$45 million heist shows vulnerability of prepaid cards
Prepaid debit cards are quickly growing in popularity among
consumers, but the global conspiracy that stole $45 million from two Middle
Eastern banks shows that they're also attracting attention from another
Federal prosecutors in New York announced
charges Thursday against eight defendants accused of participating in a "massive 21st
century bank heist" that spanned at least 26 countries.
According to the indictment, the scheme worked like this: Hackers gained
entry into databases of prepaid debit cards from a card-processing company and increased
the account balances and removed withdrawal limits on several accounts. Then,
teams of fraudsters installed magnetic stripes on cards to reflect that account
information. Finally, thieves used the doctored cards at ATMs to withdraw millions
in cash over several hours.
The criminals used the scheme twice, according to the
indictment: once in December, then again in February. In a 10-hour period on
Feb. 19 and 20, the thieves made off with $40 million by withdrawing cash in
36,000 ATM transactions in 24 countries.
There's no evidence that any consumer suffered financial
harm. The banks -- Rakbank in the United Arab Emirates and Bank of Muscat in
Oman -- are likely to eat any losses, along with the unnamed Indian and U.S.
But experts and consumer advocates said the heist highlights
the need for consumers to be vigilant in protecting and verifying their
financial information, especially on prepaid cards. Often, consumers fail to
check their account activity on prepaid cards the same way they might on credit
cards or checking accounts.
"Consumers need to just be smart, and if something looks
strange, report it to the bank," says Ruth Susswein, deputy director of
national priorities with Consumer Action. "Be aware of your accounts."
Prepaid cards generally have fewer legal protections against
fraud, Susswein says, but in practice, most issuers will reimburse cardholders
if a card is used illegally -- especially if the user promptly reports
suspicious activity. Federal regulators are considering adding new anti-fraud protections on prepaid cards.
Doug Johnson, vice president of risk management policy with
the American Bankers Association, says the heist highlights the interconnected
nature of finance, in which several companies -- often including retailers,
processors and financial institutions -- have access to account information. Although
consumers cannot control that, they can choose what products to use, and he
says U.S. banks have generally done a good job at keeping consumer information
secure, compared with other issuers, such as retailers.
"When thinking about prepaid cards, it's beneficial to think
about who is issuing it," he says. "With a bank, you can have a higher degree
of confidence that your data will be protected so you won't have to go through
the inconvenience of reporting unauthorized transactions and so on."
The ease of use of prepaid cards also attracts criminals,
but law enforcement might soon have new tools. The Department of Homeland
Security said in 2012 that it was considering rules that would crack down on the use of cards in money laundering and even terrorism.
U.S. consumers are expected to load $117 billion onto
prepaid cards this year, more than double the figure from 2011, according to
Mercator Advisory Group. That amount is rising as more people see prepaid cards
as a financially responsible budgeting tool.
Ben Jackson, a senior analyst with Mercator who studies
prepaid cards, says some features of prepaid cards make them unattractive to
thieves, such as limits on the amounts you can load and spend, as well as
electronic records of transactions. Still, with the dramatic growth in prepaid
cards, it's not surprising that thieves are flocking to them, he says.
"Every time some new payment mechanism comes out, criminals
are going to find a way to use it," he says. "A famous bank robber once said, 'Why do I rob banks? Because that's where the money is.' Why do criminals use
prepaid cards? Because there's money there."
See related: Federal financial watchdog seeks prepaid card protections
, Travelers to U.S. can expect new intrusion: prepaid card check
Published: May 10, 2013
Three most recent Emerging payment systems: Prepaid, debit, gift cards stories:
- Ready to pay rent with a credit card? – If you could pay your rent with plastic, would you? As more landlords offer that option, renters have to weigh carefully whether it's the best way to pay ...
- Prepaid debit cards: With all the scams, are they worth it? – Prepaid debit cards fill an important financial need for people without traditional bank accounts, but they have fewer protections and are prone to scams ...
- 5 reasons there's a hold on your gift card – While gift cards are convenient for buying all kinds of goods and services, their funds can be subject to holds for a variety of reasons. Knowing about potential roadblocks in advance can help you avoid embarrassing situations at checkout ...