Fraud, identity theft grow at ATMs

Whatever the scam, the result is the same: It's become increasingly hard to tell a safe ATM from a bogus one.

Unacceptable losses

Banks and financial institutions generally cover cardholder losses in some -- but by no means all -- fraud cases with their much-ballyhooed "zero liability" promises.

However, at some point those losses land back on consumers in the form of higher bank fees and product costs.

Gartner's Litan says the recent increase in attacks now has banks reassessing their traditional view of ATM/debit fraud as an acceptable business loss.

"I think that's changing; I don't think it's so acceptable to them now," she says. "Their (anti-fraud) systems are out of date. The neural networks only catch the second (fraudulent) transaction, not the first. They've been eating a lot of losses and having to reissue cards. They're not happy about it. I don't think it's acceptable like it used to be."

Johnson says the American Bankers Association is working with its member banks, ATM vendors and networks to shore up ATM security.

One promising area, known as "jitter technology," would enable the ATM itself to detect when it has been tampered with and to shut itself down. ATM maker Diebold has unveiled its Vectra line that replaces the keypad with a dial, making it more difficult for thieves to obtain PIN information.

Johnson says there's a silver lining for nervous banks: "The solutions are not expensive on an individual unit basis and can be deployed in the current ATM environment. It's not like you need to swap out ATMs."

Plastic or cash?

That's all well and good for banks, but where does it leave consumers when their snatched debit cards lead down the rabbit hole to identity theft?

• Talk back: What type of identity theft worries you most?

Foley says one 2007 study estimated that identity theft cost U.S. businesses and consumers $56.6 billion in 2005 alone, a bill that ultimately gets slipped to the public in higher banking fees and product costs.

"Let's be very upright here: When we're talking about credit and debit cards, we're talking about trillion-dollar industries," Foley says. "They're not affected by $56 billion in losses. That's not even 1%."

Litan predicts the ultimate solution to ATM/debit fraud may involve the chip-enabled "smart card," which is more difficult to clone. The chip in a smart card is combined with the user's PIN -- a system known as "chip and PIN" -- to verify transactions as nonfraudulent.

But smart-card technology has been slow to catch on due to its higher costs. The use of smart cards raises the question of who's going to foot the bill for all those chip-enabled merchant point-of-sale terminals.

"I'm starting to hear talk from some major banks that they are going to move to it. It's just a matter of time," Litan says.

Chip-and-PIN technology is being used in Canada and Mexico, and all over Europe and Asia, Litan says.

"The United States is the last holdout," she says. "That may not be the best technology at this point, but we need to keep it ubiquitous and interoperable around the world. People traveling around the world can't have different cards for different countries."

Despite the growing risk of fraud during ATM transactions, Foley says plastic is here to stay for one very good reason:

"If we all go back to using cash, the identity thieves are going to go back to using clubs. It's called armed robbery. That's why we went to credit and debit cards in the first place."

Watch for signs of foul play

When choosing an ATM, keep the following things in mind:

• Use a familiar and trusted ATM, preferably one attached to your bank. Avoid using ATMs in unfamiliar or remote locations, or around suspicious persons.

• Check the card slot, keyboard and machine for signs of tampering. Do not use the machine if the card slot jiggles, the keyboard has an overlay or anything else seems suspect.

• Look for security cameras on the machine and in the vicinity. If they appear suspicious, do not use the ATM.

• Avoid ATMs with signs or messages affixed to them. Banks and legitimate ATM owners do not direct customers to another machine with signs attached to the machine itself.

Smart ways to avoid ATM fraud

Always safeguard your information by following these steps when using an ATM:

• Maintain a safe distance from others in line. Do not allow anyone to distract you or offer assistance.

• Have your card out of your purse or wallet and ready for use.

• Stand close to the screen and shield your keystrokes from cameras and others waiting in line by using the knuckle of your middle finger to key in your PIN.

• If you think the ATM is not working properly, press cancel, remove your card, and report the machine to your financial institution.

• Secure your cash and card, and make sure the transaction is complete and the screen is clear before leaving the ATM.

• Keep your printed receipt to compare against your bank statement.

This article was reported and written by Jay MacDonald for Bankrate.com.

Published July 17, 2008

< previous |  1 | 2 |