Pub. 9 2014-2015 Issue 5

www.nebankers.org 14 Extraordinary Service for Extraordinary Members. Compromised bank cards THE HEADLINES ARE BECOMING ALL TOO FAMILIAR: There are two types of losses banks face when customers’ bank cards are compromised through merchant breaches. THE FIRST TYPE OF LOSS IS FRAUDULENT USE OF THE DEBIT CARDS . Merchant data breaches often go months without detection. While inside the network, the hackers make counterfeit cards with stolen card information and sell the counterfeit cards to others. Most often, a group of counterfeit cards issued by one bank is used over a short period of time. Often the fraud starts on a Friday and goes through the weekend. Fraudulent activity is often detected within a few days by the card processor’s fraud detection algorithm or from customers monitoring their card activity. At that point, a bank will usually notify the customers whose accounts are known to be involved that fraudulent activity has occurred and that the card must be cancelled. As more and more cards are found to be involved, banks often take steps to limit card activity from states where the fraudulent transactions are occurring. Many banks then limit card activity to a state or local area until the bank can get the counterfeit card activity stopped. TJ Maxx reports a data security breach exposing 45 million cards, and Heartland (a payment systems provider) reports exposing 100 million cards. Target reports 40 million cards compromised. Then Home Depot reports exposing 56 million credit and debit cards. In most merchant data breaches, banks incur a direct financial loss. To make matters worse, banks have little control over mitigating such risk. Mark johnson, Regional sales manager by: charles m. towle, kbs president & kbs blue sheet Gain access to enhanced kbs content. Subscribe at kbsforbanks.wufoo.com/forms/kbs By-word by email The KBS Financial Institution Crime Bond covers loss resulting directly from most uses of a counterfeit debit card, subject to a deductible and other terms and conditions. The deductible applies to all loss caused by the same thief, even if there are many fraudulent transactions on several customers’ accounts. Some insurers may apply a deductible to each debit card. All banks should review their Financial Institution Bonds or other policies carefully to determine coverage and limits.