How to break the telephone link to credit card fraud

Sarah Hughes got a phone call recently from someone who said he worked for a charity. The caller said the organization preferred to have people charge donations on their credit cards and asked Ms. Hughes to recite her credit card number over the phone. The telephone solicitor should have been more careful about whom he called.

``I thought it was pretty strange, so I asked them to send me some material in the mail,'' recalls Ms. Hughes, a senior attorney for the Federal Trade Commission's Division of Credit Practices. She doesn't recall getting the material and suspects that it might have been a rather bumbling attempt at ``telefraud.''

Ms. Hughes works in one of several government agencies and private organizations trying to keep tabs on a growing credit-card problem. As credit cards become the nation's ``second currency,'' they have also become an easy target for a whole range of telephone-aided scams that attempt to secure one's credit card number to counterfeit it and run up purchases.

The most common variation on the telefraud theme could be called The Prize.

In this one, a caller says he or she is connected with one of the major credit card companies and tells you that you may have just won a vacation to Hawaii or Bermuda, a set of luggage, a video cassette recorder, or an appliance. To see if you're a winner, check your card. If it's a Visa and the first number is a 4, or a MasterCard and it begins with a 5, you've won. (What the caller doesn't tell you is that all Visas begin with a 4 and MasterCards with a 5.)

Now, the caller says, if you'll be so kind as to read your credit card number and its expiration date, the company can make sure the prize goes to the right person. And to be certain the goodie goes to the right place, you'll be asked to verify your address.

If you do give out this information, you're giving away your credit card -- and don't expect to see a prize or a set of plane tickets either.

Another scheme, says Susan Wycoff, a spokeswoman for the Council of Better Business Bureaus, has a caller claiming to represent a public utility, such as a local or long-distance phone company. You are told customers can make discount purchases through the utility, and it needs your Visa or MasterCard number to open an account.

The BBB has also gotten reports of so-called weight-loss programs that can be ordered through the mail or over the phone, Ms. Wycoff says. Again, you probably get nothing and almost certainly give up your credit card.

It's not just individuals who are targets of these scams. Purchasing managers in companies occasionally get calls saying they've won a VCR, a color TV, or a microwave oven, says Nancy Florin, a spokeswoman at the New York BBB. All the manager has to do is order several gross of pens, pads, or other office supplies. The caller asks the manager to read either a company credit card number or perhaps the manager's own number ``just for our records.''

The company may receive some pens, ``but I've never heard of anyone who received a color TV, VCR, or a microwave oven,'' Ms. Florin said.

There are also ways that scams try to induce you to give away your card number through the mail. Advertisements in the back of some magazines will offer a genuine ``diamond'' for something like $2, or a set of pens for $1. If you send in the coupon, with your credit card number, you may get a stone, which might be worth something, but probably isn't. And you may get the pens, which might work, for a while.

But once again you've paid far more than a dollar or two. You've handed over your credit card number and address, which can be sold or used to make counterfeit cards from stolen or counterfeit blanks.

The problem of counterfeiting has declined somewhat since MasterCard and Visa started putting holograms on their cards a few years ago. In 1983, losses attributed to counterfeit cards added up to $20 million, a MasterCard spokesman says. Last year, that figure dropped to $17 million. That's still rather high, though, compared with the $200,000 in such losses registered in 1979.

Besides the hologram, which all cards will have by mid-1986, MasterCard and Visa are testing ``smart cards.'' In addition to such visible information as your name and account number, these can hold other data in magnetic strips or computer chips. This might include your address, account balance, credit limit, and a record of recent purchases, including the stores.

If your card is lost or stolen and you report the loss, it will be rejected or possibly even destroyed by equipment at the first store where a purchase is attempted. Of course, the stores must have equipment that reads and adds to the information on these cards, so it may be a few years before such a system comes into wide use.

Meanwhile, federal and state agencies and private organizations are doing what they can to stop credit-card fraud and counterfeiting. In 1984 Congress passed the Credit Card Fraud Act. Among other things, it gives the Secret Service, along with the FBI, power to investigate reports of fraud and counterfeiting.

But while a smart-card system and teams of G-men can help prevent counterfeiting and unauthorized use of your credit cards, they cannot prevent cardholders from doing some unsmart things with their cards.

First, do not give your credit card number over the telephone to anyone who called you first.

If the caller is from a legitimate firm, he or she will be happy to send you some information, give you a chance to check out the firm, and wait for you to call back. If they can't comply with this small request, hang up.

If you're calling first, but the call is based on an ad in a magazine or newspaper and was placed by a firm you've never heard of, ask for a catalog or other literature. Then, if you like, call again.

If, in spite of your care, you do get caught in one of these schemes, call the bank that issued your credit card. Under law, the bank can't charge you for more than $50 of the loss. But if you start to pay the bill, you may not be able to fight the rest of it.

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