The Use and Abuse of Credit Cards
In 2007, more than 97 percent of American consumers claimed to use credit cards for some type of purchase. In the aviation maintenance community, nearly every operation has some sort of credit card use. The use of credit cards has become a pivotal tool for aviation, allowing us to facilitate everything from fuel purchases to collecting for a propeller sale being shipped to India. Any aviation merchant would be wise to consider accepting credit cards. The speed at which we can obtain payment from our customer has become a critical issue for everyone in our industry. On the other side of the spectrum, using a credit card to support your team has some serious benefits and consequences. Yes, you can purchase an item quickly using a card, but do you have safeguards in place to track and verify its use?
Potential for fraud
Like everything that I have written for D.O.M., my articles are often a reflection of some past aviation experiences. One recent experience startled me enough that I felt it necessary to tell everyone in the aviation maintenance community about my episode with credit card fraud.
About two years ago and over a series of months, some criminals in Miami used a series of stolen credit cards to purchase more than$250,000 in merchandise from various aircraft parts distributors, both large and small. These unscrupulous individuals purchased everything from Lycoming cylinders to Twin Commander windshields. Everything was being drop shipped to a freight forwarder in Miami. The credit card companies rejected the credit card deposits made by the unsuspecting merchants, which in essence means that they were denied the payments made by the crooks. This type of criminal fraud hurts the merchants most because the credit card companies are not the ones who get stuck with the bill. The credit card companies simply “deny funds” from the merchants who originally provided the parts. Despite what credit card companies tell the news media, they make no effort whatsoever to assist businesses recoup their cost when hit with fraud.
My first major experience with fraud was in 2009. I received an email asking for pricing and availability on some ABS brake parts for a large corporate jet. The person contacted me from overseas, which isn’t usual for my company’s daily business routine. This person responded back rather quickly and insisted that they place an order right away. I responded that I would need a faxed or emailed purchase order to clearly state the end-user destination and the method of payment used. I went ahead and directed my shipping department to stage the order, pending receipt of an official purchase order. About two days later, I received a response which was basically a typed letter with basic information. The letter listed the parts, an address and a credit card. As I looked at the letter, alarm bells started going off in my head. I spent several hours researching data to see if this company existed in Singapore. I noticed a few things. First, the email had no logo or letterhead. Secondly, the email address provided was a private web service in Singapore. The web server had a home Web site that sold everything from Singaporean chicken and rice dishes to Chinese fireworks. Thirdly, the MasterCard listed had an American name on it. I won’t mention the name here, but the name was so American that even Larry the Cable guy would have recognized it.
When I was convinced that this was bad, I called an aviation associate in Singapore. He told me that he knew every registered biz jet in Singapore, and this buyer was not someone affiliated with anyone that he was aware of. Confident that I had done my homework, I gathered my information and called MasterCard. I explained that someone had provided me with a credit card from overseas, and I believed that the credit card order was fraudulent.
The response from MasterCard shocked me. The representative said that the card number I had was valid and had not been reported stolen. I told her again, that we were trying to prevent a crime from occurring. She said until the cardholder reported the card as stolen, there was nothing that she could do. Fortunately, I was able to get a manager on the phone and explained the situation. The manager finally called the original card holder, who lived in an apartment in New York City. She had nothing to do with aviation, and did not order any aircraft parts. I was happy to hear that MasterCard was cancelling the card number at the request of the card holder. This only happened because I spent several hours on the phone in an attempt to salvage this situation.
Fast forward to November of this year. I received an email right before Thanksgiving for a large potential order for spark plugs. I quoted the order and moved on. Several days later, I received another email stating that they were prepared to order the plugs. This entity then faxed an order over to us. I noticed that it had some of the same “flags” as the order from Singapore. The email address was an unheard of Webhost domain company. Additionally, it called itself a name that did not register with any operator in Florida. Thirdly, I tracked the shipping address to a questionable freight forwarder in Miami. I decided to ask for a faxed copy of the front and back of the credit card being used for purchasing these items. The client never responded, despite stating early on that these plugs were critical. As I looked at the order on my computer screen, I started to get uneasy feeling again. I decided to call my friend who was hit with credit card fraud last year. I talked to my friend about it, and he asked me what the shipping address was. Sure enough, it was the same address used in Miami last year by scammers who bilked more than $250,000 in aircraft parts from various parts distributor. My friend and I were both floored — these crooks were at it again.
Fraud protection
Javelin Strategy and Research concluded a 2010 study that claims small business in the U.S. lose more than $8 billion in fraud-related costs. After being on the receiving end of attempted credit card fraud twice, I asked my banker about protection for merchants from people who use stolen credit cards. Surely, this major bank had some type of phone number for merchants to call in report possible suspected stolen credit cards. My bank did not, and as I found out none of the banks do.
I called American Express to discuss with them why it is that a merchant who receives credit card payments couldn’t be proactive and call in a possible stolen credit card. Their response to me was that unless a crime has been committed, the bank will not proactively work with a credit card merchant. This is preposterous! In other words, credit card companies really don’t care if credit card fraud is committed because they ultimately don’t have to pay for it. If a card member declines a charge, the credit card company simply reverses the charges from the merchants’ bank account. Imagine what would happen if your employer decided to reverse the direct deposit paycheck that you received last week? This is the same idea. In the end, if your aviation business provided services or products to someone using a stolen credit card, then you are completely out of luck. No federal or fiduciary agency will assist you in recovering your assets. If you happen to be a wealthy Wall Street financial institution, then of course congress will bail you out. Makes sense, doesn’t it?
Other payment methods
Due to the concerns many people have over credit card use, a growing number of people have started using debit cards and alternative methods of payment such as PayPal. I would encourage you to NOT use either debit cards or alternative payment methods such as PayPal.
In 2002, the Federal Deposit Insurance Corporation (FDIC) ruled that PayPal was not a bank, thus PayPal doesn’t have FDIC insurance like banks do. I have worked with PayPal on a limited basis oduring the last two years to see what the ups and downs are. My conclusions are that money services such as PayPal are good for the buyer but not for the merchant. When a buyer places an order and pays with their PayPal account, they are under the assumption that there vendor is getting paid for that transaction right away. This is frequently false. I recently experienced a transaction where PayPal held pay for 21 days. The customer’s order was logged in as delivered, but PayPal sat on our funds for 21 days. We have witnessed this on several occasions. Many Web sites report that PayPal is doing this to gain “floating” interest, using your money to gain interest in PayPal’s bank account.
One benefit you have with your company’s credit card is that you can challenge or research an issue with a credit card charge for up to 60 days under U.S. law. Currently, most U.S. states only allow you to challenge debit card transactions for 48 hours. Debit cards deduct funds from your checking account immediately. Imagine, a vendor could keep your debit card number on file, then use it against your wishes for a mistaken core charge or future purchase. Nobody needs a surprise withdrawal from your checking account on payroll processing day.
Better options
There are two different methods of payment for which I have developed a respect. One is called ACH, commonly referred to a wire transfer. This enables you to make bank-to-bank payments, from your bank account to your supplier’s. Discuss this with your banker, — it is well worth the $35-$70 per month you will pay for this service. Fill out an online secure profile at your bank to enable you to make one-way payments to your vendor’s bank account. No checks to print, no postage, no envelopes and no trips to the post office. More and more overseas business-to-business transactions are handled this way.
Another fascinating spin in the credit card world is prepaid credit cards. Businesses use these more and more. These enable you to provide an employee with a “reloadable” credit card, designed to give you better control over their limits and actions. Some companies even pay their employees using this method. This method is popular because an employer can go online and refill several cards at once instantaneously.
My intention is not to scare anyone, but rather I want to encourage you to evaluate how you facilitate your financial transactions. For more information concerning credit card safety, I suggest you visit an excellent FBI Internet Safety webpage: http://www.fbi.gov/scams-safety/fraud/internet_fraud.
Norman Chance is President and CEO of Chance Aviation, an international aircraft parts distributor headquartered in Indianapolis. He has a degree in aircraft maintenance from Vincennes University and a degree in aeronautics from Embry-Riddle University. He holds an FAA A&P certificate.