HSBC's Practice of Sending out Pre-Activated Debit Cards Coming under Scrutiny

With the level of attention that identity theft and financial crimes, it’s a wonder to some that HSBC is still sending out pre-activated ATM cards and debit cards. These pre-activated cards require none of the authorization or activation methods required for most standard debit cards that arrive by mail. Activation methods are typically used to protect both the bank and the consumer. A typical new card activation method requires a cardholder to call a toll free number from the cardholder’s home phone to activate the card. This helps the issuing bank confirm that the cardholder actually received the card before use. Typically, a card is unusable until it has been activated.

Apparently, HSBC has been mailing some cards that are active and that do not require a user to perform such an activation process. This potentially dangerous practice is nothing new to HSBC. They came under fire in 2004 for mailing pre-activated cards, resulting in an increase of fraud and stolen identities.

Knowzy.com recently published an in-depth article on how HSBC Bank commonly mails pre-activated cards and does not follow this fundamental security procedure.

In the article, Knowzy points out the potential harm to consumers that could occur: Since some of these debit cards draw money directly from your checking account, HSBC’s carelessness puts all of the money of your account at risk.î And, should fraud occur, you could not see your money again for weeks.î

In Knowsy’s investigation, it found two HSBC divisions with long-standing practices of sending pre-activated ATM and debit cards through standard mailings, which any malevolent thief could intercept and use to their heart’s content. While credit cards often offer immediate refunds for unauthorized purchases, debit cards usually require weeks-long investigations before account-holders see their money returned. Apparently, HSBC does not intend to change this practice anytime soon.

Based in London, HSCB bills itself as the world’s local bank, and has over 8,000 offices in 88 countries across the world. As it turns out, it is not the only financial institution that is sending pre-activated cards through the mail. According to multiple reports, First Premier, which issues a fee harvester card (a term branded by the National Consumer Law Center to describe credit cards for which almost anyone can qualify if they pay substantial up-front, annual, and credit-boosting fees), and Coutts, which is recently announced its new Visa debit card, are also in the practice of sending out pre-activated cards.

EFT-POS.com, a UK-based company that offers credit- and debit-card processing systems, announced that 2004-2005 card fraud figures rose dramatically, especially mail non-receipt fraud,î as the result of criminals intercepting such pre-activated cards.

When Knowsy confronted HSBC about this careless custom, the company would not commit to fixing the issue. And, unfortunately, there are no laws prohibiting the sending-out of pre-activated cards, so don’t expect that other banks will necessarily not engage in the practice.

The best bet for cautious consumers who do not want their checking accounts suddenly wiped out is to ensure whatever bank in which they choose to invest their hard-earned funds does not allow pre-activated cards to be sent in the mail. Otherwise, as the saying goes, they are just asking for trouble.

This is a guest post by the Editor of GetDebit.com, a site focusing on debit cards including reviews of some of the best prepaid debit cards.