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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."
Bank fraud is why i shutdown my business after losing about 15k. Banks make a LOT of money milking the merchants with fees & services to create a "Safe shopping facade" but to screw you over in the end. What sucks even worse is that the consumer always wins in the end regardless or not if the consumer is legit or fraud and the banks LIKE it that way.
Banks make a lot of money in playing the high risk game and its screws everyone over in the end.. someone is paying for it.
If lendors had to pay for the damage they cause, the problem would disappear overnight. They should be responsible, not the poor victims, for cleaning up the mess. Sadly, they do not care, as it costs them nothing.
"To those who are overly cautious, everything is impossible. "
Lenders are being completely rational from their perspective. They get paid for creating a market for loans. If they don't issue loans, they don't get paid.
They are using Other People's Money by packaging the resulting debt into CDO's and selling them off, so they don't have an incentive to look too closely at how credit-worthy the individual is. It's a bad combination of negative externalities and information asymmetry. It's a market failure that requires government regulation to fix.
What annoys me is that by coming up with the spin incantation "ID Theft", banks have been able to make what is actually their problem your problem
Its not "ID Theft" its FRAUD
Before "ID Theft" existed, con artists would regularly pretend to be someone they weren't in order to steal things. If I pretend to be an engineer from the local telephone company in order to con my way into an old ladies house and steal her purse, no one would even think for a minute that the telephone company should foot the bill, but when someone pretends to be me and convinces a bank to give them some money on that basis, apparently it is ok for the bank to turn round and try to get me to pay for the result of their gullibility.
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Ford's Pinto comes to mind as does the recent Toyota situation
The "Toyota situation" has been blown completely out of proportion. Whatever problems may exist with Toyota automobiles have long since been buried under sensationalist "OMG, if you own a Toyota you are going to die!!!" media headlines and politicians looking to build "I'm tough on big business" street cred. It's been alleged that 37 people have died due to problems with Toyota's in the last ten years. That's a drop in the bucket compared to the number of people who have died in old fashioned automobile accidents. Even if you accept that all of those were due to a design flaw (which hasn't been proven yet) it hardly seems worth all of this FUD.
I don't own a Toyota but if I did I wouldn't be afraid to drive it. I'd be more worried about getting killed because of the stupidity of a fellow driver than I would be about being killed by a design flaw in my own automobile.
I want peace on earth and goodwill toward man.
We are the United States Government! We don't do that sort of thing.
What's wrong with this solution?
The banks spend millions on lobbyists to fight making the laws more fair to the consumer. Otherwise your solution would already be law.
Banks start whining that making them responsible would raise the cost of extending credit. Good. Credit should be harder to get.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
If it's the bank's decision to lend or not, then the bank should take responsibility for fraud. Suppose Joe borrows money under my name fraudulently, from a bank I don't personally do business with. I have had no opportunity to influence the security of the bank's system, except politically. I have had no market influence, not being a customer. The decision of what level of fraud to accept is the bank's.
Any cost pushed off on me is an externality for the bank, since they don't have to pay, and they aren't even losing a customer. Therefore, market forces will not create incentives for banks to reduce fraud below what is best for their balance sheets. In the situation where I can be forced to repay the loan, there is no incentive for the bank to avoid fraudulent loans, and the amount of fraudulent loans increase until everybody's doing it as a matter of self-defense.
In general, the cost of a loss is best assigned to those with the ability to avoid the loss. That way, the market pushes them to the correct balance of preventing and accepting the loss.
"When you have eliminated the unacceptable, whatever is left, however improbable, must be the truthiness" - Holmes
You seem to be under the illusion that credit agencies are legitimate businesses, interested in the welfare of their customers, and you are their customer.
Let me fix that for you: Credit reporting agencies are a blackmail and extortion ring that somehow are allowed to legally exist. They don't give a shit that your information is correct or not, or if someone defrauds you. If you get defrauded, they're happy to just put it in the report. After all, if you get defrauded, you're a risk, aren't you? Still not their problem.
No one has ever been contacted by a credit agency, unsolicited, to verify the accuracy of information in their file.
The only way your idea will come to pass is if it is legislated.
Personally I think a better idea is to just get rid of credit agencies. Make holding information about a person without their knowledge or consent illegal. Require that anyone holding information (of a certain nature) about a person notify that person of the content and existence of that data on a regular basis. Thus holding information about people becomes expensive, and illegitimate extortion operations like credit agencies would be forced (economically) to improve.
1^2=1; (-1)^2=1; 1^2=(-1)^2; 1=-1; 1=0.
If I fall for a phishing scam because I'm convinced the site I'm looking at is owned by my bank, isn't that the bank having it's ID stolen? So if the phishers get me to give them money, the bank pays it back right? Obviosuly not, that would be crazy. Just because it was done in the bank's name doesn't mean it's the bank's responsibility. Surely then, it's just as crazy that private individuals have to pay back banks who get scammed, just becuase it's done in their name.
You seem to be under the illusion that credit agencies are legitimate businesses, interested in the welfare of their customers, and you are their customer.
Let me fix that for you:
You're completely right. The Fair Isaac score is a measure of how likely a creditor is to make money from you. If you're a victim of identity theft, then you may cost the creditor money. So you necessarily get a lower score.
The credit reporting system is an ingenious scam. They've created a number from nothing. Then tied this number to behaviors they want to see from you. Don't go into enough debt? You get a low score. Don't pay reliably? You get a low score. It's a worthless shiny object that you've been conditioned to pursue.
They flood television with commercials spouting propaganda for the current system of credit. Responsible people pay their bills on time, even if it means they have to feed their kids crap food for dinner, or pull them out of private schools, or avoid taking them to the doctor because they can't afford it. Responsible people establish and maintain a good credit history. Responsible parents teach their kids about credit and help them get their first credit card. It's a confidence game. You groom the mark. Then you fleece them. You give up your hard-earned money so that a number in a computer doesn't drop.
Here's how it is folks: take care of yourself and your family first, even if your credit score takes a hit. You can't eat your credit score. It won't keep you warm in the winter. And if you have no desire to finance anything, then your credit score is utterly irrelevant.
Disconnect your television. Do your own research. Draw your own conclusions. They're probably lying. Don't be a sheep.