New Government Tool Takes Aim at Prepaid Card Fraud

A new tool developed by the federal government may put the brakes on certain counterfeit card scams during the holidays, if law enforcement agencies can replicate the results of an initial test.

A wireless, handheld device developed by the Department of Homeland Security (DHS), called the ERAD Prepaid Card Reader, enables police and security agents to check the balance of magnetic-stripe cards seized in arrests and immediately freeze the funds in linked accounts pending investigation, the agency said in a Sept. 6 press release.

Law enforcement officers testing the tool so far have reclaimed a total of about $10 million in stolen funds by tracing balances linked to magstripe credit and debit cards, hotel card keys, mass-transit and library cards, DHS said in the release.

“We’re able to identify stolen credit cards and mag strip information, and we’re able to seize cash on the side of the road that is being extorted in prepaid debit cards,” said Sgt. Ron Hain of the Kane County Sheriff’s Office Special Operations Unit in Illinois, in the release.

Fraudsters are expected to exploit prepaid cards and gift cards during the upcoming holiday sales season as the U.S. works through its slow migration from older mag-stripe cards to the more secure EMV chip cards designed to block counterfeit fraud.

“Prepaid cards are the next wave of cards to begin the migration to EMV,” said Troy Bernard, director of strategic marketing and products at card manufacturer CPI Card Group, in an earlier interview.

The DHS began developing the ERAD reader in 2012 and finished final testing in April. It’s now available for commercial distribution through DHS’s Science and Technology First Responder Group, the agency said.