How Unemployment Debit Card Freezes Signal Rising Fraud

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Key Takeaways

  • Hundreds of thousands of unemployment debit cards were recently frozen in California due to fraud.
  • Online credit and debit card fraud is on the rise, experts say.
  • Use reputable companies and set up a monitoring system to protect yourself.
Illustration of someone stealing debit/credit cards through the internet
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The recent freezing of hundreds of thousands of unemployment debit cards in California due to fraud is a sign that card misuse is on the rise around the world, experts say. 

The action by California authorities is likely to cause considerable hardship to unemployed people already struggling with the economic effects of the coronavirus pandemic. Getting access to the funds may take a while, observers say. 

"Many individuals are reliant on government aid to pay their bills and are barely making ends meet as-is," Nishank Khanna, Chief Financial Officer of lender Clarify Capital, said in an email interview. "Even if they’re able to verify their identity and gain access to the funds, they’re going days, or weeks, without access to their main source of income. Landowners, lenders, and collection agencies aren’t going to wait to call after things are sorted out."

Don’t Boast About Your Crime in a Video

The state's Employment Development Department (EDD) says 350,000 debit cards have been frozen because of a range of fraud signs, including a high number of claims at a single address. Law enforcement officials said they've found fake cards amounting to $20,000 each. Among the more than 40 arrests made for fraud since August, a rapper who boasted in a music video about committing unemployment benefits fraud is in custody in Los Angeles. 

"The Department’s top priority is to quickly verify the identity of any claimants in this group that may have been impacted by scammer attacks, while we work to shut down the potentially fraudulent claims," the EDD said in a news release.

"Many individuals are reliant on government aid to pay their bills and are barely making ends meet as-is."

The case is a warning to consumers that online fraud is on the rise, experts say. The United States accounted for $9.47 billion in credit and debit card fraud losses in 2018.

"Debit card fraud is, unfortunately, indeed quite widespread, and alarmingly so," Attila Tomaschek, a writer at privacy firm ProPrivacy, said in an email interview. "Especially at a time like this, when a global pandemic has triggered a massive financial crisis with so many people filing for unemployment benefits, the opportunities for defrauding the system are amplified."

Stay Alert

Consumers should take steps to protect themselves against fraud, observers say. First, set up alerts, Khanna said. "Setting up mobile alerts on your bank card can help you monitor your debit card activity," he added. "Staying informed allows you to act promptly whenever suspicious activity occurs. Moving quickly can help to reduce the extent of any damage."

He also recommends using well-known payment processing companies, like PayPal, to complete online purchases, since "these companies have extensive security measures in place to protect your information."

Cyber Attack Hacker using laptop with code on interface digital.
sukanya sitthikongsak / Getty Images

Be careful of phishing scams, too. "Doing your due diligence when opening emails and completing transactions online can help you avoid a bad situation," said Khanna. "Always practice a healthy amount of skepticism and double-check that anytime you’re entering in your personal information online, you’re doing so with a trusted and secure provider." 

Watch out for card skimmers on points of sale, particularly at gas station pumps, suggested Paul Bischoff, privacy advocate with Comparitech, in an email interview. 

"Use a masked or tokenized card or payment method when making purchases online instead of entering your real debit card information," he added. "Keep a close eye on account statements for unusual activity. Don't ignore small charges of a few cents. These are often used by criminals to check whether a card is still valid."

"Debit card fraud is, unfortunately, indeed quite widespread, and alarmingly so."

Avoiding debit cards altogether may be the best option for most transactions, experts say. 

"Have a credit card for everyday expenses such as gas, convenience stores, department stores, online shopping, travel, and rental car companies," Jaquetta Ragland, owner of the financial advice site Young and Finance, said in an email interview. "They should only use their debit card to pay for utilities, rent/mortgage, and payments with reputable companies. This will lower the risk of their debit card information being exposed."

For those who do choose to use a debit card, it’s wise to stay alert. Amazon Prime Day might not be the only reason you are racking up charges.