The Usefulness of ID Theft Fear

As readers of this blog know, I consider the smoke-to-fire ratio on ID theft to be heavily skewed to smoke. ID theft does occasionally cost consumers real C Cards 2 (Andres Rueda)money and cause real headaches, but those occasions are orders of  magnitude rarer than popular wisdom would lead you to believe.

The basic truth about ID theft is that it is a form of fraud in which the consumer almost always plays the role innocent bystander rather than victim. Sure, sometimes innocent bystanders get hurt, but the basic idea of ID theft is to trick a financial institution into handing over some cash. Why steal from a consumer when you can steal from a bank? As a great philosopher once said “that’s where the money is.”

One of the reasons that this basic truth is routinely obscured is that perpetuating the Great ID Theft Scare is just so convenient for so many people. The snake oil salesmen at LifeLock and it’s competitors are leading examples, but there are others. Journalists in search of an easy story to write are another.

There are creative entrepreneur types. From FiveCentNickel we get news of a new web-based service that will give you a score that will “assess your risk of identity theft.” It is provided by a company called ID Analytics, which calls itself “the leader in on–demand identity intelligence” and “has been on the forefront of identity scoring since its inception in 2002.” Even I think that’s a little creepy.

And although the primary victims of ID theft, banks, credit card companies, and the like, do not do nearly as much to thwart it as you might expect, they are quite happy to accept free help from frightened consumers. That they do not do everything they can to stop it, by, for example, requiring a user of a credit card to show ID, is simple economics. Any gain they would get from reduced fraud would be smaller than the revenue loss they would get when cranky consumers like me used the card less frequently.

Happily for the card companies, there exist many non-cranky customers who, filled with charity, assist the issuers of plastic in their noble cause by writing “check ID” on their cards. I am sure the banks tear up with gratitude every time they think of these kind souls.

One thing that the card companies do spend time and money on is scanning incoming transactions looking for possible cases of fraud. I’ve been called twice by my card company in the past ten years on this. Once, via the miracle of jet travel, I had managed to charge meals in New York and Paris on the same day. (The woman on the line wasn’t very impressed at my glamorous life when I confirmed this, which was disappointing.) The second time a guy called to ask, in a tone that told me he understood it was a really stupid question, if I had spent several hundred dollars at a Toys R Us in Florida earlier that day. I had not.

I can tolerate once every five years or so as the frequency for these inquiries. I can even find them amusing in a way. Any more and crankiness would kick in.

Happily for the card companies, once again those non-crankies scared of ID theft are willing to help out. According to SmartMoney, several big banks have rolled out a “service” that allows the customer to pitch in and help screen those transactions. The version from Wells Fargo, called Rapid Alert,

sends alerts via text message or email generally within seconds of a flagged transaction, such as an international purchase or one in which the card is not present. Account holders set the criteria for a flag themselves.

I suppose for the true control freak this could be amusing. It also might work as a way to further monitor the movements and actions of a teenaged child, in case 24/7 GPS tracking wasn’t intrusive enough.

But by and large this is simply getting the customer to do some work for free, like convincing supermarket shoppers to scan their own groceries.

However, it may be that this time the banks have gone too far and their erstwhile volunteers are catching on. WalletPop carried a post on this new service asking Do high-tech fraud alerts really help consumers? The post is not as emphatic in answering no as I would like, including the remarkable understatement that “for customers, there’s not much incentive to participate” but it does say no. And that’s a start.

[Photo Andres Rueda]

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