It’s generally a mistake to lose too much sleep over credit card fraud. Unlike other forms of payment, the law caps your liability for such crime at $50, and in practice many credit card companies waive even that.

A credit card offers protections, but…

This is not to say that you shouldn’t be vigilant in your credit card use. To start with, if your account is compromised, you’re likely to face some hassle, which can be inconvenient. But the real problems arise if you end up a victim of identity theft, which last year cost Americans $37 billion.

Then those hassles can take on mammoth proportions. Your credit report can be ruined, and your credit score can plummet to subprime levels. And a poor credit score is likely to make it harder for you borrow to buy a house or a car, to rent an apartment, to make successful credit card applications. Black marks on your credit can even impact your ability to find a job or get a promotion. Worse, you may well find it hard to prove the negative that you’re not the one who ran up debt in your name.

It would be rare for someone to be able to steal your identity armed just with your credit card details. Normally, a complete hijacking requires at least an address and social security number. However, card information could be a criminal’s starting point, so it’s worth using your plastic with care (see 10 ways to avoid being a victim of credit card crime).

Credit card companies’ roles

So, while you’re doing your bit to protect your identity, how hard are your credit card companies working to achieve the same objective? A new study, published yesterday by Javelin Strategy & Research, suggests that their level of commitment varies considerably.

Javelin didn’t look at “back-office” protections (things like database and network security) because for obvious reasons card issuers keep secret the safeguards they have in place. Instead, the researchers rated companies according to three criteria:

• Prevention–stopping criminals before they start
• Detection–identifying fraud while it’s happening
• Resolution–sorting out problems after the event

It turns out that most credit card companies are great at resolving issues after they’ve occurred but not so hot at preventing them arising in the first place. Yet Javelin’s Philip Blank said in a press release: “We have found that prevention features offer the highest return on investment, leading issuers to see that it is imperative to prioritize educating consumers on the current technologies needed for protection.”

Javelin made it clear that credit card issuers and users share responsibility for online security:

To find an effective means of ensuring consumers take the proper precautions when conducting financial transactions online, issuers should consider requiring a minimum amount of security software in order to access the full gamut of online financial activity.

Credit card companies: which are best at fraud prevention?

Javelin revealed what it believes are the top-five credit card issuers in identity fraud prevention, detection and resolution. In order of ranking, they are:

1. Discover
2. U.S. Bank
3. USAA
4. Capital One

Regardless of online security measures provided by the credit card issuer, the credit card user can do his or her part by being aware of security risks and taking appropriate precautions when conducting financial transactions online.

Published 06/29/11