Credit card fraud is a growing problem

When Zhang Li found that someone had used her credit card illegally last year, the situation was "a nightmare" for her, she told the Global Times.

Zhang, a general manager of an investment company in Shanghai, discovered that someone had used her credit card information to spend more than 80,000 yuan ($12,640) on eight transactions within just half an hour in November last year..

Zhang said her credit card was in her wallet at that time, but the bank said that the credit card could be used without a password when shopping on overseas websites, allowing someone to use it just by providing information from the card.

After two months of negotiations, the bank finally reimbursed the full amount to Zhang.

Password pressure

Zhang may have got her money back, but several of her acquaintances who were also victims of credit card fraud have not been so lucky.

There have been many reports recently about disputes between banks and consumers related to credit card fraud, stirring debate about the safety of using credit cards.

Normally consumers have two choices when applying for a credit card domestically: one that requires a password, or one that can be used just with a signature.

"I don't know why domestic banks ask consumers to set up passwords for credit cards. Consumers only need to sign their names when using credit cards in the US, and normally staff will check consumers' identities through driving licenses or ID cards, which is quite safe," said Yu Ran, 30, a Chinese woman who has been living in the US for nearly four years.

"It's only in China that consumers can set up a password for credit cards, due to more and more fraud cases," Dong Zheng, a credit card expert who has been working in the credit card industry for more than 10 years, told the Global Times.

When credit cards were first introduced into China at the end of the 1990s, no passwords were used when shopping. But the banks realized gradually that signatures can be easily forged, increasing the risk of credit card fraud. China Merchant Bank started to offer a password service to consumers in 2002, which spurred a number of domestic banks to follow suit, according to Dong.

Which one is safer?

"I suggest consumers should not set up a password for their credit cards, because if they do the banks will not be responsible for compensation if unauthorized transactions take place," said Zhang.

Banks will pass the buck to the consumers on the basis that it's their fault if they reveal their password information, Zhang noted.

"I was lucky to get my money back and that I didn't set up a password for my credit card," Zhang said.

Different banks have different policies for lost credit cards, but most offer compensation only for cards that have no password.

China Merchant Bank (CMB) promotes a service offering "the reassurance of zero risk after reporting a lost card." But there are some conditions.

CMB will only be responsible for any losses that happen within 48 hours of the card being reported lost, and the amount of compensation ranges only from 10,000 to 15,000 yuan depending on the type of card.

"The bank will try its best to help consumers retrieve their money, but can't guarantee this. And the compensation service is offered only to customers whose credit card has no password," a member of the PR staff at CMB who wished to remain anonymous told the Global Times.

But consumers pay an annual service fee to banks, which demonstrates there's a contract between the consumers and the bank, Li Renzheng, a lawyer who specializes in commercial law at Shanghai-based Yingke Law Firm, told the Global Times. So the card issuer is responsible for the safety of trading with the card.

If consumers are not at fault in their credit card information being discovered and used, they can win if they take the case to count, Li said. And the merchants who have contracts with banks also have a duty to check the signature information with credit cards when selling products to customers, Li noted.

"It's safer to set up a password with the credit card. At least it can protect consumers' money so long as they don't release their password."

Credit score

The credit system in the US relies on people obeying the rules in order to maintain a good credit record, which can have a big impact on their ability to rent a house or get a bank loan or even apply for a credit card.

"The house-owner wanted to see our credit record before renting out the house to us. People prefer to rent houses to those who have a higher credit score," said Yu Ran.

The credit system forces people to be responsible, and most ordinary people will not take the risk of cheating with someone else's credit card in the US, said Dong. And normally the banks will compensate the full amount to customers in cases of fraud.

Tong Jia, 27, who has been working in the US for one year, told the Global Times she got a phone call from Citibank in 2009 to ask her whether she had done any shopping in the Middle East. She said she hadn't and the bank then told her that her credit card had been used illegally. The bank froze her account immediately after checking with her, and then compensated her for the losses.

Under the model of domestic banks, merchants and consumers may tend to take more risks than their western counterparts, said Bian Xiaoyu, a financial analyst with CIC Industry Research Center.

Besides, Dong noted that the individual credit system in China is still not complete and that it would take a long time to become mature.

Meanwhile, banks are using various methods to expand the volume of credit card holders in order to increase their market share. Industrial and Commercial bank of China, CMB and China Construction Bank had issued 70.79 million, 36.87 million and 30.29 million credit cards respectively by June last year, the latest data available, taking the top three places among domestic lenders, according to the banks' annual reports.

Domestic cardholders should remain vigilant against card fraud, especially when shopping online or overseas, said Dong. They should also ensure that they're making the purchases from a reputable store with secure transaction capabilities.