers withdraw $1 trillion dollars annually from bank ATM machines, and fraudulent withdrawals from ATM machines are about one-half of one percent. Do the math. That is still a lot of money stolen.

What should bank customers do? First, use your bank ATM machine during office hours when the door is already unlocked. Second, when using a bank ATM machine off hours, use a different card with a magnetic strip to open the door to the ATM machine lobby.


Video Shows How Thieves Install And Use an ATM Skimming Device

This blog has discussed how to recognize skimming devices attached to ATM machines. According to Wired magazine, law enforcement authorities in Europe seized the video below from an identity thief's actual surveillance camera. The video shows:

  • The thief attaching a tiny surveillance camera to the ATM machine
  • The thief attaching the skimming device to the card slot
  • Bank customers entering their debit cards and PIN numbers

Thieves use the tiny surveillance camera to record bank customers' PIN numbers as they entered them. Thieves use the skimming device on the card slot to copy all of the data stored on the magnetic strip of bank customers' debit cards. Both devices transmit their contents via a wireless connection to the thief's laptop computer somewhere nearby.

With these pieces of bank account information, thieves then create duplicate debit cards and return to one of your bank's ATM machines to drain all of the money from your checking (and savings) account. And, you'll never know it until a check bounces, you try to withdraw cash, or you check your account balance.

The video shows some bank customers safely covering their hands when entering their PIN numbers. To protect your PIN number and bank account, you should cover the hand you use to enter your PIN number. Watch all of this video:

Alert users will notice that this ATM machine is accessible via a public sidewalk. I do not use these ATM machines. I use only the ATM machines behind a locked door at my bank's ATM booths.

Theft by ATM skimming devices is a nationwide problem. Experts say that every year ATM machines dispense about $1 trillion dollars (that is $1,000,000,000,000), and theft by ATM skimming devices is less than one-half of one percent of that total -- still a huge amount of money. So, the problem is not going away anytime soon. Plus, the ATM skimming devices are getting smaller and more sophisticated.

As good as the above video is as a training tool, it won't help you at gas stations because thieves often insert skimming devices inside unattended gas station pumps. To learn about how to protect yourself at gas stations, read this blog post.


ATM Skimming Scams In Chicago Suburbs

Welcome back from the long holiday weekend. I cannot emphasize enough that consumers need to be really careful where you use your debit card. Stolen debit card information gives criminals direct access to your entire checking account.

The Skokie Patch (Skokie, Illinois) reported incidents where several consumers were victims of ATM fraud. During a few days, eight consumers had about $10,900 stolen in fraudulent bank account withdrawals after using certain ATM machines. According to police reports about 23 fraudulent withdrawals were made by criminals, each for about $500. All of the victims reported that they still possessed their debit cards when the fraud happened.

This is another example that ATM skimming is a nationwide problem. Criminals also hide skimming devices inside unattended gas station pumps, which are impossible for consumers to detect. Experts advise consumers to:

  • Learn how to spot an ATM machine that has been tampered with
  • Use ATM machines in well-lighted areas
  • Cover the keyboard when entering your PIN
  • Protect your PIN at both ATM machines and at gas station pumps
  • Tug on the card slot and keypad to make sure it is not a bogus card-reader device
  • If the ATM machines has been tampered with, do not remove the device. Call local police and use a different ATM machine

Me? I use my debit card only at my bank's ATM machines. And I use ATM machines I am familiar with, so it is easier to spot any attached devices. At gas stations, I never pay at the pump and I pay inside with either cash or a credit card.


Identity Thieves Upgrade Their ATM Skimming Devices

In case you hadn't seen this news report:

Visit msnbc.com for breaking news, world news, and news about the economy

As I wrote previously about ATM skimming devices, my advice for consumers:

  • If an ATM machine looks like it has a skimming device attached, use a different ATM machine. Don't try to remove the skimming device. Notify law enforcement and or the bank.
  • Experts recommend that consumers check their bank statements frequently for fraudulent entries and cash withdrawals, because it is difficult to spot skimming devices
  • Use ATM machines that are in well-lighted and in public places
  • Anybody can buy and operate an ATM machine, so I only use ATM machines from my bank. When you use an ATM machine, you are trusting that retail store to keep that ATM machine secure
  • I avoid unfamiliar-looking ATM machines because it is harder to spot an ATM machine that may have a skimming device attached

Should You Pay With Credit, Debit, Cash Or a Charge Card?

There are important differences when shopping with a debit card versus a credit card. The new credit card rules highlight the need for consumers to make an informed choices about the payment method used when shopping. Identity thieves have increased their use of skimming devices at both gas station pumps and bank ATM machines.

So, which payment method is best: cash, credit cards, debit cards, or charge cards? This video below from ABC News offers some practical tips to help you make an informed choice.

If you need to build up your credit history and credit score, paying with cash and/or a debit card won't help. If you have the discipline, charge cards offer several advantages over credit cards including the opportunity to build your credit history/score.

For many years, I had an American Express charge card. I used it to pay for business travel, since my employer promptly reimbursed me for business travel. Later in my career, I simplified both my life and my finances by reducing my use of credit/plastic. Ultimately, I paid off all of my credit card debt and cut back to two credit cards from a high of five credit/charge cards (and a high balance of $18,000). Today, I pay my credit card bills in full every month.


Would You Recognize a Skimming Device on A Bank ATM Machine?

At his Krebs On Security blog, Brian Kebs has a good blog post about how to recognize a skimming device attached to the card slot of an ATM machine. Identity criminals will try to place these devices on ATM machines (and gas station pumps) to steal your debit card sign-in credentials so they can drain your bank account.

Brian's blog post includes photos, which clearly indicate how thieves can attach a skimming device to the ATM card slot.

Now don't panic and think that every ATM machine has been tampered with. The thieves target ATM machines that are not in well-lit and public places.

My advice:

  • Use ATM machines from your bank. You know what they look like and familiarity makes it easy to spot tampered machines
  • Use ATM machines that are in well-lighted and in public places
  • If the ATM machine looks like it has been tampered with, use another machine
  • I avoid unfamiliar-looking ATM machines, that are often in convenience stores

Related article: Anybody Can Buy And Operate an ATM Machine.


Don't Get "Mugged" At A Gas Pump. Protect Your Debit Card Number and PIN

Prior posts have warned consumers about skimming scams at ATM machines and how to recognize and avoid ATM machines that has been tampered with. As consumers have use their debit cards more often at a wider range of retail stores, identity thieves have moved their skimming scams accordingly.

I wasn't surprised to read that criminals operate card-skimming scams at gas stations, and not just at ATM machines. I was surprised to learn the following: at ATM machines criminals attach a portable card-skimming device on the outside of the ATM card slot (where it can be seen if you are alert), but at gas stations criminals insert a portable card-skimming device inside the gas pump where it can't be seen by consumers.

Inside the gas pump? Read the scam alert from the AARP Webletter:

"Soon after filling up at the gas pump, a motorist learns that his bank account has been emptied. What happened? Another case of “skimming,” in which crooks place a portable card-reading device—readily available over the Internet—inside the pump. When the customer inserts his debit card and enters the required personal identification number, the device captures both the data from the card’s magnetic stripe and the PIN. Later, the devices are retrieved, and the stolen data is used to create a duplicate card to raid the victim’s bank account."

Gas stations are becoming a more popular target by identity thieves since the gas pumps are frequently unattended and not monitored by security cameras. This makes it easier for criminals to insert a portable card-reader device inside the gas pump to steal consumers' bank account information:

"That was the case with one member of the Russian mob, which is often behind organized skimming rings. He took a job at an Arco station and placed a skimming device inside a gas pump. After he disappeared, authorities learned that his hidden skimmer stole $300,000 from customers’ debit cards."

The skimming scams are made easier by older gas station pumps that don't encrypt the PIN numbers.

What should a consumer do to avoid getting "mugged" at a gas station? The first priority is to protect your personal identification number (PIN). Experts advise that consumers should:

  1. Pay at the pump using the "credit" option and not the "debit" option. This provides you with greater protections, liability limited to $50, and you don't use your PIN. Plus, you receive loyalty points if your credit card has a loyalty program.
  2. If you want to pay using the "debit" option, don't pay at the pump. Go inside the gas station and pay at the cashier's window. If a "signature debit" is available, use that there instead of your PIN.
  3. Pay with cash if possible, since that never discloses your bank account information.

What do I do? I pay with cash, especially if I am at a gas station I don't shop at regularly.


New York Times: "Visa Reigns With Silent Tax"

I highly recommend that you watch this New York Times video. It is a "must see" video for consumers about how our financial and debit card system works today, especially if you don't know what interchange fees are and how they affect the price of products you buy everywhere.

Experts predict that debit transactions will exceed cash transactions in 2012. You can also read the New York Times article in its "Card Game" series:

"When you sign a debit card receipt at a large retailer, the store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code.The difference is so large that Costco will not allow you to sign for your debit purchase in its checkout lines... Competition, of course, usually forces prices lower. But for payment networks like Visa and MasterCard, competition in the card business is more about winning over banks that actually issue the cards than consumers who use them. Visa and MasterCard set the fees that merchants must pay the cardholder’s bank. And higher fees mean higher profits for banks, even if it means that merchants shift the cost to consumers. Seizing on this odd twist, Visa enticed banks to embrace signature debit — the higher-priced method of handling debit cards — and turned over the fees to banks as an incentive to issue more Visa cards."

I agree with retail merchants:

  • There should not be interchange fees on debit purchases, since consumers use their money with debit purchases and not the bank's money
  • Retail merchants they should be able to accept and not accept certain cards with high interchange fees. That makes for a competitive marketplace.

While Visa and the banks have been successful at getting consumers to buy with debit cards, consumers still should know the advantages and disadvantages of buying with debit cards versus credit cards.

Want to learn more about credit cards and privacy issues? Browse the Credit Cards section of this blog.


How To Avoid Becoming A Victim of Skimming And Credt/Debit Card Fraud

Apparently, identity thieves are active in North Carolina and are using skimming devices to steal consumers' debit card and credit card information. From WRAL:

"Skimming devices record data from the magnetic strips on the back of financial cards to create counterfeits, police said. Criminals place them automated teller machines or gas pumps to collect data, and they use hidden cameras to record people's personal identification numbers. SECU officials on Tuesday released photos of six men believed to have used stolen debit card information at credit union ATMs along the Interstate 85 corridor. Account information has been stolen from customers in Raleigh to Winston-Salem to Charlotte..."

This type of identity theft and fraud can happen anywhere. How you can avoid becoming a victim of skimming and debit/credit card fraud:

  • Closely examine card slots on ATMs and gas pumps to make sure nothing appears to be attached to the front of them.
  • Do not use an ATM or gas pump if the card reader appears to be added on, to fit poorly or to be loose.
  • Avoid device instructions that say things like "Swipe Here First" or “Use This Machine Only.”
  • If something does not look right, use another ATM or gas pump.
  • Always cover the keypad as you're entering your PIN in case a hidden camera is nearby.
  • Never accept "help" from anybody at an ATM.
  • Immediately call the customer service number on the ATM if a machine keeps your card, appears suspicious or does not function properly.

I follow all of these suggestions to avoid becoming a skimming and fraud victim. I also use ATM machines that I know well.... my bank's ATM locations. I feel like this helps me more easily spot an ATM machine that has been tampered with. I choose to avoid ATM machines at convenience stores since those vary in design, making it more difficult for me to spot ATM machines that have been tampered with. And I use cash at gas stations and convenience stores.


5 Tricks Banks Use To Charge Consumers More Overdraft Fees

I've Been Mugged warned its readers in February about higher credit card interest rates and lower card limits by banks which followed during March and in April. Unfortunately, banks haven't given up. They still seek ways to increase their revenues, which means new and higher fees for you.

WalletPop has a good list of five tricks banks use to charge you overdraft fees more often and with greater amounts. Follow their advice and you can avoid these tricks. One trick banks use is "Reordered Transactions:"

"Just because you bought a smoothie in the morning with your debit card and paid your rent in the afternoon doesn't mean that's the order in which your transactions will be cleared. Banks often change the order in which debit transactions clear – and tend to clear debits before clearing any deposits made – from highest to lowest amounts. By doing so, the customer's account is depleted more quickly and they'll incur more overdraft fees..."

Part of the problem is that banks don't disclose the order that they process transactions. Another trick to watch out for is "High Daily Maximums:"

"With many banks, there's no limit to the number of overdraft fee-triggering transactions you can charge. Bank of America, HSBC, Chase and Wells Fargo have no limit per day, while Citibank permits four (for a total of $136). Some banks use a tiered overdraft system that increases charges for subsequent overdrafts. Chase charges $25 for the first offense and $32 to $35 apiece for subsequent charges. At PNC Bank, the first three offenses cost $31 a pop, the fourth through sixth each cost $34 and seven times or more costs $36."

Experts advise that you keep at least a $100 minimum in your checking account to avoid overdraft fees. Experts advise consumers to ask your bank to set the debit overdraw amount on your account to zero, so it will reject transactions instead of incurring overdraft fees

Another trick is "Holding Deposits For Clearance:"

"Take a close look at your bank account. Just because it shows that your paycheck was deposited doesn't mean you have complete access to those funds. When paychecks are deposited, the bank can take two to five days to clear them..."

What consumers can do: contact your elected officials and demand legislation to protect consumers:

"... the Consumer Overdraft Protection Fair Practices Act, legislation that aims to prohibit overdraft fees unless the consumer opts for "courtesy" overdrafts. Even if a consumer opts for overdraft protection, they must receive a warning of an impending fee before they finalize a purchase that may trigger the overdraft fee."

I strongly encourage you to read the detailed WalletPop article.


Heartland Is Once Again PCI-Approved. Will It Last?

Last Friday, ComputerWorld reported:

"The processing firm Heartland Payment Systems has been reinstated to Visa Inc.'s list of service providers deemed compliant with the Payment Card Industry Data Security Standard (PCI DSS). The move follows Heartland's successful completion of an annual assessment for compliance with the PCI standard, the company said in a brief statement released on Friday. Heartland had been dropped from the list of compliant vendors by Visa in mid-March following an investigation into the massive data security breach announced by Heartland in January."

Interested readers can download Visa's list of PCI-approved vendors (PDF format, 274 KB).

I don't feel warm and fuzzy by this move. First there are the outstanding class-action lawsuits against Heartland. Second, there is the lack of details surrounding Heartland's breach; especially when Heartland was deemed PCI-approved last time while hackers were simultaneously stealing thousands of consumers' sensitive card data.

The whole PCI-compliance decision was wrapped up way too quickly and neatly for my tastes. It just doesn't smell right.

The bottom line: consumers' trust has been broken by Heartland's breach. It'll take more than one press release to regain that trust.


Why Does First Data Know So Much About Consumers?

[Editor's Note: I am pleased to introduce the first guest author at I've Been Mugged. I've know William Seebeck for decades, going back to our time working together at Lexis-Nexis in Dayton, Ohio during the 1980's. Bill has a wealth of experience in online systems, banking, publishing, and public relations. Bill sent to me his comment below which he also submitted as a reply to the ZDNet blog post by Tom Formeski about First Data Corporation. Bill's message deserves the widest audience possible, and it includes advice both First Data and consumers would be wise to listen to.]

By Bill Seebeck

I'm sure that it is true, as Mr. Capellas states, that he knows more about what we (the American public) are likely to do next than we do ourselves.

However, I hope that Mr. Capellas also knows that he and First Data Corporation hold a special trust as the guardians of that information as it represents the most private of American consumer information.

Why does First Data know so much?

In part it is because First Data Corporation, now a private corporation, represents both sides of most electronic transactions. It represents more than 50% of the banks and other financial institutions that issue credit/debit cards and other electronic instruments. It also represents more than 50% of all merchants that accept credit cards at their stores, restaurants on the streets of America's towns and cities and also on the electronic highway that transits our Internet community. First Data also represents more than 50% of all the ATM's that Americans use every day.

This means that First Data Corporation has knowledge of your bank accounts, credit activity, purchasing data, and much, much more.

I think most Americans would agree Mr. Capellas that as a result of the role your company plays in all aspects of financial transactions that you and your company are in a very unique and most singular position. You hold a sacred trust it seems to guard the privacy of such transactions rather than thinking up new ways to monetarily benefit from the use or sale of this most private information.

Those of us who are pioneers in the use of electronic information and e-payment services believe that companies like First Data should be much more transparent. It is bad enough that America's consumers feel held hostage by the credit reporting agencies, it doesn't need another company to exploit them.

Mr. Capellas, most Americans don't know that you have access to their bank accounts, their store accounts, their phone records and their Internet activity. I strongly suggest that you keep what you and your company know about what is in those accounts to yourself. Show the people of America what keeping a sacred trust is all about.

William B. Seebeck
August 8, 2008. © William Seebeck.