Thursday, May 03, 2007

How To Beat Identity Theft

Have you been the victim of identity theft? I bet you have.

A few years ago I was charged on my credit card for an expensive plasma TV by a shop in the UK. On another occasion, my bank, after swallowing up a number of smaller banks around the country, ended up with duplicate account numbers in their system, and somebody else's checks started hitting my account (withdrawals only). Then there was the time that someone who worked for me was making personal phone calls overseas on my phone, and I was charged for them. I could go on.

We've all experienced these sorts of SNAFUs. They are not new. In bygone years, you only had to worry about identity theft if your purse or wallet was stolen, but with the advent of the information age, organized crime has gotten involved and "Identity Theft" has become a cause célèbre and a call to action. (According to the Federal Trade Commission web site, "The FTC’s final rule defines “identity theft” as a fraud that is committed or attempted, using a person’s identifying information without authority.")

Thanks to information technology, it is significantly easier now-a-days for criminals to masquerade as you or me. Armed only with your name and you bank or credit card account number, it is possible for you (or someone else), to go online or to the mall or to the bank or call an 800-number and arrange to purchase goods and services or transfer/withdraw money. With your Social Security Number, bad guys can cause mischief in all sorts of clever ways, like opening credit or loan accounts in your name.

Sign of the times... "Easy money, no stickup required."

Thanks to the media, whenever a laptop computer with confidential, personal information on large numbers of people goes AWOL, an identity theft alert is broadcast. But, what can you and I do about it, really? There is not much any individual can do beyond monitoring their bills for mistaken charges, disputing such charges and having them reversed.

Generally speaking, you are not responsible for fraudulent use of your identity. You have zero liability so long as you act in a timely fashion once you detect (or should have detected) identity theft.

The process of disputing charges and clearing your credit history, however, is not simple. It varies widely depending upon the type of account involved (debit vs. credit), the issuer of the account, the terms of the account, and state and federal laws. For example, I have found the dispute resolution process of American Express to be more consumer-friendly than bankcard processes. And credit card charges are easier to dispute than debit card charges.

Contrary to what many people think, the liability for credit card fraud is not borne by credit card companies. It is borne by merchants. Even though a credit card company "authorizes" a charge, it can and does charge-back a disputed transaction to the originating merchant if/when fraud is alleged. At that point, weeks after the sale, the fraudster is probably long gone and the merchant is stuck with the loss. Identity theft (credit card fraud, to the merchant) has become a cost of doing business, like shoplifting.

Credit card companies, banks and other financial intermediaries are in the best position to identify, catch and prosecute identity theft, but they have chosen not to. Rather than going after the bad guys, they have pushed the problem off on the merchants, who lack the data and the computers to make these cases.

Some intermediaries are even profiting from consumers' fear of identity theft by selling identity theft insurance! According to the consumer experts that have looked at it, identity-theft insurance isn't worth its price.

Unless and until merchants say they are not going to take the charge-backs anymore, identity theft will continue to be a problem. And/or after consumers realize that the credit card companies, banks and other financial intermediaries are exacerbating the problem, then we'll start to see the financial services industry get serious about dealing with identity theft.

1 comment:

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