How Consumers Cheat
If the first word that comes to your mind when credit card fraud is mentioned is credit card issuers, think again. Although credit card issuers are certainly one of the major black sheep on the credit card market and they do cheat a lot, unfortunately they are not the only ones who don't play by the rules. Merchants and customers are also abusing the weaknesses in the credit card system – each in their own way. While there have been many class actions against credit card issuers because of their illegal practices and billions of dollars have been paid by them as a compensation to the victims, the amounts of money that are stolen by consumers and merchants are comparable.
As already mentioned, credit card customers are no saints. They might not employ such large-scale cheating techniques as merchants and above all credit card issuers because they are not in the position to do it but still they manage to inflict considerable losses on credit card issuers and on merchants who accept credit cards.
The tricks that customers use in order to cheat are mainly two: using stolen credit cards to purchase goods and open new accounts with the stolen identity and making false claims that the goods have not been delivered. Both of these are very serious and they cost merchants and credit card issuers hundreds of millions a year. What is worse, there are organized groups of criminals, for whom credit card fraud is the way to make a living!
Stealing credit cards (not necessarily physically) is the most serious crime against the integrity of the credit card system. There have been cases when tens of thousands of credit card numbers have been stolen by criminals. Later some of stolen numbers have been used successfully to pay for a variety of goods. To some extend all this is possible because of the weak security checks merchants perform but in many cases merchants were also an accomplice.
The second kind of fraud – making false claims that the goods have not been delivered is less popular but still it is not something that can be neglected. A variety of this trick is to receive the goods, use them (if they are CDs or books or something similar that can be copied and a copy can be left) and later claim that the goods are faulty or that their description on the merchant's site was misleading and they don't match the description. In many cases customers are eligible for full refunds, which certainly is not something that merchants like.
For many people making false claims of faulty or not delivered goods seems to be a hobby and/or a way of life. Merchants are making lists of fraudulent customers but this is hardly of much help because fraudulent customers often use fake identity and are very difficult to catch. Some of these fraudsters use their own data and especially delivery address, while others steal other people's credit card data and use it to get the goods.
It is not fair to say that merchants are helpless against those kind of cheats. There are many ways for a merchant to catch these tricks, as described in this article but quite often merchants don't bother to do simple things like calling the customer for a confirmation when the order is pretty large, unusual or the billing address is different from the delivery address. One might think that it is cheaper for merchants to pay chargebacks, than to do some straightforward verification!