SD22 - Credit Card Fraud

  • Published: 1991
  • Author: Joint Subcommittee
  • Enabling Authority: Senate Joint Resolution 131 (Regular Session, 1990)

Executive Summary:
AUTHORITY FOR STUDY

Senate Joint Resolution No. 131 was introduced during the 1990 Session of the General Assembly by Senator Moody E. Stallings of Virginia Beach, upon request of the Attorney General. The resolution called for an eleven-member joint subcommittee to " ... determine whether Virginia's statutes relating to credit card fraud adequately provide courts and prosecutors with the [necessary] tools ... " to deter and effectively and efficiently prosecute the growing credit card fraud problem. Annual losses of between $100 to $300 million suffered by financial institutions as a result of fraudulent telemarketing schemes are cited in the resolution as evidence of the extent of the problem. The increasing use of fraudulent applications and brokering and factoring schemes is also mentioned.

The membership of the joint subcommittee was appointed as follows: the Senate Committee on Privileges and Elections appointed Senators Moody E. Stallings, Thomas J. Michie, Jr., Joseph B. Benedetti and Mark L. Earley from the Senate Committee for Courts of Justice; the Speaker of the House of Delegates appointed James F. Almand, W. Roscoe Reynolds, Glenn R. Croshaw, Joseph P. Johnson, Jr. and Thomas G. Baker, Jr., from the House Committee for Courts of Justice; the Governor appointed Thomas G. Rosenthal of Richmond from the public-at-large. The resolution also designated the Attorney General, or her representative, as a member of the subcommittee. The Attorney General designated Stephen D. Rosenthal, Deputy Attorney General for the Public Safety and Economic Development Division.

The subcommittee held two meetings in Richmond. Additionally, staff for the subcommittee met with representatives of the Virginia Retail Merchants Association, the Virginia Bankers Association, including a fraud investigator for a Richmond bank, the Commonwealth's Attorneys Services and Training Council and the Consumer Fraud and Criminal Divisions' of the Office of the Attorney General. The subcommittee is grateful for the information and invaluable assistance of Walter Felton, Sumpter Priddy, Leton Harding, Mike O'Quinn, Bill Coleman, David Irvin and Mark Bowles.

BACKGROUND

Since World War II credit cards have replaced cash as the payment method of choice for many individuals and businesses. This growth in use has led to a growth in abuse, although it is generally believed that losses resulting from fraudulent or other improper use of credit cards is minimal in relation to the dollar volume of credits and payments made in this manner. (*1)

In recognition of this growing use and potential for abuse, the General Assembly in 1968 enacted credit card-specific criminal statutes. Chapter 480 of the 1968 Acts of Assembly specifically covered credit card theft, credit card forgery, fraudulent use of credit cards and many ancillary procedural and evidentiary issues. Most of these statutes have not been significantly amended since their enactment.

SUMMARY OF RECOMMENDATIONS

1. The current statute governing false statements to obtain property or credit statute should be clarified and amended to (i) stress that the false statement must be material, (ii) include conspiring to make a false statement as punishable activity, (iii) increase the penalty for simply making the false statement from a Class 4 to a Class 2 misdemeanor and from a Class 4 to a Class 1 misdemeanor if value of less than $200 is actually obtained.

2. A new statute should be added to deal exclusively with applications for credit cards and should authorize a lesser penalty where a false statement is made in response to a written solicitation to apply for credit.

3. The definitional section of the article governing credit card offenses should be amended to include "acquirer" to reflect the distinction between the entity which initially issued a credit card to a cardholder and the entity which provides the authority and the payment mechanism for merchants to accept credit cards.

4. The general credit card fraud statute should be clarified and amended to cover false representations and remittances made by a merchant to an issuer.

5. A new offense of conspiracy to commit any credit card fraud, whether a felony or misdemeanor, should be enacted and made punishable as a felony to allow for extradition.

6. A new offense should be created proscribing factoring and clearly distinguishing between simple factoring and factoring with intent to defraud.

7. A new venue statute is added to facilitate prosecution of interstate fraudulent credit card schemes and avoid confusion in cross-jurisdictional intrastate cases.

8. The National Conference of Commissioners on Uniform State Laws should be encouraged to consider promulgation of a uniform act to deter interstate telemarketing schemes.
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(*1) Nelson and Andover, "Credit Manual of Commercial Laws," 1986, 12-1.