Avoid Credit Card Fraud

ewelry artist Evan Lloyd was excited when he received a phone order totaling $8,000 for five gold bracelets. The order was from a buyer from Moldavia in Eastern Europe, which wasn’t unusual, since Lloyd had sold merchandise to customers from Europe, Australia and other foreign countries before.

What did raise a red flag was that the customer attempted to use two different, but consecutive credit card numbers. The second number didn’t work, but eventually the entire order was approved with the first number. The customer had even provided a signed letter giving Lloyd permission to charge the card. He also verified the name and address on the credit card statement.

Everything seemed to be in order. Still, Lloyd wanted to be absolutely certain. He placed several calls to the card’s issuing bank in London to attempt to verify that the shipping and billing addresses matched, but says he didn’t get far.

He then contacted the company that issued his processing equipment to ask what recourse he had in the case of a charge back or a fraudulent charge. Shannon Heaster, director of office affairs for TeaMac, Inc./Arts & Crafts Business Solutions, says that banks will verify information that merchants provide about their customers, but the bank won’t give that information to merchants who don’t already have it, for security and privacy purposes.

Heaster told Lloyd there were no guarantees for a phone or mail order of this nature, but she decided to pursue Lloyd’s questions with the issuing bank. After making a few phone calls to the credit card company and the issuing bank, she quickly learned that the information on the card was not accurate and was transferred to the fraud department. The supervisor told Heaster this was an ongoing problem with shipments to Moldavia, where laws against the use of stolen credit card numbers are difficult to enforce.

Guy MacDonald, president of TeaMac, says that to avoid this kind of problem, merchants should purchase Address Verification Software (AVS), which is built into most credit card processing machines and available through just about any company that provides merchant services and equipment.

Needless to say, Lloyd was relieved and thankful to have avoided being scammed, but adds he was “really close” to sending the merchandise. “I wanted that order in the worst way,” says Lloyd. “The person placing the order seemed to ask a lot of technical questions about my jewelry, and seemed genuinely interested in it. They were responsive and friendly, and just seemed [legitimate].”

A few weeks later, however, Lloyd received another order request from a different customer in Moldavia. Lloyd explained that he had recently had some trouble with credit card orders from that country, and offered a few other payment options. Lloyd hasn’t heard from the customer since that call.

Thieves Informed About The System

Lloyd says he’s learned a few lessons from his experience. He won’t take any credit card orders before confirming that the shipping and billing addresses match (which he had not done with previous phone orders from foreign countries), and if the customer requests that the merchandise be shipped to another address, as often happens with gifts, he’ll pick up the phone and talk to the customer himself.

On overseas orders, he’ll call the folks at TeaMac again, as he feels they were able to get answers faster than he could.

While technology offers many advantages to merchants who accept credit cards for the sale of their work, it also provides thieves the opportunity to steal from you by “knowing the system,” abusing merchants’ trust in credit card companies, and abusing consumers’ legal rights.

Who Pays If The Card Is Bad?

Liability for fraudulent transactions belongs to the credit card issuer for a “card-present” or in-store transaction, but shifts to the merchant for “card-not-present” transactions, including transactions conducted online. This means that the merchant does not receive payment for a fraudulent online transaction. Additionally, merchants who accept fraudulent transactions incur penalty fees and higher transaction rates from the card issuers. AVS can provide this information immediately.

“ Any time the actual credit card is present, the chance of fraud is greatly reduced,” says T.J. Walker, founder and president of Antifraud.com, which provides fraud prevention tools for merchants who accept credit cards online. “However, if fraud is a concern, merchants should ask for a picture ID in addition to comparing the signatures on the sales receipt and the back of the credit card.”

Antifraud.com’s parent company is Software Solutions Inc. At one time, the company sold about six software-related products, but found that they were experiencing about a 20 percent loss due to credit card fraud. The company developed in-house methods of detecting and reducing this fraud and those methods became the tools AntiFraud.Com now offers to other merchants.

Ways To Reduce The Chance Of Fraud

For both phone and Internet sales, requiring a few things will greatly reduce the chance of fraud, says Walker.

First, the merchant can require the CVV2 (card verification number) that appears on either the back or front of each card. This number is unique to each credit card number and is not embossed so it won’t show on imprinted receipts.

Second, merchants can ask for the name of the issuing bank and the customer service phone number that appears on the back of each card. Both of the above will be almost impossible for a thief to provide unless they have the actual credit card in hand, Walker adds.

Keep Your Eyes Open

MacDonald says that while credit card fraud is rare in the crafts business, there are precautions that every business owner should take to prevent it. Awareness is your most important tool in defending yourself against thieves who know how to take advantage of credit card companies and merchants.

First and foremost, make sure the name on the front of the card matches the name and signature on the back . If there is no signature on the back of the card, insist on seeing another form of photo ID. “Most wireless card machines are equipped with AVS,” says MacDonald, “which automatically verifies that the billing name and address match.”

“ Get AVS and use it. Use your gut. Often, first instincts are correct and if the sale seems too big or too good to be true, it usually is. Contact your processor and ask them to check with the issuing bank to verify the shipping address if they feel uncomfortable with the purchase. Some processors will take the time to check for them, but [some] won’t.”

Despite the availability of credit card processing technology, MacDonald has observed that more than two-thirds of the artists he sees at the 30 shows he attends each year are still using manual imprint machines or “knucklebusters.”

In these cases, he says, it’s particularly important to rely on instinct and check consistently for matching names, signatures and addresses. “If someone walks up to your booth at a show and wants to buy a lot of merchandise [seemingly] without regard to price,” says MacDonald, “that should be a red flag. It would probably be a good idea to call for voice authorization.”

Tom Nielson, an independent sales representative for Retriever Payment Systems (which provides credit card processing for craft artists), agrees that even though instances of credit card fraud in the craft community are rare, it pays to treat every credit card transaction with the same amount of caution. “Be diligent in checking for that information,” he says. “If you let your guard down, you could be asking for trouble.”

Bernadette Finnerty is a contributing editor to The Crafts Report.