Who Sets the Rules for Fraud Investigations? (2023)

How do Banks Investigate Unauthorized Transactions?

Someone uses your credit card without your permission. You tell your bank about the unauthorized transaction and they issue you a provisional credit.

But what then? How does the bank investigate your claim. Can you, the cardholder go to jail for making a false claim. Who sets the rules that the banks follow?

In this article we will discuss credit card fraud investigations and answer some of the most common questions that cardholders and merchants have about the process.

Credit Card Fraud Investigations

A credit card fraud investigation should be a collaborative process of considering facts and making a reasonable judgment on whether the cardholder or the merchant is to blame. Too often, however, it can start to feel like merchants and cardholders are in conflict with one another, with both sides providing facts to support their case.

But that raises the question, who gets to decide which facts are most important? What standards are in place to govern credit card fraud investigations? And, most importantly, how do banks conduct this process to ensure that decisions are fair and accurate?

What You Need to Know First

Understanding which incidents qualify for investigation as fraud can be confusing. Part of the problem is that the parties involved in this process are not necessarily on the same page regarding fraud. The average consumer knows very little about the ins and outs of credit card fraud; in fact, most don’t even know the difference between their bank and the card network. This can lead to miscommunication and other problems.

As we discussed in a recent blog post, not all fraud activity falls under the mantle of payment fraud. Threats like synthetic fraud and business email compromise (BEC) may be tied to payment fraud, but other threats like friendly fraud and family fraud also exist. In these cases, the customer is engaging in abuse which they (intentionally or unintentionally) try to pass off as third-party criminal activity. This can only be revealed during the credit card fraud investigation process, though.

Card networks like Visa and Mastercard don’t typically get involved in fraud investigations. They set the rules, but most disputes resulting from alleged fraud are handled by the cardholder’s issuing bank.

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We should also clarify that credit card companies like Visa and Mastercard don’t typically get involved in these investigations. They set the rules, but most payment disputes resulting from alleged fraud are handled by the cardholder’s issuing bank. Even among disputes that progress to the chargeback phase, only about 2% of cases will require the card network’s direct involvement (a process called arbitration).

With all that in mind, let’s examine how the payment fraud investigation process actually works. We’ll begin with how the process is handled on the bank’s end.

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Who Sets the Rules for Fraud Investigations? (1)

The Credit Card Fraud Investigation Process

When a cardholder disputes a charge, the issuer is expected to examine the details of the case and make a fair, impartial judgment to determine liability. The card networks have extensive and complex guidelines for this, and these rules determine how banks investigate disputes for the relevant card brand.

(Video) Fraud Investigations & the SEC: What to Do and What to Know

Who Sets the Rules for Fraud Investigations? (2)

01 | The Customer Makes a Complaint

If cardholders feel angry, frustrated, or dismissed by your service department, they may file an invalid chargeback out of spite. Providing great customer service is your first step towards chargeback fraud prevention.

Who Sets the Rules for Fraud Investigations? (3)

02 |The Bank Gathers Evidence

The bank examines relevant information about the transaction to determine fault. (This can be done automatically through programs like Verifi Order Insight or ethoca Consumer Clarity).

Who Sets the Rules for Fraud Investigations? (4)

03 | The Bank Examines the Transaction

The bank is responsible for reviewing the transaction data as it related to the customer’s claim, then evaluating whether the claim is reasonable.

Who Sets the Rules for Fraud Investigations? (5)

04 | The Bank Makes a Decision

The issuer decides to either reject the inquiry or file a chargeback on the customer’s behalf.

To illustrate, let’s look at how this process would work with a cardholder and issuer both based in the US (regulations in other countries may vary). Once the bank receives the cardholder’s inquiry, Federal Trade Commission (FTC) rules give them 30 days to acknowledge the customer’s claim. In an effort to provide better service to customers, though, banks will generally move quickly on disputes.

If the bank determines that the transaction in question was a fraudulent charge, they may choose to contact the authorities. If there are signs suggesting a larger pattern—especially one that crosses state lines—the US Federal Bureau of Investigation (FBI) could get involved. In most cases, though, the bank will handle the situation themselves, through their internal fraud team.

The FBI may choose to get involved in a card fraud incident if there are signs suggesting a larger pattern. In most cases, though, the bank handles the situation themselves through their internal fraud team.

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What Evidence Can the Bank Use?

There are many different pieces of evidence on which the issuer can base a decision as part of the credit card fraud investigation process. This may include:

Who Sets the Rules for Fraud Investigations? (6)

Geolocation Data

From where did the buyer place the order? Did it match the cardholder’s location at that time?

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Who Sets the Rules for Fraud Investigations? (7)

Transaction Timestamps

When did the buyer conduct the transaction? Was it a reasonable time of day given the cardholder’s location?

Who Sets the Rules for Fraud Investigations? (9)

3-D Secure

Is the cardholder enrolled in Verified by Visa, Mastercard SecureCode, or some other deployment of 3-D Secure? Was the technology used during the transaction?

Who Sets the Rules for Fraud Investigations? (10)

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Behavioral Indicators

Does the purchase seem unusual given the customer’s typical pattern of behavior? Is it something they’ve purchased before?

Who Sets the Rules for Fraud Investigations? (11)

Account Activity

Was this a one-off incident, or was there a batch of unauthorized transactions tied to the cardholder’s account?

These are just a few examples. Ultimately, the evidence the issuer examines will vary based on the cardholder’s claim.

The bank might also send the merchant an inquiry for more information as part of the fraud investigation process. The merchant should be on the lookout for these information requests, as a timely response could mean the difference between preventing a chargeback on one hand, or suffering lost revenue and paying costly chargeback fees on the other.

What Does the Bank Do in Cases of Fraud?

In cases of fraud, the cardholder’s liability is limited by law to $50 for a credit card transaction. For a debit card, the fraud liability limit is $500 or less depending on when it is discovered and reported. Of course, many banks choose to offer “zero-liability” cards to cardholders, meaning the bank protects the cardholder from any loss from fraud.

If the bank determines the claim of fraud is legitimate, they will advise the customer to immediately contact the three credit reporting bureaus (Equifax, Experian, and TransUnion). The cardholder can request an immediate credit freeze, which will prevent potential damage to the customer’s credit rating.

As for the transaction, the bank may either:

  • Decide the merchant is at least partially responsible, and file a chargeback to claw back the funds. While this is happening, the money is tied up; neither the merchant, the bank, nor the cardholder has access to the funds.
  • Reimburse the customer and simply write off the loss. This is common practice if the dollar value of the transaction does not justify the costs associated with the chargeback process.

While the bank wants to move fast, it can take up to 90 days to investigate the charge and complete an initial chargeback; the process can take even longer if the merchant decides to fight the dispute. This is called representment: the merchant literally “re-presents” the transaction to the issuer, along with evidence to support their claim that the transaction was legitimate, and should be upheld.

With representment, the bank must repeat their credit card fraud investigation. They must take any new evidence into account as part of this process. All totaled, it’s not uncommon for the chargeback process to take six months or more to resolve.

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Resolving Claims Outside the Dispute Process

Of course, even if the bank conducts a thorough credit card fraud investigation, they may still reach the wrong conclusion. Our data suggest that 60-80% of all chargebacks may be cases of friendly fraud, not criminal fraud. For instance, this may happen if a cardholder signs up for a free trial, but fails to cancel before regular billing kicks in. An unsupervised child completing an in-app purchase on a parent’s mobile device would be another example.

These are forms of chargeback abuse. Regardless whether it's intentional or not, these chargeback scams carry consequences for everyone:

Who Sets the Rules for Fraud Investigations? (14)

Merchants

lose revenue and merchandise and pay added fees and penalties. They see higher operating costs and may lose the ability to process card payments in the long term.

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Banks

ace higher operating costs as they’re forced to devote more resources to investigating disputes. This can slow down other profit-generating departments within the organization.

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Cardholders

can have their money tied up for weeks or months due to the chargeback process. This inability to access funds during this time could cause hardships.

It’s best for everyone if the cardholder directly contacts the merchant before filing a chargeback. The two parties may be able to collaboratively resolve the situation and avoid a dispute. This would be a “win-win” scenario for everyone: the cardholder could see faster resolution, while banks and merchants are spared the cost of the dispute process.

We recommend that cardholders only turn to the bank as a last resort. They should always try to resolve concerns through the merchant first if possible. For merchants, we strongly encourage adherence to customer service best practices to ensure every customer walks away satisfied.

FAQs

Q: How do credit card companies investigate fraud?

A: Most payment card fraud investigations are actually handled by the cardholder’s issuing bank, rather than a card network like Visa or Mastercard. Generally speaking, after a customer makes a complaint, the bank will gather any relevant information and examine the transaction details closely. At the end of the bank investigation process, the bank makes a decision based on the evidence available.

Q: How long does fraud investigation take?

A: An initial, preliminary investigation can be conducted in a matter of days. However, if the process develops into a chargeback, the merchant may opt to challenge the customer’s claim. In some cases, this process can drag on for weeks, or even months, before the dispute is finally resolved.

Q: What is the fraud investigation process in banks?

After a customer makes a complaint, the bank will gather any relevant information and examine the transaction details closely. The bank then makes a decision based on the evidence available.

Q: Is the debit card fraud investigation process the same as for credit cards?

A: Yes, in a general sense. However, the bank may have different standards and processes for conducting a fraud investigation on a debit card, as compared to a credit card fraud investigation. This is because debit cards are tied to funds actually in the cardholder's account, rather than to a line of credit.

(Video) Review fraud investigation steps

Q: Who pays when a credit card is used fraudulently?

A: If a merchant accepts a fraudulent transaction, that merchant will probably be held liable for the resulting fraud. However, it’s common practice among issuing banks to simply “write off” some low-value transactions, as the cost of the chargeback process would not justify such action.

Q: Can credit card transactions be traced to identify fraudsters?

A: It’s possible to track down fraudsters based on their activity, but again, whether or not this will be done varies based on the situation. Law enforcement agencies like the FBI might get involved if there is evidence suggesting a large, coordinated operation to conduct fraud. For one-off cases, though, it’s unlikely that law enforcement will be able to identify a culprit, and the bank doesn’t have the resources to track down fraudsters individually.

Q: What evidence can the bank use as part of a credit card fraud investigation?

A: The bank can examine a variety of different types of evidence-based on the cardholder’s claim. Some commonly-cited evidence includes geolocation data, timestamps, IP addresses, 3-D Secure data, and behavioral indicators, just to name a few.

FAQs

Who is responsible for investigating allegations of fraud bribery and corruption within the NHS? ›

The NHS Counter Fraud Authority (NHSCFA) is a health authority charged with identifying, investigating and preventing fraud and other economic crime within the NHS and the wider health group.

Who is the head of the Serious Fraud Office? ›

Our Director is Lisa Osofsky. Our Chief Capability Officer is Michelle Crotty. The General Counsel is Sara Lawson QC.

Who investigates fraud in the UK? ›

The Serious Fraud Office investigates and prosecutes serious or complex fraud, bribery and corruption. SFO is a non-ministerial department.

Who can investigate fraud in the NHS? ›

The role of the LCFS

The LCFS is also responsible for investigating allegations of fraud, bribery and corruption. Your LCFS is here to help. If you have concerns about fraud affecting the NHS, please do get in touch with them for advice.

Who investigates corruption in the government? ›

The Core Group, headed by the DOJ, is composed of the National Bureau of Investigation (NBI), Presidential Anti-Corruption Commission (PACC), Office of the Special Assistant to the President (OSAP), National Prosecution Service (NPS), and the Anti-Money laundering Council (AMLC).

Who investigates the government? ›

The FBI uses applicable federal laws, including the Hobbs Act, to investigate violations by public officials in federal, state, and local governments.

What triggers a fraud investigation? ›

Sudden large purchases or withdrawals. Numerous chargebacks or purchase disputes. Customer complaints. Changes to account details, such as password and authorized user.

What three elements are required to prove fraud? ›

Under common law, three elements are required to prove fraud: a material false statement made with an intent to deceive (scienter), a victim's reliance on the statement and damages. A material false statement.

What is the legal process for fraud? ›

In order to successfully prove fraud, two elements have to be present: the method and object of value or a third party; and the intent to deceive. Material requirement: The material can be any means of deception such as a false identity or character, or taking an action using property not owned by the deceiver.

Who deals with fraud cases UK? ›

Report all incidents of fraud to Action Fraud, the UK's national fraud and cyber crime reporting centre, via their website or contact 0300 123 2040. In an emergency, call 999.

Do UK police investigate fraud? ›

Fraud offences are recognised as being one of the most frequently reported and complex crimes for the Police to investigate. The Met has a clear policy on how fraud offences will be investigated, outlined in the document below.

What is the UK fraud Act? ›

The Fraud Act (2006) is an Act of Parliament of the United Kingdom affecting England, Wales and Northern Ireland. The Act gives a statutory definition of the criminal offence of fraud, defining it in three classes - fraud by false representation, fraud by failing to disclose information, and fraud by abuse of position.

What happens in a fraud investigation UK? ›

You'll need to provide the bank with as much information as possible to aid in their investigation, including receipts and other financial documents. Bank investigators will also look at detailed transaction data, including location data, IP addresses, and time stamps to determine what happened.

How do I investigate a fraud UK? ›

You do not need necessarily need a degree to become a Fraud Investigator. However, you could take a relevant degree such as fraud investigation or counter fraud and criminal justice studies to give you more experience. A great way to get into this career is through an internship.

Does OIG investigate fraud? ›

A: OIG investigates a variety of matters, including allegations of fraud involving Commerce Department grants and contracts; improprieties in the administration of Department programs and operations; allegations of employee misconduct; and other issues concerning ethics and compliance received through OIG's hotline.

Who investigates in a crime? ›

In most countries the detection of crime is the responsibility of the police, though special law enforcement... Information flows in more or less continuously from police informants and undercover agents.

Who investigates the FBI for misconduct? ›

Within the U.S. Department of Justice, the FBI is responsible to the attorney general, and it reports its findings to U.S. Attorneys across the country. The FBI's intelligence activities are overseen by the Director of National Intelligence.

Who investigates organized crime? ›

The FBI investigations focus on major international, national, and regional groups that control large segments of the illegal activities.

Who has the power to investigate? ›

Although not expressly authorized in the Constitution, the Supreme Court has firmly established Congress's investigative authority as an essential part of its legislative responsibilities.

Who has control over the investigating officer? ›

In cases of investigation of Cognizable offences the section 156 of the Criminal Procedure Code has conferred power upon the police officers to carry forward the investigation process without the order or permission of the magistrate.

Who enforces the laws in the government? ›

The executive branch enforces laws. The judicial branch interprets laws.

Do police investigate all fraud? ›

Will the police investigate my fraud? The vast majority of fraud reported to the police via Action Fraud is not allocated to a police force for further investigation and remains in the NFIB 'Know Fraud' database for intelligence purposes. The NFIB will conduct an assessment based on agreed guidelines.

What happens when they investigate fraud? ›

Banks should respond by locating supporting documentation for questionable transactions. Per current regulations, banks take between 30 and 90 days to evaluate, respond, and resolve problematic transactions. In some instances, law enforcement might be informed depending on the fraud and identity theft level.

How long do fraud investigations last? ›

A fraud investigation can take up to 90 days and we will notify you once it's complete. In the meantime, we may contact you for additional information.

What are the 2 forms of fraud? ›

Two Types of Fraud
  • Misappropriation of Assets – This type of fraud is what most people typically think of when they hear that an organization has experienced internal fraud. ...
  • Fraudulent Financial Reporting – This type of fraud, while less frequent, tends to be far more costly to an organization.
3 Dec 2018

How many requirements are there to prove a case of fraud? ›

While each type of fraud may require different levels of evidence, proving fraud generally requires three components under common law: The making of a false statement with intent to deceive. The reliance of the victim on the false statement. Damages resulting from the reliance on the false statement.

What are the four major legal elements of fraud? ›

Legal Considerations

First, the perpetrator has to provide a false statement as a material fact. Second, the perpetrator had to have known that the statement was untrue. Third, the perpetrator had to have intended to deceive the victim. Fourth, the victim has to demonstrate that it relied on the false statement.

Is fraud Magistrates or Crown Court? ›

Depending on the seriousness of the fraud, the defendant will either be sent to the Crown Court for pre-trial hearings and trial, or will remain in the Magistrates' Court for pre-trial hearings and trial.

Is fraud dealt with in magistrates court? ›

Cases that be heard in either the magistrates court or the crown court. These are called “either way” offences and include more serious assaults, possession and supply of drugs, fraud, theft, indecent assault, affray and burglary.

What is the most common type of fraud in the UK? ›

1. Unauthorized Payment Fraud. Naturally, the UK has controlled fraud more effectively these past few months than throughout the sky-high pandemic period. Despite that, since many people were forced to do their shopping online, today, the most popular scams remain all fraud types associated with stolen card information ...

What are the six essential elements of fraud? ›

What Are the Six Conditions of Fraudulent Misrepresentation?
  • A representation was made. ...
  • The claim was false. ...
  • The claim was known to be false. ...
  • The plaintiff relied on the information. ...
  • Made with the intention of influencing the plaintiff. ...
  • The plaintiff suffered a material loss.
3 Oct 2016

Who can investigate bribery corruption? ›

Reporting bribery and corruption

The Serious Fraud Office ( SFO ) and the National Crime Agency's International Corruption Unit ( ICU ) share primary responsibility for investigating allegations of International Bribery and Corruption.

Who is responsible for anti bribery and corruption? ›

Financial Crimes Control (FCC) is responsible to conduct investigations on potential breaches of CB Anti-Bribery and Corruption Policies as per the established investigation and enforcement protocols.

Who should you report suspected bribery and corruption to? ›

If you are still unsure, contact Action Fraud or your local police.

Who are involved with inquiry investigation and prosecution in corruption cases? ›

There are mainly three primary regulatory authorities for monitoring, investigating and prosecuting the activities of corruption and bribery in India – Central Vigilance Committee (CVC), Central Bureau of Investigation (CBI), and Anti-Corruption Bureau (ACB).

Who can investigate the crime? ›

In most countries the detection of crime is the responsibility of the police, though special law enforcement... Information flows in more or less continuously from police informants and undercover agents.

Who is responsible for investigating and solving crime? ›

In the modern era, criminal investigations are most often done by government police forces. Private investigators are also commonly hired to complete or assist in criminal investigations.

Who handles investigations of federal crimes? ›

The FBI is the lead federal agency for investigating cyber attacks by criminals, overseas adversaries, and terrorists.

Who is more responsible for corruption giver or taker? ›

Corrupt officials demand money or other favours from them in exchange of things and services they are entitled to by the law. In such cases, the bribe taker is clearly the one responsible for bribery. However, not just the bribe taker or giver, it can be said that the entire system is at fault.

What does Anti Corruption Act do? ›

The American Anti-Corruption Act (AACA), sometimes shortened to Anti-Corruption Act, is a piece of model legislation designed to limit the influence of money in American politics by overhauling lobbying, transparency, and campaign finance laws.

Who is responsible for enforcing the FCPA? ›

The SEC and the Department of Justice are jointly responsible for enforcing the FCPA. The SEC's Enforcement Division has created a specialized unit to further enhance its enforcement of the FCPA.

What should you do if you suspect corruption? ›

Where to report fraud and corruption
  1. Ask for any office manager in a Home Affairs office; or.
  2. Send an email to report.corruption@dha.gov.za; or.
  3. Call National Anti-Corruption Hotline at 0800 701 701.

What investigates complaints of corruption by government officials? ›

The commission hosts the National Anti-Corruption Hotline for the Public Service, which receives and compiles reports on corruption, and it refers the reports to investigators. Contact the National Anti-Corruption Hotline for the Public Service on 0800 701701, toll free.

Who has the power to investigate cases? ›

Power of Police to Investigate

Section 156 of the code empowers the officer in charge of a police station to investigate a case in his territorial jurisdiction without the order of the Magistrate if the offence is cognizable in nature.

Who initiates an investigation? ›

The prosecutor may, having evaluated the information made available to him or her, initiate an investigation where a reasonable suspicion that a criminal offense has been committed exists. (f) a description of the evidence and information already collected by the police and the prosecutor. 3.

Who performs the important function of investigating a complaint? ›

Section 157 of the Code of Criminal Procedure lays down the procedure to be followed for investigation of the cases. The Section provides that every complaint or information which is received by the police should be immediately conveyed to the Magistrate who has jurisdiction to try such cases.

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