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Posted Thursday, July 17, 2008
Fraud, Identity Theft Grow at ATMs
BEFORE Jay Foley inserts his bank card into an ATM slot, he sticks his finger
in. Then he wiggles it.
"If any portion of it wiggles with my pinky, I walk away, because odds are
somebody has slapped a skimmer on the front," says Foley, the executive director
of the Identity Theft Resource Center in San Diego.
"That applies to any kind of payment slot you might run across, such as gas
station pumps. Those are favorite places for thieves to work now."
A skimmer is a device that reads and records all the account information stored
electronically on the magnetic strip of an ATM card. Talk back: What type of
identity theft worries you most?
Its mere existence is proof that if you thought familiar, ubiquitous automated
teller machines were much too low-tech to attract high-tech cyberthieves, you
need to think again.
Fraudsters have returned to ATMs in force as a favorite fishing hole for that
prize catch: your debit card.
With a little light mechanical tampering, thieves can "harvest" your account
details and PIN number in seconds, then use them to either produce a "clone"
card or to simply shop online until your account runs dry.
"The number of victims we get from debit fraud or ATM fraud is growing every
year, and it's growing significantly," Foley says.
ATM crime is increasing now that stepped-up fraud detection software on
the credit card side has made signature cards more difficult to attack.
Increasingly, thieves are preying on more-vulnerable PIN-based debit cards.
Doug Johnson, a vice president and the senior adviser of risk management policy
for the American Bankers Association, acknowledges that ATM skimming may be
"We have seen some increase in reports of ATM skimming that have been reported
by the media," he says.
Identity theft resulting from ATM and debit card crime is increasing, according
to a 2005 study by Gartner, an information-technology research and advisory
Johnson reminds nervous customers that banks issuing debit cards cover most of
the losses associated with skimming as a matter of course.
However, in some instances, debit theft can cause much greater financial damage
than credit card fraud. While federal law limits your liability in credit card
fraud to $50, that same limit applies only to debit frauds reported within 48
hours. After that, you could be out anywhere from $500 to the entire fraud
Avivah Litan, a vice president at Gartner, says an August 2005 study by her
company revealed $2.75 billion in ATM/debit card fraud losses over 12 months.
"ATM fraud is definitely on the rise," she says.
Though victims of credit card fraud might have to wrestle with their credit card
issuers to remove disputed charges from a bill, debit card victims often face
even greater aggravation.
With debit fraud, the thief actually drains the money directly from a checking
account, leaving the victim to deal with bounced checks, missed payments and a
downward-spiraling credit report while fighting with the bank to correct the
'Shoulder surfers' catch wave
Thieves compromise ATMs in a variety of ways. Most commonly, they attach
a skimming device over the card slot of a legitimate ATM.
After the customer inserts a debit card, the transaction proceeds unimpeded
while the thief electronically harvests the account data off the card's magnetic
Crooks simultaneously record the PIN number during the transaction by using an
inconspicuously placed camera or touch-sensitive keypad overlay on the keyboard.
In some cases, a criminal may actually peer over the victim's shoulder (called
"shoulder surfing") during the transaction.
Some enterprising thieves take it a step further and install phony ATMs, usually
in out-of-the-way locations such as parking lots. At a recent security
conference, Robert Morris Sr., a former chief scientist for the National
Security Agency, said thieves have acquired old ATMs on eBay for as little as
Foley says some thieves place an out-of-order sign on a working ATM that directs
traffic to their nearby bogus ATM.
"Or worse, they put up a machine that says, 'We will clean the mag stripe on
your debit cards. Just insert it here, and it will improve the transaction
process,'" Foley says. "What you're plugging it into is a skimmer."
Whatever the scam, the result is the same: It's become increasingly hard to tell
a safe ATM from a bogus one.
Banks and financial institutions generally cover cardholder losses in
some -- but by no means all -- fraud cases with their much-ballyhooed "zero
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
- Avoid using ATMs in unfamiliar or remote locations, or around suspicious
- Check the card slot, keyboard and machine for signs of tampering.
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 way 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.
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