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Chip and PIN fraud hits Lloyds TSB

Foreign ATM fraud loophole exposed by crooks

Internet Security Threat Report 2014

Lloyds TSB has admitted that flaws in the new Chip and PIN system recently introduced for debits cards in the UK open up the system to fraud. Conventional fraud may be down because of the system but crooks are still able to use cloned debit or credit cards in foreign ATMS.

Instead of authorising debit card transactions by signature Chip and PIN means that customers use a four digit PIN code to give the go-ahead to purchases.

Although cloned cards won't have a forged chip the PIN associated with this microchip is the same as that associated with a magnetic stripe. Foreign ATMs only read this magnetic strip and not the microchip. So providing fraudsters obtain the data on the magnetic strip, along with the associated PIN, they are able to make withdrawals overseas using a conventionally cloned card, something that wouldn't work on a UK high street. Delays in identifying foreign ATM cash withdrawals as potentially fraudulent are compounding the problem.

One Lloyds TSB customer had £3,000 withdrawn from an account via a series of 19 withdrawals in the Netherlands, the Daily Mail reports. Similar scams involving cash machines in France, Thailand and Hong Kong have hit other Mail readers. Lloyds TSB told the paper that it is updating its procedures in a bid to clamp down on a rise in fraudulent transactions from overseas bank accounts.

"In recent weeks, we have identified an increase in fraud via overseas cash machines," a Lloyds TSB spokesman told the Daily Mail. "We have reviewed the way we operate to protect our customers. We are always updating our many measures to prevent and detect fraud."

A spokeswoman for APACS, the banking association overseeing the introduction of Chip and PIN in the UK, said that victims of the fraud would get their money back but accepted that this may take some time. She defended the overall integrity of the system. "We never said there would be no card fraud. There has always been a difference between the banks' level of security and fraud detection. Some include monitoring cash withdrawals as part of their fraud detection systems," she said. ®

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