Credit Cards and Identity Theft

I ran across an interesting article on identity theft that points out the 50 million or so accounts whose security has been compromised so far. Bottom line: one in six people here in the USA may be subject to risk of identity theft to date. The article goes on to say that the most powerful weapon that an individual could have, and doesn’t yet have, would be to call for a “credit freeze”, blocking the credit reporting agencies from passing out their sensitive information to anyone. I’m going to suggest that isn’t the most powerful weapon against identity theft. That, in my estimation, would be a requirement that any entity releasing sensitive personal information about an individual for commercial purposes (as opposed to duly authorized law enforcement agencies doing their job) should have to obtain the individual’s permission to release that information. That’s a far broader protection, and thus far less likely to be popular among the pro-business, anti-consumer crowd currently controlling national legislation.

Of course, with the prevalence of identity theft soaring, and the egalitarian avarice of the crooks employing it (even CEOs of major corporations have been victimized), perhaps it will not be too long before even those controlling the deep corporate political moneybags will realize that the problem must be addressed, not just used as an opportunity to extract money from fearful consumers.

I got a phone call the other day, much as I expect that you have received if you have a credit card. It was my credit card issuer with an offer to send me a free credit report to check for signs of identity theft. Of course, this is not really free. Before they will send a credit report, they want to sign you up for an “identity theft protection” program. They go on about how many people have been victimized by identity theft and how disruptive such incidents are. If I assent, for somewhere between $36 and $96 per year, some third party is given access to my personal records from my credit card issuer in the hope that they will do a better job of detecting when identity theft may occur than I will. My usual response to these fear-mongering tele-robbery sessions is to say, “You do not have my authorization to change my account in any way,” followed by disconnecting the call. But that day, I decided to ask a couple of questions.

“Tell me, please,” I said, “is it the case that identity theft is a financial burden to your company?” “Yes, certainly,” was the reply.

“So, reducing the amount of identity theft would improve the financial bottom line at your company?” I asked. “Yes,” was the reply.

“Why, in that case, are you asking for the consumer to bear the cost of a program that you admit benefits your financial standing?” “Well, we can’t pay for the protection given to the client,” said my would-be robber.

I then informed her that she had no authorization to alter my account in any way and hung up.

It should be obvious to everybody that if there were a cost-effective means of nipping identity theft in the bud by looking at credit card data, then the credit card issuers would already be applying it for all their accounts as a matter of good business practice (i.e., maximizing profits and minimizing costs). They wouldn’t be hawking an additional-cost service to consumers that would be sure to leave them vulnerable on a significant proportion of unprotected accounts. At least, that would be the case if credit card issuers acted rationally. As it is, my conclusion has been that the only effectiveness of these programs is in moving money from consumers to the operators of these programs, and, of course, to the credit card issuers.

Resources on identity theft:

Federal Trade Commission page on identity theft. This page has the steps to take if you suspect that you are a victim of identity theft, with links to an identity theft affidavit and instructions on how to inform the FTC of instances of identity theft. There is a hotline to call, 877-IDTHEFT.

CNN Money article on identity theft. The article noted at the top of this post. Has several suggestions for clamping down on identity theft, including how to get a free copy of your credit report every four months (ask for your annual free copy from each of the three credit reporting companies in succession), means of protecting your personal information, and pushing your legislators to give consumers the right to put a “credit freeze” on their account.

Privacy Rights Clearinghouse article: Identity Theft: How It Happens, Its Impact on Victims, and Legislative Solutions.

More resources on identity theft.