The myth of identify theft allows banks to push the costs of effective credit checks on to you and your customers. Here's how to fight back.
Last week there was yet another massive data breach at a payment processor. Credit card companies are scrambling to alert more than 10 million card holders to be on the lookout for identity theft; as a business owner, you can brace for yet another wave of fraudulent plastic purchases. The only problem is...Identity theft doesn’t really exist.
No one disputes that crooks commit crimes using personal data. The Federal Trade Commission reports that even while the banking industry collapsed, the fraud business thrived. In 2008 and 2009, 4.2 million cases picked our collective pockets for more than a $6 billion and cost business owners more than $2.4 billion in lost sales and productivity.
According to the sixth annual in-depth study by the independent Identity Theft Research Center (ITRC), using stolen information to open a new line of credit was by far the most frequent financial crime attached to identity theft. It’s been that way six years out of six, with 67 percent of identity theft cases involving financial institutions putting a client's good name on the plastic in some criminal’s wallet. In other words, identities aren't being stolen, rather...Banks are simply failing to do their jobs.
Banks’ and credit bureau's inability to detect fraudulent credit applications affects all of us in far-reaching ways. Businesses—large and small—are on the hook for billions of dollars in missing merchandise and downtime by employees who's accounts are compromised. The ITRC found that, on average, each person dinged by a bogus loan application spent $951 in out-of-pocket costs and had to spend 165 hours—that’s four weeks at a full time job—trying to undo the damage done.
Banks are supposed to keep the banking system safe. They aren’t supposed to empower thieves to steal money from businesses. Yet the only penalty banks pay for their failure is a “cost of doing business,” which they pass on to customers and business owners in the form of higher fees.
“It’s recklessness without accountability,” says Consumer Advocate Ralph Nader. “It’s as if someone’s saying, ‘Hey, a lot of bikes are being stolen, but nobody’s thought to build a better bike lock.”
Other experts contend that financial institutions might actually have a motive to perpetuate the problem rather than solve it. “Banks and credit bureaus are all pitching credit protection services and it’s become a significant source of profit for them,” said James Scurlock, author of Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders. “They are selling people a solution to a problem they themselves created. It’s the genius of capitalism that you can turn something that awful into a profitable enterprise.”Until banks step up, here's how to protect yourself
The best defense against identity fraud would be for lenders to implement effective verification of applicants. You, your employees, and your customers would no longer need to worry about data breaches. With no opportunity to cash in, the crooks wouldn't bother. Of course, the multi-billion dollar "credit protection" industry would likely disappear too.
Until the credit bureaus and financial institutions are held to account for their own weaknesses in security, you can minimize your company's exposure to fraudulent purchases by checking ID's on all credit card purchases. If you do business online, always require the input of the CVV code from the back of the card. Some banks will indemnify you against losses due to identity fraud. If yours doesn't, get a new bank.
In your personal finances, you can eliminate most of the risk of new credit lines being opened in your name by putting a “freeze” on your credit report. A credit freeze prevents new inquiries or applications in your name unless you arrange in advance to temporarily unfreeze your profile with a special ID number. Getting a new loan may take an extra day or two, but that’s a small price for the assurance that you’re your credit won’t get pirated.
Of the fifty states and the District of Columbia, only Alabama, Michigan and Missouri lack laws requiring the credit bureaus to offer a credit freeze. However, even in those states, all three national credit bureaus—Equifax, Experian and TransUnion—are providing them voluntarily. (So, basically, they are available everywhere.)
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