Three people are under arrest after seven illegal credit card reading machines were seized by detectives investigating chip and pin scams worth more than £2 million.

Police raided homes in the Penn Fields area of Wolverhampton and Birmingham’s Edgbaston district, in what officers today described as a “significant success” in the fight against card fraud.

At the Edgbaston address, police found seven commercial card reading machines, normally used by shops and businesses for customer transactions, and a large number of suspect plastic cards.

Mobile phones and documents were also seized in the raid.

Police believe the equipment had been used in alleged fraud totalling around £1.8 million.

The sting at the Penn Fields address, where one arrest was made, was part of an investigation into the alleged fraud by use of card machine totalling £400,000.

Police believe thieves hide devices inside check-out card readers to unscramble codes and reveal customers’ pin numbers. They then clone new cards, which will not work in UK cash machines, to withdraw money abroad.

Two 35-year-old men and one 26-year-old man remain in custody on suspicion of unlawful possession and use of chip and pin credit card reading machines.

Det Sgt Scott Shaw, of the West Midlands Police economic crime team, said: “These arrests are a significant development in our fight against organised criminal gangs responsible for this type of fraud.”

“We believe the recovery of so many of these machines at these locations is a significant success.”

In 2007, total card fraud losses nationally increased by 25 per cent to £535 million.