The U.S. banking industry’s reliance on magnetic stripe credit and debit cards threatens to turn the country into a magnet for more card-based fraud, said an executive with the Federal Reserve Bank of Atlanta.

Richard Oliver, executive vice president of the Atlanta Fed’s Retail Payments Risk forum, said that regulators’ reluctance to require more secure technology threatens to isolate the U.S. as a target for fraud rings and criminals thwarted by chip-embedded smart card technology available in Europe, Canada and other parts of the world.

“That means that criminals, intent on profiting from card fraud, will continue to migrate to the United States in growing numbers,” says Oliver, who is also responsible for managing the Fed’s global check and ACH businesses.

While banks are experimenting with chip-embedded technology, smartcard adoption is hindered by the reluctance of merchants to bear the cost of six million new payment terminals that would be required for conversion to the new standard.

U.S. citizens traveling abroad are already running into compatibility problems in using their magnetic stripe cards in countries where ATM machines and point-of-sale terminals have been adapted to read only chip-embedded cards.

Oliver proposes that the government initiate a public policy directive to begin the changeover to the new standard in the U.S., much like the digital TV broadcast conversion completed in 2009.

“If we want to mitigate the possibility of the United States being a center of card fraud and enable our consumers and business folks to travel abroad more easily,” says Oliver, “it may be time to charge someone in government with developing a well-thought-out, participatory, multi-year plan to move this country to the emerging global payments card standard.”

The Internal Revenue Service will stop notifying lenders when a filer’s refund will be intercepted to pay for a government debt, according to a report in The Virginian-Pilot.

Banks working with tax-preparation companies use the IRS’ “debt indicator” when deciding whether to extend a refund anticipation loan. The agency now will no longer provide that credit information to banks making tax-refund loans.

The loans, which are heavily marketed to lower-income households, provide a borrower with access to their cash in a day or two but at a hefty cost.

“We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days,” IRS Commissioner Doug Shulman said in a statement.

The availability of the IRS’ electronic-filing system, when coupled with the direct deposit of a refund to a bank account, enables tax-return filers to receive their refund rapidly, Shulman said.

“The cost of the loans took tax-return filers’ money and federal benefits that are meant to lift the working poor out of poverty”, Chi Chi Wu, a staff attorney at the National Consumer Law Center, said in a statement. Consumer advocates, who criticized the availability of refund anticipation loans for years, lauded the decision.

The former president of a payment processing company has agreed to settle charges brought by the Federal Trade Commission and seven states for his role in an operation that allegedly debited more than $200 million in bogus charges from consumers’ bank accounts.

Derrelle Janey was president of Your Money Access LLC from 2003 to 2006. According to a 2007 complaint filed by the FTC and the States of Illinois, Iowa, Nevada, North Carolina, North Dakota, Ohio and Vermont, the company processed unauthorized debits on behalf of deceptive telemarketers and Internet-based schemes that violated the FTC’s Telemarketing Sales Rule and state and federal consumer protection laws.

Under the settlement, Janey is banned from participating in processing payments debited from consumers’ bank accounts. The order imposes a $625,000 judgment.

The company allegedly played a critical role in helping many of its clients carry out these schemes by providing access to the banking system and the means to extract money from consumers’ bank accounts.

Between June 23, 2004, and March 31, 2006, Your Money Access processed more than $200 million in debits. More than $69 million of the attempted debits were returned or rejected by consumers or their banks for various reasons, an indication that in many cases consumers had never authorized the charges.  In many instances, the merchants either failed to deliver the promised products or services or sent consumers relatively worthless items.

Company CEO Tarzanea Dixon previously settled charges with the FTC. She has been banned from payment processing. The court has entered default judgments against corporate defendants Your Money Access LLC, and YMA Company LLC.

In December 2008, the FTC announced a settlement between the Office of the Comptroller of the Currency and Wachovia Bank N.A. to issue more than $150 million in redress checks to victims of telemarketing fraud. The checks reimbursed consumers for funds deducted from their accounts by three payment processors that maintained accounts with Wachovia, including Your Money Access.

FICO reports that a credit gap for consumers will grow as lenders expect credit availability to fall short of consumer demand through the end of 2010.

The quarterly survey of bank risk professionals found that 73% of respondents expect the volume of credit applications to increase or remain steady over the next six months. However, 46% of respondents expect approval criteria for credit to get stricter. Furthermore, 38% of bankers surveyed expect the approval rate for credit applications to decline.

“Although the outlook isn’t as pessimistic as it was earlier this year, it’s clear we still haven’t reached a point of equilibrium between supply and demand for consumer credit,” says Dr. Andrew Jennings, chief research officer at FICO. “Banks remain concerned about loss prevention. Government data released in August indicates personal bankruptcies are at their highest levels in five years, and other recent data confirms the ongoing challenges in the employment and housing sectors. This type of economic environment makes it difficult for lenders to open up the flow of credit without taking on significant risk.”

Delinquency Report

When asked about expected delinquency rates for credit products, many bankers said they expected delinquencies to increase. This includes home mortgages (53% of respondents expected a rise in delinquencies), credit cards (42% expected an increase), small business loans (47% expected an increase) and student loans (49% expected an increase).

In a somewhat unexpected survey result, according to FICO, bank risk officers who are responsible for auto loans and credit cards had a particularly negative outlook about their sectors. Among bankers who manage auto loans, 96% expect delinquencies on auto loans to increase or remain the same. And among bankers who manage credit cards, nearly 85% expect delinquencies on credit cards to increase or remain the same.

Respondents also were asked about their overall expectations for new delinquencies (i.e., accounts that become 30-days late) and chargeoffs (i.e., older delinquencies that are written off). Respondents felt both categories of delinquencies were going to rise, and the sentiment was similar in strength for both categories, which suggests the pipeline of delinquencies isn’t going to shrink in the near future.

Bank of America had the highest reported rate of credit card delinquencies and charged-off the greatest percentage of its credit card loans in April, according to SEC filings by six major consumer credit card issuers.

Bank of America had the highest rate of total delinquencies at 6.73 percent of all credit card accounts. Bank of America also reported the highest net charge offs in April with 12.71 percent of card accounts charged off.

A Harrisburg, PA collection agency and 15 individuals were charged with 639 count indictment due to a scheme that involved identity theft, pick-pocketing, and disguises.

The fraudulent scheme transpired during the period of October 2008 through October 2009. This scheme involved $600,00 of stolen funds from at least 60 different accounts.

The conspiracy process started when one individual pick-pocketed victims, then sold the stolen identification and other confidential documents. A the request of the person who bought the stolen information, additional identification searches of the victims were completed by two collection agency employees. The information that was obtained were social security numbers, date of births, and telephone numbers.

This information was then used to make cash deposits or to cash a counterfeit check from the victims’ accounts. The perpetrators even dressed up in disguises such as wigs, glasses, hats and makeup to try and look like the victims as much as possible.

The awareness of a Chase Bank investigator prompted an investigation. The investigator noticed women who were wearing disguises, making fraudulent transactions against accounts in different Chase branches. However, the accounts had been closed by the account holders since their wallets were stolen.

The 15 accused will now face multiple felony charges that consist of grand larceny, attempted grand larceny, identity theft, conspiracy, scheme to defraud, possession of a forged instrument, and criminal possession of stolen property.

Recently, an ABC News investigator revealed that an M&T Bank in Maryland put its customers’ confidential information in jeopardy by dumping documents into a dumpster that were not shredded.

The M&T Bank in Baltimore County disposed of documents that contained their customers’ account numbers, balances, and statements, and even copies of their customers’ drivers licenses in the dumpster behind the bank. Also found not shredded were canceled checks that were written just a few days prior.

Many customers were angry at the fact that their confidential information was not protected by the bank, leaving them open to be victims of identity theft.

M&T Bank has conducted an internal investigation and believes that it was an isolated incident caused by human error. M&T states that the customers that were effected have been notified and issued new account numbers. The bank is also giving these customers free credit monitoring.

Four friends are charged with taking advantage of Federal Regulation E which stipulates that stolen funds must be repaid to the “victim” within 10 days if the card is reported lost or stolen.  The friends opened up checking accounts at various banks.  They made deposits into the accounts and then began withdrawing the funds at ATMs until the account was empty.  They concealed their identities at the ATM machines by wearing motorcycle helmets.  The friends then reported the cards as stolen and were repaid the funds by the banks.

The background of the accused are interesting.  One is a lawyer and two worked at HSBC as financial advisors.  While the plan was not complicated, it was very successful.  The group stole over $400,000.  Their scam was discovered when a bank investigator collaborated with another bank investigator to uncover the fraud.

A federal court has ordered a payment processor to pay over $1.7 million in redress and to end its illegal practice of debiting consumers’ bank accounts without authorization.  (A payment processor is a middleman between merchants and credit card companies.)  InterBill Ltd. unfairly debited thousands of consumer accounts for a merchant’s non-existent “discount pharmacy cards” despite indications that the pharmacy card operation was fake.

InterBill Ltd. did not follow its own guidelines for new merchants and did not check the addresses, phone numbers or references that the bogus merchant provided.   The company continued to process the false charges to consumer accounts even after receiving complaints from consumers and banks, and after receiving unacceptable explanations for the unauthorized debits from the bogus merchant.   More than 70% of the merchant’s transactions were returned or refused by the consumers’ banks.  More than $2.38 million was debited from consumer accounts.

Bob Sullivan has exposed a new fee imposed on credit card users on his blog “The Red Tape Chronicles” on msnbc.com:  The “foreign fee” now charged by Bank of America. 

Online shoppers take note:  It’s now possible that you’ll be charged a foreign transaction fee on some purchases without ever leaving the U.S.