You've just moved to a new home, and the person who moves into your old apartment gets a pre-approved application for a credit card in your name.
By making up some information about you, and asking your old neighbors a few casual questions, that person is able to complete the application and a few weeks later get a credit card, your credit card.You have just become a victim of credit card fraud, a problem that plagues consumers and businesses to the tune of about $500 million a year, according to the Federal Trade Commission.
Recently, however, two of the nation's largest credit card companies - Visa and MasterCard - have joined forces to do battle. By sharing information, they hope to reduce some types of fraud by tracking the people who commit the acts.
Under the program, which began last month, companies that issue MasterCard and Visa cards must check the credit of all new applicants. The results are shared with other card-issuing members through a clearinghouse.
New regulations also have been adopted for independent sales agents - firms hired by retailers or card-issuing banks to process credit card debts and purchases.
The rules require that the processing companies be registered with MasterCard and Visa, and they spell out how money should be handled as it moves from consumer to bank to retailer.
"MasterCard and Visa have worked together for many years on non-competitive projects," said Daniel Fox, vice president of risk management for MasterCard International. "We are much more effective working together than we would be independently."
The clearinghouse was formed after Visa and MasterCard noticed an "alarming increase" in the number of cases that involved application fraud, in which someone fraudulently obtains a card in someone else's name, Fox said. In some instances, people were getting several cards, all with different names and different addresses. Those names and addresses often belonged to real people, who ultimately were charged for products they did not buy.
Under the new rules, every new application is reported to the clearinghouse. If any name, address, Social Security number, telephone number or other information matches that of another cardholder, the clearinghouse will notify all credit card issuers, not just the businesses that issued cards to those people. Every fraud case must be reported.
Fox said the credit card industry has been criticized for giving cards to people who were proven credit risks. But the problem, he said, was that many people used false names and addresses to obtain the cards, and banks had no way of tracking them.
"People who commit application fraud usually have certain patterns that the (clearinghouse) system will catch," Fox said. "No matter what name they use, they generally will use the same Social Security number, the same telephone number or something."
The total dollar volume of credit card fraud has remained stable in recent years, experts say. But in relation to total sales, the amount has decreased slightly.
Fraud accounted for less than 1 percent of all U.S. credit card sales last year. Of the various types of fraud, application fraud cost about $30 million, and fraud by independent credit card processing companies is estimated to have cost more than $300 million.
Several lawsuits are pending against independent processors who filed for bankruptcy while owing millions of dollars to banks, retailers and consumers, said Dan Brigham, spokesman for Visa.
Some of the processing firms were also involved in signing up new card-holders. In some cases, such firms approached consumers with poor credit histories and promised that they would receive credit cards if they deposited money with the card-issuing bank.
To get those "secured" credit cards, some people wrote checks to the processing company for thousands of dollars, Brigham said. But the firms filed for bankruptcy before the consumers' money was deposited with the bank and the cards could be issued.
In fact, consumers should not be fooled by any company that promises to get cards for people with bad credit, even with deposits to secure the debt. No bank will knowingly guarantee a card to anyone with a poor credit history, Brigham said.
Aside from application fraud and fraud by the processing firms, consumers also lose money each year when strangers use their credit card numbers to make fraudulent purchases.
This happens most often when consumers give out their card numbers to bogus telemarketing firms or when they throw away the carbon imprints that are left after they use their cards.
"The easiest way to commit credit card fraud is to get someone's number and order a bunch of merchandise," said Gerri Detweiler, spokeswoman for Bankcard Holders of America, a consumer group based in Herndon, Va. "You have to be very careful about the way your credit card number is given out."
If consumers are billed for charges they did not make, they may challenge the charges under the Fair Credit Billing Act. The act applies to all charge cards and revolving accounts.
To be protected under the law, the consumer must send a separate written notice to the creditor within 60 days after the first bill containing the error is received.
The trade commission has several free brochures that tell consumers how they can safeguard their cards and what to do if they are charged for items they did not buy.
The brochures may be obtained by writing: Public Reference Branch, Room 130, Federal Trade Commission, Sixth Street and Pennsylvania Avenue NW, Washington, DC 20580 or by calling (202) 326-2222.