To sign or not to sign?

By James Ambrosio ٠ Bankrate.com

For as long as credit cards have been in use, it has been standard operating procedure for issuers to urge cardholders to sign the back of new cards as soon as the plastic arrives in the mail.

But in an era when credit card companies promote "zero fraud liability," online transactions are commonplace and point-of-purchase card readers and self-checkouts at retail stores essentially remove clerks from even handling the card, let alone looking at the signature, does it really matter if you do?

"There is very good evidence that signing the back of your card is meaningless anymore," says Paul Mason, assistant dean of the University of Kansas School of Business. Mason is a certified fraud investigator and CPA who has been teaching courses on fraud for the past eight years and is writing a textbook on the topic for college-level instruction. "I can tell you that in the Midwest, where I live, it is most unusual to have a clerk look at the back of the card. They usually swipe it and hand it back."

Check ID
In truth, there is a large segment of the card-carrying public that simply refuses to sign their cards, believing it helps protect them from fraud if their cards are lost or stolen. Mason is one of them. Instead, he writes "Check ID" on the signature panel. Should a shopkeeper look at the back of his card, he says that phrase should prompt a request to see a driver's license or other form of ID.

Another proponent of the "Check ID" practice is David Dixon, a telecommunications consultant from Kansas City, Kan., who says he travels over 100,000 miles each year. His rationale is simple: "If I'm out on the road and I lose my credit card, I want to make it as difficult as possible for thieves to use it," Dixon says. "The only thing I have signed is my driver's license. I don't sign the back of my cards, period -- with one exception. I did sign my Bank of America card because it has my picture on it. I don't know why every credit card company doesn't do that. There are people that resemble you, but the chance of them stealing your card is remote. To me, not signing the card just makes good sense. Anything to make it more difficult for thieves."

Lest you wonder, this "don't sign your card" is not a phenomenon unique to Kansas residents. The Web site ScamBusters.org wrote a piece in 2004 listing 21 steps to protect yourself against card fraud and instructed readers to sign their cards. The site was inundated with mail from people around the country who subscribed to the same theory as Mason and Dixon.

Prankster John Hargrave relates stories on his Web site, Zug.com, of using increasingly wacky signatures to see if anyone would ever notice if it looked like the one on his credit card. For example, he paid for an order at a Krispy Kreme franchise by signing the receipt "Dunk 'N Donuts." At a local aquarium he signed his card receipt "Shamu" and drew a picture of a whale. Both were accepted without question. His conclusion: "Who checks the signature? Nobody checks the signature."

In his experience, Dixon says, few merchants bother to verify signatures. The one exception he's encountered in recent years: the U.S. Postal Service.

The issuers reply
What does the credit card industry have to say about it? Jay Hopkins, who represents Visa, says that merchants are supposed to verify signatures when accepting Visa's cards and that failing to do so could possibly make the merchant liable for fraudulent purchases.

As for the idea that not signing your card makes you less vulnerable to ID theft, Hopkins says simply that the practice is "urban folklore. If you write 'See ID' in your signature panel, the card is not considered valid and merchants are not supposed to accept it. If cardholders want to write that with a marker on the back of the card, that's all fine and dandy, but they should still sign the card."

MasterCard's Web site instructs merchants that "the back of the card must be signed, and the signature should reasonably compare to the cardholder signature on the sales receipt. Check to be sure that it has not been taped over, mutilated, erased or altered in any suspicious manner. The word 'Void' on the signature panel indicates that the signature panel has been tampered with."

Fight that fraud
Despite increased credit card commerce, fraud rates have actually declined in the past 15 years. According to The Nilson Report, a credit card industry publication, losses from credit card fraud in 2004 amounted to about five cents for each $100 in transactions, versus a peak of 16 cents per $100 in 1992, a decline that happened against a backdrop of huge increases in transaction volumes.

Obviously, given the billions of dollars in credit card transactions conducted each day, six cents for every $100 in sales still adds up to a lot of fraud, which explains why the card companies focus on combating it through more technologically sophisticated techniques than old-fashioned signature verification.

A common means of stealing credit card numbers is "skimming." In a skimming scheme, a crooked waiter or clerk swipes the card through an inexpensive device that records the information encoded on the magnetic strip. It can be stored for later use for purchases or sold to organized theft rings. Customers generally won't know their card number was stolen until they start seeing unusual charges on their bills.

Of greater concern, says Mason, is that "skimming can lead to identity theft. I'm much more concerned about that than credit card fraud."

To combat such schemes, the card companies use what they describe as a "layered" approach to combating fraud. The techniques include analyzing spending patterns to detect odd purchases that might indicate fraud, requiring holders to first enter their ZIP code as a top-level address-verification tool at point-of-purchase terminals, or asking online purchasers to input the unique three- or four-digit codes imprinted on cards that are separate from embossed account numbers.

These days you can check out by yourself in large retail stores and grocery chains. Self-service gas pumps with built-in card readers make it unnecessary for the purchasers to interact with the merchants in completing the transaction. And if the card never leaves the cardholder's hand, it should be more secure.