Credit Card Debt Management

Virtual credit cards are certainly nothing new in the world of online shopping. After all, they’ve been around almost seven years, but they may not have received due attention in the past. Also known as substitute credit card numbers or controlled payment numbers, this technology offers online shoppers a free and highly effective layer of protection against identity theft.

According to the Sound Money Tips blog, MBNA, Citibank, Discover and Paypal all offer this free service to customers. All you have to do is sign up, download the software, and enter your credit card info (viewable only to the customer and the bank).

Some services limit spending to one merchant or venue only. Other services do not place restrictions on spending, but do generate a different “temporary number” with each online purchase. This temporary number is the only thing hackers can see, whether they eavesdrop at the point of purchase or hack into merchant records after the fact.

Many consumers have snubbed virtual credit cards because they are viewed as unnecessary in light of the fact that credit card companies generally do not hold customers liable for fraudulent purchases. However, the bigger picture is that online credit card fraud can turn into a bigger case of grand-scale identity theft, from which it takes a lot of time and money to recover. And who really wants to deal with that?

The New York Police Department is telling victims of identity theft to keep their stolen credit cards open and active. From a financial advisor’s point of view, this would sound like the worst possible advice. However, from a detective’s perspective, it becomes much easier to track down the thief.

As might be expected, the plan is meeting with some resistance, according to the New York Daily News:

“‘Nobody trusts credit card companies or banks, so no one really believes they won’t be on the hook for some crook’s spending spree,’ said a Manhattan lieutenant familiar with (NYPD Deputy Commissioner of Operations Phil) Pulaski’s push to reduce grand larcenies.”

NYPD officials are saying they will attempt to work with credit card companies to gain a commitment for the companies to pick up the tab. It’s an “investment,” they say, well worthwhile in light of catching a thief run amuck. However, there is a mixed reaction in the credit card world as well. Visa, MasterCard and American Express stated that a consumer would never be expected to foot the bill for a criminal’s spending spree, even if the card was left open under the advice of law enforcement. However, Capital One spokesperson Diana Don had the following to say:

“We might be responsible for the expenses. We want to work with law enforcement to stop such thefts. It would be on a case-by-case review.”

This story still doesn’t answer the common complaint of law enforcement officials — jurisdiction. Might we assume that the feds would get involved in this effort as well? By many accounts, credit card fraud and identity theft often becomes an international issue, so that may be necessary. At any rate, it’s nice to see law enforcement officials trying to take a solution-oriented approach, even if it is still in the idea stage.

The escalating value of Visa and MasterCard shares has tongues wagging on Wall Street. This might seem an unlikely scenario in light of the current credit crunch, but the Wall Street Journal says:

“The credit-card giants are a rare pair among financial-services firms — because they don’t take on credit risk as other credit-card issuers such as American Express Inc., they’re protected somewhat from the credit crunch.”

The value of MasterCard shares showed a 10% yy increase in 2008, as of April 28, while Visa showed a 33% gain since it’s initial public offering at around $50 earlier this year. Granted, the entry point could be better, as the WSJ points out. After all, Visa closed at $80.88 today and MasterCard closed at a staggering $273.98.

Nevertheless, analysts’ expectations are high and trading activity around these stocks reflects optimism. Considering many homeowners are paying their credit cards before their mortgages, Visa and MasterCard seem like stable investments. Would that I had significant money to invest in the stock market. Do you? You might want to consider getting while the getting’s good.