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Why Lenders Overlook Warning Signs of ID Theft
Hugh Pickens writes "Despite all the new fraud alert tools and increased awareness of the perils of identity theft, incidence of the crime remains at 2003 levels, with about 10 million Americans falling victim every year. Now the NY Times reports that there may be a simple reason for the persistence of ID theft: lenders are too willing to extend credit to just about anybody, even when there are big red flags that indicate fraud. Chris Jay Hoofnagle at UC Berkeley worked with a small sample of six ID theft victims and delved into how they were defrauded. Of 16 applications presented by imposters to obtain credit or medical services, almost all were rife with errors that should have suggested fraud — yet in all 16 cases, credit or services were granted anyway. 'Identity theft remains so prevalent because it is less costly to tolerate fraud,' writes Hoofnagle. 'Adopting more aggressive and expensive anti-fraud measures is extremely costly and jeopardizes customer acquisition efforts.' Hoofnagle says business decisions leave individuals and merchants with some of the externalities of identity theft as victims spend their own money, and more often, valuable personal time dealing with the problem. Hoofnagle suggests that lenders contribute to a fund that will compensate victims for the loss of their time in resolving their ID theft problems."
If you steal someone's identity and scam a bank out of $1,000, then there is more than one victim: namely, the person whose identity you stole, and the bank (or broadly, its shareholders)
If the ID theft involved a credit card account then you can add the merchant(s) to your list of victims. When a credit card charge is disrupted it's the merchant who winds up taking the hit.
I want peace on earth and goodwill toward man.
We are the United States Government! We don't do that sort of thing.
This is why they can get away with it; Lenders sign up as many new lending accounts as possible. They have certain % that will default or are fraudulent. They buy insurance for this risk. The insurance company sells insurance policies which it says have a certain risk (low compared to the # they sell) of actually being claimed on. An insurance policy is something that keeps making money (with a certain % risk of being claimed on). These policies are sold as investment instruments (insurance bonds) to investors. Investors like you and me. They are put into people's pension funds, 401Ks, RRSPs, wrapped into various types of funds. And bingo.... it is now you and I who are carrying the risk. Magic.
How about the credit agencies be required to inform me when they give out reports about me? They already know everything about me, right?
You can get this service, for a fee. Unfortunately, you have to pay for it.
Also, you can put a fraud alert on your credit file. That forces the lender to contact you directly to confirm your application. Unfortunately, you have to renew it every 60-90 days, at all 3 credit reporting agencies. Of course, you can pay a fee to have someone do it for you.
I've been paying for this service for a few years. I don't like it, but it's a necessary evil after my birth certificate was stolen during a burglary at the home of another family member.