I keep meaning to write more about identity theft. It combines several of my favorite themes, including the triumph of compelling narratives over actual facts, cloddish government bureaucracy, and, of course, bad money advice. Also, when I write about it I tend to annoy certain people that I enjoy annoying.
Yesterday the FTC and 35 state attorneys general announced a settlement with one of the major players in the ID theft business, LifeLock, in which the company agreed to pay $12M and stop its hitherto deceptive advertising.
I am willing to admit that when I entitled a post The Death of LifeLock last June I jumped the gun a little. Still, the outlook for the company continues to deteriorate. Yes, for a company of its size, a back-of-the-envelope has annual revenue at $180M, forking over $12M is not the end of the world. But it’s a noticeable hit. And the restrictions on advertizing may just be the beginning of the end.
LifeLock is all about advertising: TV, radio, magazines, billboards, direct mail, and even on-line. And it is not known for subtlety. In fact, what it is universally known for is a campaign based around its CEO disclosing his social security number. Media outlets ranging from The New York Times to Wired started their stories on yesterday’s announcement by identifying the company by that stunt. Of course, both stories also mentioned that somebody used the CEO’s SSN to get a fraudulent payday loan in 2007.
LifeLock’s pitch is that if you send them money you will no longer have to lose sleep over the looming specter of ID theft. As quoted by the FTC, its ad copy has included such reassuring items as:
- “By now you’ve heard about individuals whose identities have been stolen by identity thieves . . . LifeLock protects against this ever happening to you. Guaranteed.”
- “Please know that we are the first company to prevent identity theft from occurring.”
- “Do you ever worry about identity theft? If so, it’s time you got to know LifeLock. We work to stop identity theft before it happens.”
The FTC’s release did not get down to details as to what LifeLock will be allowed to say in the future, but any reasonable person would have to assume that it included the above as examples of what would no longer be allowed. The first two clearly exaggerate LifeLock’s effectiveness. Nothing is guaranteed or simply "prevented." But the third one only claims that the company will "work to stop identity theft." If the company won’t be allowed to even claim to be attempting to stop ID theft, then what can it say?
It is possible that from the FTC’s point of view, the answer to that question may be nothing at all. From reading the complaint and based on some of the quotes in the media, it is fairly clear that the FTC and the state attorneys general think LifeLock is a borderline criminal scam that might as well just go out of business.
I agree with that sentiment, but the FTC is ignoring half of the ad campaign, and it my view it is the more damaging half. LifeLock doesn’t just offer a guarantee that it cannot make good on that ID theft will not happen to you. It works hard to hype up the danger of ID theft until you are willing to pay $10 not to worry about it. (See my discussion of LifeLock’s frightening numbers here.)
Unfortunately, the FTC is on the side of the ID theft scare mongers. Far from knocking LifeLock for exaggerating the danger, they complain that the company was deceptive in focusing on ID theft involving new accounts being opened, which makes up, according to the FTC’s definition, only about a fifth of ID theft incidents.
Except that for most people, that is exactly the sort of thing they are worried about. Most folks wouldn’t consider a teenager who borrows mom’s Visa to buy a pair of earrings at the mall to have committed ID theft. But the FTC does, and it uses this broad definition to pump up the numbers. Even then, it counted only 318,000 occurrences in 2008, which works out to about 1 in 1000 Americans.
Add to these rather long odds the fact that in the vast majority of cases the damage to the person whose ID was stolen is trivial, and you realize that LifeLock is not merely selling something that does not work as promised, they are selling something that you probably would not need if it did work.