3
The Dangers of Credit Card Skimming
In Restaurants
Mackenzie Stender and Geoffrey Schosheim
Introduction____________________________________________________
Identity theft, including credit card fraud; has become a costly
epidemic on a global scale. Credit card skimming is a specific identity
theft activity that is becoming increasingly more popular with scam
artists and in black markets around the world. Statistics have shown
that ten percent of Americans have been victims of credit card fraud. In
addition, five percent of Americans have claimed that their credit card
information has been used without their knowledge or permission
(Bankrate). These statistics have been steadily increasing every year.
With the recent trends in technology and easy access to credit cards,
new challenges in fraud prevention are arising. These technological
advances have made owning a credit card increasingly more dangerous
and potentially more expensive for both the consumer and the credit
card company.
In the following investigation we will show that credit card
skimming, specifically in restaurants, has made the general public
significantly more susceptible to credit card fraud and identity theft.
This is because one doesn’t have to physically lose their card or have
their information stolen off the Internet to become a victim of stolen
identities and other fraudulent activities. Additionally, our research
will depict the lack of awareness of credit card users and restaurant managers about the existence and dangerous implications of this
invasive scam.
The objective of this study is to research the level of awareness
of credit card skimming and to educate uninformed credit card users
about the growing risks that surround their use. It is not plausible to
propose a comprehensive solution, but certainly educating credit card
users is a step in the right direction. We hypothesize that most people
will believe that losing their credit card is pretty frightening, but few
realize that they do not have to lose their card to have it stolen or to
have thousands of dollars in fraudulent charges made on their account.
Credit Cards – A Growth Industry
Based on Federal Reserve figures, there are approximately 1.3
billion credit cards in circulation in the United States with about 750-800
billion dollars in credit card balances (Federal Reserve). Of the 750-800
billion dollar cumulative balance, the average American has access to
approximately $19,000 (FICO Credit Scores). Furthermore, the average
American has four credit cards in total; up from 3.2 in 2004. From 1996
to 2005, the total number of bank credit cards increased 46% (Card
Ratings). If the number of credit cards is growing this rapidly and credit
card swipes are stored for extended periods of time, the costly
implications of credit card skimming are immeasurable and shocking.
Skimming
A common technique that has emerged amongst scam artists is
known as skimming. Skimming involves any theft of credit card
information that takes place during what is supposed to be a legitimate
transaction. According to Visa, 70% of skimming occurs in restaurants,
ranking them number one among retail establishments (Transaction
World). The process used in restaurants is inconspicuous and rather
cheap. An employee of an establishment simply takes the customer’s
credit card and, using a skimming machine, can copy whatever
information is encoded in the magnetic strip. These machines cost as
low as three hundred dollars and are available on the Internet. This
information is all that is necessary to reprint counterfeit cards that are
used to make illegal purchases. It is estimated that the average
skimmed card will make $2,000 worth of charges before being detected
(Transaction World).
Additionally, skimming machines have been used with ATM
machines in order to steal debit card information. Combined with the
consumer’s pin number, which can be videotaped by a hidden camera,
the credit card information is used to create counterfeit cards that can be
sold on black markets and over the Internet. Although this specific
scheme is becoming more common, restaurants are the most popular
targets for credit card skimmers. For this reason, our investigation will
focus solely on credit card skimming in restaurants and pubs.
Credit card skimming has resulted in losses totaling over $1
billion per year (Transaction World). According to VISA, 70% of
skimming occurs in restaurants, meaning that credit card companies
and cardholders are losing more than $700 million annually (Transaction World). Additionally, cases of skimming are much more
common in some states than others. 26% of skimming cases occur in
California, 23% in Florida, and 8% in New York, accounting for more
than half of the skimming cases nationwide (Nation’s Restaurant
News). Penalties under law vary from state to state, with some sates
having no related legislation and others having penalties ranging from
misdemeanors to major felonies. With skimming machines costing on
average $300, there are little if any barriers to entry in this illegal
industry.
With the majority of credit card skimming occurring in
restaurants, it is necessary to ask why these establishments are major
targets for fraud artists. To answer this question requires a first hand
account with a restaurant employee. According to Fallon Feast, a
waitress at La Cantine in Aspen, Colorado, the minimum wage is three
dollars an hour. Although most cash income is made off of tips, “the
income is never sufficient” (Feast, Fallon). Therefore, it is not surprising
that fraud artists target these underpaid workers and convince them to
skim a few credit cards for a fee.
Reported Cases of Credit Card Skimming
Instances of credit card skimming have been reported and
investigated for more than ten years. In the United States, skimming is
more common in major cities although there have been an increasing
number of skimming reports in less populated areas across the nation.
One specific case occurred in Fenwick, Delaware. Katsiaryna Kabiarets,
a waitress at Harpoon Hanna’s restaurant, was indicted on December
15, 2005 on one count of conspiracy to commit credit card fraud, one
count of aggravated identity theft, and four counts of identity theft:
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If convicted, Kabiarets faces a maximum sentence of 5 years
imprisonment for the count of conspiracy to commit credit
card fraud and 3 years imprisonment for each count of identity
theft. In addition, if she is convicted of aggravated identity
theft, she faces a minimum mandatory sentence of 2 years
imprisonment consecutive to any other sentence imposed.
Kabiarets also faces a maximum fine of $250,000 for each count
(Department of Justice).
Kabiarets claimed that she was recruited to perform the scam and was
paid $10-$15 for each account stolen. Additionally, she claimed to have
skimmed more than 50 credit cards over the course of her employment.
This case was minor compared to the criminal ring that was
investigated and prosecuted in New York for credit card skimming and
distributing counterfeit cards.
In April of 2007, New York City police participated with Secret
Service, local FBI and the District Attorney’s Identity Theft Unit. In
total, they arrested 13 conspirators involved in a multi-stage credit card
fraud scheme. The investigation lasted ten months and revealed that
between November of 2005 and April of 2007 the conspirators were
responsible for unauthorized charges totaling more than three million
dollars. “Of the 13 indicted defendants, seven are charged with Grand
Larceny in the Second Degree, which is a class C felony punishable by 15 years in prison. All 13 defendants are charged with Conspiracy in the Fourth Degree, which is a class E felony punishable by up to four years
in prison” (Manhattana). Each member of the crime syndicate played a
different role in the production and distribution of counterfeit credit
cards. The credit card information stolen by the perpetrators was done
through the use of inexpensive skimming machines that are available
over the Internet. This case is a prime example of the intricacies of
identity theft through the use of credit card skimming.
Legislation
The prosecution of credit card fraud, specifically cases of
skimming, is based on legislation that differs from state to state.
Currently, only 25 of the 50 states have formal statutes that apply
specifically to credit card skimming. At present, Colorado does not
have legislative statutes targeting skimming. The following three states’
legislations regarding credit card skimming exemplify the range of the
severity of punishment for this fraudulent activity. Aside from the 25
states that have no statutes regarding credit card skimming, California
has the most liberal legislation while Florida’s statute is the most
stringent. The following are the legislations of the states.
California
Cal. Penal Code §502.6: “Any person who possesses and uses
a scanning and/or re-encoding device with the intent to defraud will be
guilty of a misdemeanor punishable by no more than one year in county
jail and/or a fine not in excess of $1,000” (NCSL).
West Virginia
W. Va. Code §61-3-56: “An individual who uses a scanning or
re-encoding device for unlawful purposes will be guilty of: First offense
– a misdemeanor punishable by confinement in county or regional jail
for no more than a year and/or a fine no more than $1,000; Second and
subsequent offenses – a felony punishable by no less than a year and no
more than three years in state jail and/or a fine no more than $5,000”
(NCSL).
Florida
Fla. Stat. §817.625: “A person who unlawfully uses a scanning
or re-encoding device with the intent to defraud will be guilty of a third
degree felony punishable by no more than five years imprisonment for
first offense. For second and subsequent offenses the individual is
guilty of a second degree felony punishable by no more than 15 years
imprisonment” (NCSL)
Colorado
According to the Jefferson County Sheriff’s Department,
Colorado is the fifth ranked state in the amount of identity theft
complaints to the Federal Trade Commission (JCSD). This fact implies
some serious concerns for the Colorado State Legislature. Colorado is
one of the 25 states without specific statutes that carry penalties for
credit card skimming.
As credit card skimming becomes more prevalent throughout
the country, each state needs to consider examining the legal
ramifications for such activities. As cases of skimming become a
problem in the state of Colorado, legislators will be pressured to impose
statutes to regulate and prevent this activity.
Restaurant Interviews
| |
Position |
Yrs. In
Industry |
Knowledge of
Skimming |
Encountered
Skimming
Cases |
Pearl Street Pub |
Manager |
15 Yrs. |
Yes |
No |
Boulder Café |
Manager |
10 Yrs. |
Yes |
No |
Trattoria (café
Antica Roma) |
Manager |
2 Yrs. |
No |
No |
Old Chicago |
Manager |
2 Yrs. |
No |
No |
Cheesecake
Factory |
Manager |
6.5 Yrs. |
Yes |
Yes at L.A.
location |
Trattoria on
Pearl |
Manager |
13 Yrs. |
Yes |
No |
Brasserie Ten
Ten |
Manager |
8 Yrs. |
Yes |
No |
The
Mediterranean
Restaurant |
Manager |
6 Yrs. |
No |
No |
Boulder
Chophouse |
Manager |
7 Yrs. |
No |
No |
Rio |
Manager |
11 Yrs. |
Yes |
No |
Gondolier |
Manager |
10 Yrs. |
No |
No |
Bacaro |
Manager |
5 Yrs. |
No |
No |
Pasta Jay’s |
Manager |
2 Yrs. |
No |
No |
Pedestrian Interviews
The aspect of this primary research focused on assessing the
awareness levels of the general public about credit card skimming. Out
of 100 people interviewed, only 15 had heard about credit card
skimming and, of those 15, only five were informed about its dangers.
In addition, there were seven people who had never heard of the term
skimming, but when the activity was explained to them they seemed to
have some previous awareness of the problem. Therefore, we can conservatively that 22 out of 100 people had heard of credit card
skimming and of those 22, only five were wellinformed of its dangers.
Results
The results of our interviews, which we conducted with
managers at 13 of Boulder’s major restaurants, were as predicted. With
an average of seven years of experience between the thirteen managers,
only 46% had ever heard of skimming and 7.7%, or one out of 13 had
been involved in a skimming case. Kyley Zimmerman, manager of The
Cheesecake Factory on Pearl Street in Boulder, was the only manager
who had encountered a case of credit card skimming. According to
Zimmerman, when she was managing at the Cheesecake Factory’s
Woodland Hills Los Angeles location she witnessed an employee
skimming credit cards. The result was an immediate job displacement,
but no legal action was taken. This leniency is not surprising given the
liberal legislation on skimming in California compared to other states
such as Florida or Idaho.
Skimming in Boulder, CO does not seem to be an immediate
concern, but this result could be due to the small occupancy levels of the
restaurants interviewed. Small occupancy levels allow restaurant
managers to keep a closer watch on their employees’ activities.
Additionally, in most of the interviews that were conducted, it was
learned that employees were required to work at the establishment for
at least one year before being promoted to a server. Therefore, there are
few instances of waiters or waitresses with questionable character in
most of the restaurants in Boulder. While many restaurant managers
and the general public were unaware of skimming, they were all
thankful for the information we supplied them with while interviewing.
Tips on how to Avoid Becoming a Victim of Credit Card
Skimming
-
If possible, never lose sight of your credit card when it is taken by a
waiter or waitress to be scanned.
If you must give your card to an employee at a restaurant or bar,
keep a close watch of what they do with your card.
-
Constantly check your bank and credit card statements for
unauthorized charges.
-
Never leave your credit card out in the open.
-
Check your credit report at least once per year.
Conclusion
Our research and investigation have led us to a number of
conclusions about the prevalence, awareness and regulation of credit
card skimming. For the most part, we correctly predicted that there was
a minimal amount of public awareness about the hazards of credit card
skimming. However, we did not anticipate that more than half of the
restaurant managers interviewed would be completely uninformed
about credit card skimming and its implications. The fact that only half
of the 50 states have legislation targeted towards penalizing those who practice credit card skimming is disturbing. This fraudulent activity has
been a growing problem for authorities around the globe. Those states
that have yet to impose legislation outlawing credit card skimming are
vulnerable to increasing numbers of cases of identity theft and fraud.
Credit card skimming is a costly epidemic that will continue to spread
on a local, national and global scale unless each state imposes legislation
prohibiting the activity and unless those states that currently have such
laws impose them more stringently.
While the results of this investigation prove that there is
minimal awareness about the dangers of credit card skimming, it is
important to note that each subject interviewed or surveyed was
provided with background information about credit card skimming and
tips to avoid being victimized by criminals participating in this illegal
activity. As technology advances in our society, criminals are going to
be tempted to use technology for illegal financial gain. While
eliminating credit card skimming completely is unfeasible, it is
important that consumers and business managers are well informed
about the dangers of credit card skimming.
Works Cited
Bankrate.com. Bankrate, inc. 2007. September 26, 2007
Britt, Phil. “Credit Card Skimming: Growing Trend or Media Hype”
Transaction World. October 15, 2007
CFCCT, Inc. “Credit Card Statistics.” CardRatings.com. CFCCT, Inc.
1998-2006. October 15, 2007
Colorado. Jefferson County Sheriff’s Department. Identity Theft. July
12, 2006. October 16, 2007
http://www.ncsl.org/programs/lis/privacy/SkimmingDevices.h
tm.
Feast, Fallon. Personal Interview. October 14, 2007
Fico Credit Scores. My Fico Data. 2001-2007. Fair Isaac Corporation.
October 1, 2007.
New York. District Attorney- New York County. News Release. April
20, 2007
Prewitt, Milford. “Credit card scam takes swipe at restaurants - Special
Report: Credit-card Scams” Nation’s Restaurant News.
August 5, 2002. FindArticles.com.
October 15, 2007 http://findarticles.com/p/articles/mi_m3190/is_31_36/
ai_90308680/pg_3
United States Government. Department of Justice. Press Release.
December 15, 2005. October 16, 2007
United Statest Government. Federal Reserve. Federal Reserve’s 2001
Survey of Consumer Finances.
United States Government. National Conference of State Legislatures.
Credit Card Skimming Laws and Legislation. February 6,
2006.