Editorial Policy

On the Internet, Credit Card Fraud Often Takes On a Different Face

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By Eva Norlyk Smith, Ph.D.
October 14, 2010

Many people think of credit card fraud as something that happens as a result of a stolen credit card or identity theft. However, in the Wild West of internet marketing, credit card fraud is taking on a new face, with unscrupulous companies frequently blurring the line between aggressive marketing tactics and outright fraud.

According to a recent study commissioned by Visa International and conducted by Canadian survey company Ipsos Reid, 20 percent of Canadians have been victims of unauthorized credit card charges after responding to deceptive online or telephone offers. Evidence suggests that the statistics for Americans aren’t all that different.

For example, the U.S. Federal Trade Commission recently closed down Central Coast Nutraceuticals after the company reportedly defrauded consumers of more than $100 million dollars by luring consumers in with ‘free offers’ for an acai berry supplement and colon cleanser. Consumers gave out their credit card information to pay for shipping for the ‘free offer,’, however unbeknownst to customers, in the hidden print, they were also signing up for pricey monthly product subscriptions.

The Central Coast Nutraceuticals example is just one of many in which cardholder trust has been abused by online marketing companes. Last year, the U.S. Senate Committee on Commerce, Science and Transportation revealed that an estimated $1.4 billion had been lifted from unsuspecting Americans’ credit cards through similar involuntary monthly subscription schemes. In the spotlight where three so-called post-transaction companies, Affinion, Vertue, and Webloyalty, which had extracted funds from unsuspecting cardholders by duping them into signing up for monthly subscriptions and services they didn’t want—or even realized they were signing up for.

The companies in question worked through well-known sites including Buy.com, Orbitz, Priceline, Shutterfly, Fandango, 1-800 Flowers, Continental Airlines, Classmates.com, and more, offering post-transaction cash-back coupon deals that required “only an e-mail address.” However, when the cardholder entered in their e-mail, what they ended up agreeing to (according to the nearly-impossible-to-access fine print) was handing over their credit card information (via the site they were making a purchase on) to be used by for authorizing monthly subscription charges to bogus services.

The charges often ranged between $9 and $12 per month, small enough that many cardholders didn’t notice until several months or even years of fraud had transpired.

In addition to concern over the illegitimate charges, many were alarmed to know that well-trusted websites entered into deals with these companies to begin with. According to CNET, the retailers who participated in the credit card scam drew in as much as $792 million in exchange for the customer card numbers they passed on. Apparently, Classmates.com took in the most with a full $70 million in fees for providing cardholder information to the scammers.

Senator Jay Rockefeller, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, has since introduced the Restore Online Shoppers’ Confidence Act to fight these deceptive practices. The bill prohibits subversive post-transaction coupon ads, bans the transfer of cardholder billing information, and requires internet companies to meet disclosure requirements for any enrolment services they intend to charge for.

In the mean time, consumers can protect themselves by keeping a watchful eye out for suspicious offers and checking their card statements regularly for unauthorized charges. The Reid survey found that although 78 percent of Canadians were aware of deceptive practices, many didn’t bother to take action against them. As always, the best offense in these situations is a good defense, and consumers who take the time to check out terms and conditions will be less likely to fall into credit card traps.