Your plastic should be more secure!

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We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Delara Derakhshani on Tuesday, February 4th, 2014

The plastic in our pockets could be much more secure. As we’ve reported in Consumer Reports, payment cards with embedded chips are already helping to protect consumers in other parts of the world. Total fraud losses dropped by 50 percent and card counterfeiting fell by 78 percent in the first year after EMV smart cards were introduced in France in 1992. Unfortunately, this technology has not yet been widely adopted in the U.S. And as the recent breaches at Target and Neiman Marcus showed us — fraud remains a serious problem for all of us.

The credit cards and debit cards most Americans use rely on decades-old technology that store unencrypted data on a magnetic stripe on the back of each card. Thieves can cheaply and easily “skim” the data off of this magnetic stripe when a credit or debit card is swiped and create a counterfeit card that can access a cardholder’s account at an ATM.  For years, we’ve provided consumers with advice for ways they can protect themselves. But we think there’s a real opportunity right now to do even more.

Many other countries have already shifted (or are in the process of shifting) to what is known as EMV “smart card” technology – also known as “chip-and-pin” technology. These cards help protect consumers with multiple layers of security – including a computer chip in each card that stores and transmits encrypted data, as well as a unique identifier that can change with each transaction. Cardholders also enter a PIN to authorize transactions.

So why has the U.S. lagged behind other countries in adopting this technology? Because replacing all payment cards, updating ATMs to accept the new cards, and updating the terminals in retail stores all cost money. Some financial institutions and retailers have indicated that they are willing switch over to this new technology. But we need a strong commitment from all stakeholders to adopt this technology sooner rather than later.

We recognize that this change won’t prevent all fraud, but we believe it is money well-spent, and that it is a penny-wise pound-foolish philosophy to wait any longer, particularly when the burden of guarding against harm following a breach falls most squarely on the shoulders of innocent consumers whose data has been stolen.

We need to make sure that we don’t fall further behind the rest of the world in fraud protection.

Yesterday, Consumers Union encouraged Congress to move forward with urgently needed reforms in testimony before the Senate Judiciary Committee. We’re glad to see that there’s so much interest in the issue, and we look forward to being part of a solution that ensures consumers — and their information – are protected adequately.

One Response to “Your plastic should be more secure!”

  1. Brooke Jennings says:

    The Feb 15 issue of The Economist has an article, Skimming off the top, on card security and chips. Apparently the U.S. is the only developed country which does not use cards with chips, which greatly reduce fraud. It seems the banks and merchants do not want to spend the money to install chip reading systems.

    The switch would reportedly cost about $8 billion, and (based on French and Canadian experience) would reduce fraud by about $4 billion a year; for a payback time of about two years. How many other industrial investments pay back that quickly?

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