I am, as a general rule, an identity theft skeptic. Of course, I know it is a real problem, I just think the smoke to fire ratio is very high. The fear, stress, and peculiar behavior that ID theft causes in consumers is out of all proportion to the actual danger.
Part of the reason the fear outstrips the danger is a widespread misunderstanding about who is the usual victim of identity theft. It is generally not the person whose identity is stolen, but the financial institution that gets defrauded in part two of the operation.
And the fact that it is generally large and sophisticated outfits that are the victims leads to the other reason the fear is overdone. ID theft is just not that easy to pull off. It takes a fair amount of effort and cleverness to get a credit card in somebody else’s name, and then the reward is merely that you can charge things for a short period, possibly lasting only hours, before the card company catches on and shuts you down. That is a tough way to make a living.
Or so I thought. Turns out there is one very large financial institution that you can cheat with only the minimum of ID thieving effort. It is called the Internal Revenue Service.
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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 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.
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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.
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Continuing my review of the year via a review of this blog that I started yesterday, today the topic is the interrelated themes of credit cards and identity theft.
It has been quite a year for credit cards. How bad, and just how flat out weird, things had gotten was made apparent back in February, when I posted about American Express paying a bounty of $300 to certain customers to just go away and stop being customers. As I said at the time, this can’t possibly make big-picture business sense, although it might have been a plausible reaction to some perverse incentives from Wall Street.
Sadly, my scheme to seek out other companies that might pay me not to do business with them failed miserably.
By June things had gotten even worse for credit card companies. Or maybe the mainstream media just discovered how bad it was and started reporting on it. The Times had a story about how card companies had done everything but start printing "or best offer" after your balance on the monthly bill. I had a post on that, which also pointed out that everybody hated the companies anyway.
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I like few things more than writing posts that cause consternation. A recent gem was on my confusion over debit cards and who can forget my assault on the irrational fear of identity theft. So why not combine the two themes?
Consumerism Commentary has a nice post today on writing "Check ID" in the little strip on the back of your credit card where you are supposed to sign it. Turns out that this is a relatively common practice and that it is against Visa and MasterCard’s rules. I guess I’m not really surprised at either of these facts.
Why would a person write "Check ID" on a card? I can only assume that it is an attempt to deter a potential thief from using the card if stolen. Does anybody really think this would work? How often do cashiers actually look at the back of credit and debit cards? And then there are all the situations, from the self-checkout line to Amazon.com, that there is no cashier.
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