How Online Fraud Alerts Operate

You might have received an email from someone pretending to be a Nigerian government official. They ask for your assistance in transferring a large sum of money into your bank account for safekeeping. In return, you'd get a share of millions of dollars. To proceed, all you need to do is provide your bank details and pay some fees that will be reimbursed once the money is secured. However, if you follow these instructions, you’ll fall prey to online fraud.

Alternatively, you may have received an email from PayPal or your bank, looking suspiciously official. They ask you to verify your account by clicking a link, visiting what appears to be their website, and entering your banking or credit card details. You might think, "That's strange; they already have this information." And you're absolutely right. Once again, you're facing a potential online fraud scam.

In the past, fraud attempts were more hands-on. A quick swipe of your wallet from your pocket or purse would leave you scrambling to contact your bank and credit card providers to stop fraudulent transactions. Thanks to the internet, and often with a bit of unwitting help from you, thieves can steal your digital wallet and drain its contents without you even realizing it’s gone.

By the year 2000, the issue had become so widespread that the U.S. Federal Bureau of Investigation (FBI) and the National White Collar Crime Center created the Internet Crime Complaint Center (IC3), a centralized hub to handle Internet-related fraud complaints and other cybercrime reports.

By June 2007, IC3 had recorded its one millionth consumer complaint. A large majority of these cases were fraudulent and resulted in financial losses, according to the clearinghouse. The total estimated financial loss for all reported complaints since 2000 was $647.1 million. However, since only about one in seven incidents is reported, the actual losses are likely much greater. For instance, victims of the Nigerian money scam lost an average of $5,100 each [source: IC3 press release].

Fortunately, you don’t need to wait until your account is completely drained to realize you've been targeted by Internet criminals. Online fraud alerts can notify you immediately about unusual account activity.

In this Mytour article, we will explore the most common forms of online fraud, explain how online fraud alerts function, and provide a guide on the steps to take if you fall victim to fraud.

The Internet: Thieves' Playground

The Internet has become an invaluable resource for everyone, including identity thieves and fraudsters. You can find virtually anything online, and that includes individuals who are vulnerable to scams and unknowingly share sensitive personal details. Anyone who browses the Web is at risk. The IC3 has received complaints from victims ranging in age from 10 to 100, with men and women from every state affected.

Fraud refers to the act of misrepresenting facts or hiding important details to persuade victims into taking actions that will harm them or cost them money. IC3's website for consumers highlights these common types of Internet fraud:

Online pharmacy fraud: Consumers may respond to emails and purchase drugs from online pharmacies that do not adhere to industry standards. The risk is that consumers may receive counterfeit, contaminated, or substandard medications.

Auction fraud: A purchase is made, but the item is never delivered.

Sweepstakes or lottery fraud: Participants are asked to pay to either enter or claim their winnings.

Identity fraud: Cybercriminals steal money through identity theft by impersonating the victim and using their name, Social Security number, account details, or other personal information. Thieves can access this sensitive data in several ways:

Financial fraud: This type of fraud involves scams like offering a guaranteed loan if an upfront fee is paid, fraudulent charity appeals, work-at-home jobs that require hefty upfront payments, and requests for financial help that promise future returns.

Financial institutions and credit card companies are well aware of the extent of online fraud. Many offer services to help customers prevent fraud and minimize financial losses. One of the most common services is an online fraud alert system.

Now, let's explore how online fraud alerts work to protect you from financial losses and help prevent damage to your credit score.

Fraud and Identity Theft

It doesn't take much to become a victim of identity fraud. Throwing away a bank statement without shredding it or neglecting to have your mail picked up while on vacation can result in stolen personal data.

People can fall prey to identity theft even when they are careful: the Federal Trade Commission highlights a practice called skimming, where an electronic device is used to secretly capture and retrieve credit card details from legitimate transactions. This may happen through an employee without the store owner's awareness and can remain undetected until it's too late.

Pretexting is another deceptive method used by criminals. In pretexting, you may receive a call or email from someone pretending to represent a legitimate company. The caller will request your personal details under the guise of updating records or changing passwords. It's crucial never to disclose personal information in response to unsolicited calls or emails.

Identity fraud follows identity theft. Once your driver’s license number is compromised, the thief can forge a fake ID, enabling them to open new accounts in your name, apply for loans, or even obtain medical services. The potential for misuse of your personal data is vast, with as many illegal uses as there are legitimate ones.

You can protect yourself from identity theft and fraud in several ways. Begin by shredding unwanted mail and receipts. Enhance your security further by renting a private mailbox or post office box, ensuring your mail stays secure. If you're concerned about credit card skimming, MSN Money writer Jeff Wuorio suggests opting for cash payments unless you're able to keep your credit card in your hand for the entire transaction.

Protect your personal data by being cautious about sharing your information. Have you ever been asked for your phone number at a store checkout? Politely inform the clerk that your number is private, and do the same with your home address. If you've ever called a credit card company for assistance, be aware that the representative may ask for your credit card number. Always ensure no one is nearby who could overhear and memorize your information.

MSN.com reports that 750 thousand people fall victim to identity theft and fraud each year. Many people only learn how to protect their information after becoming victims themselves. While safeguarding your data may not fully protect you from a determined thief, it can certainly make you a less attractive target for identity fraud.

On the following page, discover more about a rising form of identity theft – health insurance fraud.

Health Insurance Identity Fraud

Imagine arriving at the hospital for an X-ray, only to be told you have an unpaid balance from an emergency room visit. Or, you go to fill a prescription and discover that you've exceeded your drug benefits. In both scenarios, the services weren't used by you, but by someone else using your identity.

These are instances of health insurance fraud, an increasingly common form of identity theft. According to a report on ABC.com, around 20,000 cases of health insurance identity fraud have been documented across the country over the past 15 years.

If your insurance card is misplaced or stolen, it can be exploited for illegal activities. Recently, health insurance identity fraud has become more advanced. A 2004 arrest made headlines when three individuals were charged for operating a fake insurance company, collecting premiums for services that were never delivered. A story published on May 11, 2004, by News-Medical.net revealed that the culprits left $30 million in unpaid insurance claims behind.

Insurance identity fraud is easy to fall victim to through spam emails or telemarketing calls that promise exceptionally low health insurance rates. If you avoid enrolling in insurance based on an unsolicited call or email, you won't be tricked by a scammer pushing their fraudulent offer. Always initiate contact with a trustworthy insurance provider rather than responding to incoming solicitations.

At times, health insurance companies themselves are targets of disgruntled employees. A report from October 10, 2007, on ScienceDaily.com highlighted a scheme in which fake medical records were generated under an innocent patient's name, leading to a trail of inaccurate information.

Imagine discovering that you're mistakenly listed with a history of Viagra prescriptions or painkillers like Vicodin. To avoid this type of fraud, carefully review all health insurance statements and benefit summaries. If you spot anything unfamiliar, such as payments, billing, or services you never received, report it to your health insurance company's special investigations team immediately.

The U.S. Department of Justice advises individuals to store their medical records, insurance details, and other important documents in a secure place, such as a locked box or safe. Some criminals may break into homes or apartments to access this sensitive information, while others rummage through trash and dumpsters to find discarded bills or statements containing account numbers. Always remember to shred anything with sensitive data, such as insurance claim numbers, that could be exploited without your consent.

The FBI recommends that you never grant blanket permission to health insurance providers or medical professionals to charge you for services rendered. Always inquire about the costs upfront and ensure you know what you'll be responsible for paying. If you notice anything unusual on your insurance statement, you will be able to address the charges without delay by disputing them immediately.

Turn to the next page to find out how you can report identity fraud.

Notification to Reduce Damage

An online fraud alert keeps you informed of any suspicious activity on your bank or credit card accounts. By receiving these early alerts, you can quickly notify your financial institution if someone unauthorized is using your accounts. This allows you to identify fraudulent activity before you receive your bank statement or credit report.

A fraud alert is a type of electronic notification designed to keep you informed about suspicious activity. Here's how it functions: you, the account holder, and the bank or organization set specific parameters for when you want to be alerted. These parameters could include transactions such as withdrawals exceeding $200 from your checking account, charges over $500 to your credit card, or a request for a change of address. You can also choose how you'd like to receive the notification, whether by e-mail or SMS (text message).

Once the parameters are established, the bank or organization will track your account activity electronically. If a transaction surpasses the set threshold, an automatic command triggers a fraud alert to notify you. If no suspicious activity is detected, you can simply disregard the alert. However, if there’s an issue, you’ll be able to take action swiftly.

If the fraud alert is interactive, you will be provided with an option to immediately respond to confirm or decline a suspicious transaction. For instance, an interactive notification might say, "Mr. Smith, a $500 charge was made to your credit card on May 3. If you did not authorize this transaction, press 1 now."

In addition to free fraud alerts, some banks offer enhanced online alert services as part of their add-on fraud protection packages. For instance, JP Morgan Chase provides the Chase Fraud Detector program to account holders for an extra $8 monthly. This service allows users to receive alerts on various account activities, including:

[source: Chase Online]

Credit card providers also offer online fraud alerts and protections against identity theft. Customers of Discover card can subscribe to a monthly service that sends alerts via e-mail or text message about suspicious account activities [source: Discover Card].

The three major credit bureaus -- Equifax, TransUnion, and Experian -- also offer online fraud alert services, available to subscribers for a fee. The cost of the Equifax program is comparable to that of the Discover card protection plan.

It's essential to remember that, with online fraud alerts, the responsibility to act on the alerts ultimately rests with you. The service will notify you of any activity in your account, but it’s up to you, the customer, to report suspicious events, file complaints, and take necessary action.

Lastly, let's explore the necessary steps to take if you find yourself a victim of account fraud.

Taking Action if You're Taken

Being victimized by online thieves doesn't just result in financial loss, it can also damage your credit score. If an online fraud alert reveals that you've been targeted, act quickly to stop further unauthorized activity on your account.

Next, place a fraud alert on your credit report. You can do this by calling Equifax (1-800-525-6285), TransUnion (1-800-680-7289), or Experian (1-888-397-3742). This fraud alert will be displayed whenever you apply for new credit, prompting creditors to verify your identity before opening an account in your name.

Equifax and TransUnion require fraud alerts to be set up over the phone, while Experian also provides an online form for this purpose.

Once your fraud alert is activated on your credit report, request a copy to carefully examine it. Depending on the laws in your state, you may qualify for a free report after placing the alert. Check for any unfamiliar activity, such as accounts you don’t remember opening, or changes to account details like an updated address or phone number. Report any suspicious findings by contacting the credit agency directly.

You also have the option of placing a "credit freeze" on your credit report. This blocks access to your credit file. While it doesn't guarantee complete protection, it makes it harder for fraudsters to open new accounts under your name. Setting up a credit freeze is similar to initiating a fraud alert on your report.

Consumers now have access to an expanding array of fraud protection services, and financial institutions continue to develop more advanced anti-fraud technologies. The credit protection sector is growing every year, offering services like online fraud insurance, aggressive fraud investigations, and a wider selection of services. However, online fraud itself remains on the rise. To stay ahead of cybercriminals, individuals must take proactive steps to secure their personal data and regularly monitor their credit scores.

On the next page, we will discuss identity fraud and theft in more detail.

Reporting Identity Fraud

If you fall victim to identity fraud, it's crucial to act swiftly to assist authorities in tracking down the perpetrator. The quicker you take action, the better you can prevent further misuse of your personal data.

There are additional advantages to taking prompt action, such as limiting your financial liability. According to the Federal Trade Commission, if your credit card is stolen and you report it promptly, your maximum liability is just $50.

The first thing you should do when reporting identity fraud is to contact the fraud departments of the three main credit bureaus: Equifax, TransUnion, and Experian. Inform them that you'd like a fraud alert placed on your file to prevent identity thieves from opening new accounts in your name. Each credit agency has different procedures, so it's important to call them directly to find out the latest requirements and whether you can file your report online. You should also request a free credit report to look for any suspicious activities.

The next step is to report identity theft to the authorities. If your wallet or purse has been stolen, or if your home was burglarized, make sure to file a police report with your local law enforcement. After that, get in touch with the Federal Trade Commission's ID Theft Hotline at 1-877-IDTHEFT (438-4338). You can also file an online report with the FTC [source: Federal Trade Commission].

If your Social Security card was stolen, report it immediately to the Social Security Fraud Hotline at 1-800-269-0271, or file a report online [source: Social Security Administration]. If your driver's license is also missing, don't forget to reach out to your local Department of Motor Vehicles.

One of the most critical steps in the reporting process is to contact your credit card companies and bank to inform them about the identity theft. While you may have to go through the hassle of getting new account numbers, passwords, and other details, this is far better than dealing with the aftermath of fraudulent charges made on your accounts.

Don't forget to inform your phone service provider as well. Whether you use a cell phone or a landline, it's essential to let the company know you're a victim of identity fraud. This will ensure they seek your approval for any changes or question any suspicious calling patterns related to your phone number.

According to an analysis of 2006 identity fraud data, Biometrics Direct writer James Childers reports that one in three Americans is at risk of identity theft and fraud. It may take over a year to realize your information has been misused unless you vigilantly monitor your accounts. Combat identity fraud by carefully reviewing your monthly statements, regularly checking your credit reports, and acting promptly if your personal information has been compromised.