Millions of U.S. credit card users are experiencing -- and generally tolerating -- transactions being blocked or questioned as credit card companies fortify fraud-blocking systems in response to an epidemic of data breaches and credit scams, according to a new survey released Monday by CreditCards.com.
The survey found that nearly four out of 10 frequent credit card users have experienced a credit card fraud alert -- a transaction blocked or questioned by their credit card company because the purchase triggered a fraud alert. Two out of three affected credit card users said that some or all of the blocked or questioned transactions were actually legitimate purchases.
So, card holders are pretty angry, right? Wrong.
The fraud alerts elicit a fairly even mix of irritation and appreciation. Roughly comparable numbers of frequent credit card users say they are unbothered or annoyed or relieved when a legitimate purchase is challenged.
At the same time, the CreditCards.com survey found that a compelling majority of frequent credit card users believe that card companies are challenging transactions about as often as they should.
"The news coverage that these data breaches have received seems to be tempering consumer frustration for now," said Christopher Viale, president of the Cambridge Credit Counseling Corp. in Massachusetts. "Many of the consumers we've counseled actually regard extra security measures at a point of sale, whether in the form of ID confirmation or a phone call from their credit card issuer, as reassuring rather than annoying."
But there may be limits, he said.
"These feelings may change if such procedures become more common," said Viale, who also serves as vice president of the Association of Independent Consumer Credit Counseling Agencies, which represents 32 nonprofit credit counseling companies. "Could you imagine checking out at a store during the holidays when more than half of the shoppers in your long line undergo additional scrutiny to prevent fraud?"
Credit card companies decline to discuss their fraud prevention techniques in detail, but they acknowledge recent and well-publicized data breaches and outbreaks of fraud are requiring security experts to tighten the computer algorithms that identify and flag suspicious transactions.
"Discover's top priority is maintaining the privacy and security of our card members, and we have a robust security platform in place to help prevent fraudulent activity both in-store and online," said Matt Towson, a spokesman for Discover.
Beth Kitchener, a spokeswoman for MasterCard, said that credit card issuers are working hard to win the ever-evolving battle against fraud. "It's our responsibility to protect our cardholders," she said.
A representative of American Express declined to comment; a spokeswoman for Visa did not respond to a request for comment.
For its survey, CreditCards.com commissioned ORC International to interview 1,016 U.S. adults by landline and cellphone from May 30-June 2. Sixty-two percent of the respondents had at least one major credit card -- American Express, Discover, MasterCard or Visa. Half of those people with major credit cards were frequent card users, using that plastic for five or more transactions each month.
The survey found:
- Of the frequent credit card users, 39 percent reported having a purchase blocked or questioned by their credit card company, and for most, it happened more than once.
- False alarms -- legitimate credit card charges flagged or blocked as potentially fraudulent -- are frequent. Of those who had purchases questioned or blocked, half said the affected charges were all legitimate charges. Another 19 percent said that some of the affected charges were legitimate. This suggests that card issuers have some work to do when it comes to tweaking their computerized fraud-detection systems.
"Perfecting fraud detection algorithms is probably an unattainable goal," Viale said. "After all, a consumer's behavior will never be entirely predictable, but many of today's programs are quite good already, and they're only going to get better. The tipping point may come when consumers lose their patience with the process and abandon transactions in significant numbers. That would put merchants at risk."
- Most of those affected -- 72 percent -- were alerted by telephone to a possible fraudulent charge, 28 percent received an alert by email and 25 percent by a text message, processes that at least preserved some measure of privacy and dignity. Alas, 34 percent endured the potential embarrassment of having a transaction declined at the point of sale.
- On the other hand, a full 30 percent of the respondents said all of their blocked transactions were fraudulent. For them, the banks' safety net worked.
"Consumers need to recognize that credit card thieves and computer hackers are becoming increasingly sophisticated, and that banks are already spending billions to protect consumers," Viale said. "It's easy to complain about banks, but at the end of the day, we all need card issuers to stay a step ahead of the thieves. Anyone who has been an ID theft victim will agree."
- In fact, most do. Sixty-six percent of frequent card users say that credit card companies are blocking transactions "about as often as they should." About one in four -- 23 percent -- say card issuers should be even more aggressive when it comes to questionable transactions. Only 6 percent think card companies already are bouncing transactions too frequently.
Credit card company representatives said they trying to achieve a delicate balance between convenience and security.
"In an ideal world, consumers wouldn't have to think about it at all," said Kitchener, the MasterCard spokeswoman. "They would just be protected. In the meanwhile, when things go wrong, we want our cardholders to know that they are not responsible for fraud."
- American consumers are reacting in varied ways to the experience. Asked how they feel or would feel when a legitimate purchase is blocked because of fraud concerns, 28 percent of frequent card users chose "unbothered," 25 percent chose "annoyed," 22 percent chose "relieved," 9 percent chose "embarrassed," 8 percent chose "angry" and 5 percent chose "anxious."
- Some inconveniences are spreading and deepening. Not only are more transactions being blocked or delayed, but more people are dealing with cards that have been canceled and reissued due to fraudulent activity by others. Fifty-nine percent of survey respondents who had transactions blocked or questioned ended up with new credit cards -- and the hassle of updating automatic charges that were being applied to the now-canceled card.
"Consumers will feel frustrated, of course," Viale said. "They carry a card for convenience, and any interruption or delay, by definition, makes the transaction less convenient."
- In addition, the computer algorithms and the entire fraud-monitoring system seem opaque to consumers. Forty-one percent of frequent card users have no idea what triggers an alert and, partially as a consequence, 32 percent have never called their card issuer in advance to alert the company to an unusual purchase, an international trip or any other pending and uncommon transaction.
- Credit card users also are notably suspicious about the card issuers' true motivations. Under federal law, consumers' liability for fraud or losses attached to their cards is limited to $50. Most credit card issuers go beyond the law and adhere to a zero liability policy, and credit card users are not responsible for any charges made to their cards after they report them lost or stolen. Thus, 46 percent of the survey's respondents said they believed that card issuers were imposing anti-fraud protections mostly to protect the companies' financial interests rather than consumers' interests.
In response, the card companies say they are trying to serve and protect all participants in every legitimate transaction -- including the buyer and the seller.
"Discover uses many tools to protect card member information, but also gives card members additional options like fraud and 'transaction declined' text and email alerts that they can voluntarily sign up for to protect themselves against fraudulent activity," said Towson, the Discover spokesman.
Said Kitchener: "Please keep in mind that we are not trying to pass fraud down along the chain. Our ultimate goal has and always will be to drive fraud out of the global economy."
- In a separate but interesting finding of the survey, evidence keeps growing that credit cards are rapidly replacing cash as payment for small, everyday purchases. Ten percent of the surveyed credit card customers use plastic to pay for 50 or more purchases each month.
The major findings, however, point toward Americans becoming more familiar with -- and somewhat more comfortable with -- the protections being built into the credit card system as it seeks to shield itself from increasingly aggressive attacks by fraudsters.
Additional evidence came from a Gallup Poll conducted in April and released June 6. It found relatively few Americans trust companies to protect online data, but credit card companies and banks are the most trusted in this regard, with 39 percent of respondents saying they have a lot of faith in those financial entities.
At the same time, consumers can take a variety of actions to protect themselves against credit card fraud .
"Consumers need to recognize that banks are under global attack," said Viale, the consumer counseling expert.
According to the Federal Reserve's 2012 Payments Study , about 3.6 of every 10,000 general purpose credit card transactions is fraudulent, with the fraudulent transactions totaling $2.2 trillion. "That's a lot of money, and it must be protected," he said. "Increases in fraud will eventually prevent loans from being made to deserving applicants. No one wants to see that happen."
That is one subject on which consumer experts and credit card representatives agree.
"Fraud hurts all of us, not just those who are directly impacted," MasterCard's Kitchener said. "I don't think anyone wants to live in a society that does not have confidence in its payment systems."
The survey, performed for CreditCards.com by ORC International, was conducted between May 30 and June 2, 2014. It involved 1,016 American consumers who were at least 18 years old. Some 612 of the respondents were contacted by landline telephone and 404 by cellphone. The margin of error is 3.1 percent for the full sample.
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