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[Author: Tom Junge, Iowa Field Director, 2010; R-2013 | Keywords: Business, Operations, Scams]

Recently, two dealers contacted the Association about a scam involving the sale of a $5,000 tractor to a customer in the Eastern United States.

This is how it went down. The customer contacted the dealer about buying a tractor that they had listed on the Internet. The customer was willing to pay with a credit card. The dealer processed the credit card. The credit card cleared and everything seemed fine. The customer waited a day or so and then contacted the dealer and told him they needed to ship the tractor to a foreign country. The customer gave the dealer the shipping company’s name and told him that the shipping company needed to be paid by the business where the tractor was being picked up. The customer was willing to pay the dealer with the same credit card that cleared earlier for the purchase price of the tractor. The dealer was to wire funds to the shipping company. (This fee can be anywhere from $2,000 to $5,000.) The scam: the dealer thought the credit card was good since it cleared on the tractor so he went ahead and processed the credit card for the shipping fee. Later, the credit card was reported stolen and was charged back to the dealer. While the dealer still has the tractor, he is out the shipping fee.

Here are some additional details:

  1. The customer’s e-mail address was suspect since it ended with either @hotmail.com or @yahoo.com. (An individual can set up an account in any public place so it makes it impossible to track them.)
  2. Authorization approval did not mean that the dealer is guaranteed payment. Approval only indicated that at the time approval was issued, the card hadn’t been reported stolen or lost, and that the card credit limit had not been exceeded. If someone else is using the credit card number illegally, the cardholder has a right to dispute the “approved” charges. It can take up to 30 days before a customer receives their statement to know their credit card was used for a fraudulent purchase. According to Clark Howard (consumer advocate with a nationally syndicated talk show), credit card information can be bought for as little as 25¢/name on the “black market.”
  3. A real shipping company’s name was used to make it appear that the deal was legitimate. However, when a dealer contacts the shipping company they know nothing about this transaction and warn the dealer of a scam.
  4. The use of wire transfer services also meant that monies could not be traced or recovered. Often the money is wired to Africa.

Avoiding Credit Card Fraudsters
A dealer is generally liable for credit card charge backs for “Card Not Present” sales (mail order, telephone/fax order and Internet sales), even when the bank has authorized the transaction. After a dealer is stung by a fraud, the credit card processors often hike the dealer’s rates, citing increased risk. The dealer also risks losing their accounts with the card companies if their fraud rate gets too high.

Credit card fraud is something that can never be completely eliminated, but rather something that must be managed. Here are some preventative methods and procedures that merchants can perform to limit credit card fraud and avoid fraudulent credit card transactions and charge backs resulting from stolen cards.

  • Ask for ID – In a bricks-and-mortar retail environment, you can simply ask for identification. If they give you a credit card, ask for a driver’s license. Make sure you check that the credit card has not expired.
  • Ask for CVC2 and CVV2 Verification Numbers – In an e-commerce purchase, stopping credit card fraud is tougher. Always ask for those little numbers on the back of the credit card. That will stop someone who has a stolen credit card number but doesn’t have the actual credit card. (Note: The merchant is not allowed to store the verification numbers. Merchants should also never keep the customer’s credit card “on file.”)
  • Use Address Verification – Most e-commerce settings have varying levels of verification. Make sure you enable address verification. If the credit card address doesn’t match the given billing address, don’t process the order. (WARNING – Once a fraudster has a legitimate customer name and the stolen credit card number, they can use the Internet to look up their victim’s telephone number, address, and zip code.) Tip: Ask the customer for the full nine-digit zip code instead of five digits.
  • Call the Customer – Calling customers is not only an excellent way to detect fraud, but it can also be a valuable part of your customer service. Sometimes the fraudster will submit the actual phone number of the person whose card was stolen. If the cardholder did not authorize the charge, suggest that they call their credit card company to report their card as stolen. You may find that the telephone number has been disconnected, or the number has been changed. This certainly would send up some red flags.
  • Search the Customer Name at www.google.com; www.ussearch.com/consumer/index.jsp or www.anywho.com. You may be able to verify the address, age, phone number, etc. of the customer.
  • Require Customer to Fax Information to You – Require the customer to fax copies of both sides of the credit card. This at least provides proof that the customer has possession of the credit card at the time of the order. You should also require a copy of their state-issued ID or driver’s license.
  • Calling the Card-Issuing Bank – You can ask the card-issuing bank to make a courtesy call to the customer to verify the charge. When you call the card-issuing bank, have your merchant number, phone number, and the customer’s full name, address, and phone number ready. To find the card-issuing bank, enter the first 6 digits of the credit card (Bank Identification Number-BIN) at http://www.all-nettools.com/toolbox/bin-search.php. The site provides the bank name, card type, and a 3-character code for the country.