More Trouble for LifeLock

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.

Government, Identity Theft | Frank Curmudgeon | March 10, 2010 12:59 pm

29 Comments

By Victimized, March 10, 2010 @ 1:17 pm

Frank,
i can’t speak for anyone else, but i have been victimized on 2 separate occasions – in 2003 and 2007. while i was not out any money, it was a royal hassle and in fact i just discovered the 2003 incident just got put back on my credit report, which may prevent me from refinancing my home. it’s not exactly painless, and if it does happen to you, like any crime, you definitely become more paranoid.
By Neil, March 10, 2010 @ 2:13 pm

It’s not clear to me that selling something you don’t need is wrong, from a business perspective. If this was the case, I would think that almost all advertising would be pointless, since if you needed it, you wouldn’t need more than a trivially small ad to make you aware of the products existence.

The vast majority of advertising exists to convince us that things that we NEED things that really we just want, or maybe don’t have any use for at all. Lifelock is hardly an unusual case.
By jim, March 10, 2010 @ 2:34 pm

ID theft isn’t as bad as some people seem to make it out to be but its certainly a significant problem that we should be aware of and concerned about.

Most ID theft is not very significant. Usually its someone gets your credit card info and tries to buy something with it. Or they get your bank account # and try to cash a fake check. But when people hear ID theft they think of someone taking over their whole identity and taking out a mortgage, buying a boat, charging up $50k in credit card debt and so forth.

Twice people tried to use my credit cards. Once they succeeded and once they failed. Both would count as incidents of identity theft. Both times my credit card company caught it and it didn’t hurt me at all.
By jim, March 10, 2010 @ 2:37 pm

That FTC number is an under estimate of the amount of ID theft. That number is only the # of complaints the FTC files. Surely less than 100% of people report ID theft to the FTC. Other data based on survey concludes the frequency of ID theft is in the millions /year. Of course that may be inflated. Either way, we don’t have very good estimates of the extent of ID theft and the estimates we do have vary by a factor of 10 or more.
By Steve, March 10, 2010 @ 3:07 pm

10 or so years ago if someone got hold of your credit card number and used it for something, it was simply credit card fraud. Now it’s “identity theft” and (one of) the bugaboo(s) of our time. It’s ridiculous.
By Investor Junkie, March 10, 2010 @ 3:19 pm

My wife had her identity stolen in 1995. This wasn’t her card was stolen, this was someone got new credit cards in her name. It was a MASSIVE pain to fix and took years to clean up her record. It turned out to be a co-worker took her Social Security number and applied for a few cards. Racked up a few thousand and in the end my wife did not pay for those charges.

While laws have changed since then, it’s still not easy. I don’t think it’s the fact of how often it occurs, it’s when it occurs is a massive pain in the arse to fix.

While I’m overall with you Frank about LifeLock, what other good options exist?
By tm, March 10, 2010 @ 7:57 pm

@Investor Junkie: Essentially all of what Lifelock did for $10/mo you can do for a little time, every 90 days. That is, put a fraud alert on your credit files, and renew it every 90 days. I believe in cases like your wife’s she can have one on for a longer period of time.

But as you probably can guess, that’s no guarantee. In many cases, it takes more proof of identity and residency to establish a library card than it does a credit card. You’re just going to have to operate, if you don’t already, with more paranoia. There’s no silver bullet, and no one else will be as interested in protecting your credit as you.

The fact is Lifelock (and others pushing “ID theft protection”, including the 3 credit bureaus and almost every financial company) knows things we don’t want to acknowledge about ourselves:
* We are lousy at assessing risks. We are afraid of rare, sensational risks (e.g. plane crashes) than of frequent, mundane ones (e.g. car crashes). Anecdotes about how people were put into the poor house because their SSNs were stolen only reinforce this. No one advertises anecdotes of how easy it is to get a new card issued after calling a bank’s fraud dept, nor would anyone care.
* We hate paperwork or otherwise corresponding with large institutions. What lifelock did for $10/mo, any of us could do. But we don’t, since it requires some dreaded paperwork and interaction with a bureaucracy. We are apparently a bunch of teenagers waiting for Project Mayhem, since we balk at even the shortest form.
* We’re not interested in the details. There’s a difference for Frank if he sees a $400 charge he obviously didn’t make vs getting a letter from a collections agency for an account he never set up. It is in the interest of lifelock and others to not make this distinction clear, even if it’s a common sense one, and lob it all into the “ID theft” bin. And we go along with it, since we hate pedantry just as much as we hate paperwork.
By Investor Junkie, March 10, 2010 @ 10:49 pm

@tm Let may reply to your bullet points. Isn’t what you describe what all businesses do? In the end you CAN do it yourself, but choose to hire someone else to do it for you instead? Be it being stupid, lazy, or have money to burn.

After all they have the experience in it, not you. I know this doesn’t completely apply to LifeLock, but you get the idea.
By Naomi, March 12, 2010 @ 10:44 am

@ Investor Junkie: Freeze your credit.
By tm, March 12, 2010 @ 10:27 pm

@Investor Junkie: Certainly, a lot of these points apply to many services. But I think in this case it’s not just a matter of convenience, but people allowing their unsubstantiated fears of “ID theft” (substantiated in your case, yes), combined with disdain for paperwork to lead them to buy a pretty useless service.

What you describe is something like, say, a travel agent, a tax preparer, a guy to mow your lawn or change your oil. That’s convenient, and it has the benefit of being fairly clear about what you get for your money.

At the end of the day with Lifelock, if I get a $400 charge on my credit card, my bank still needs me to call that in. And if someone sets up a new credit account, all lifelock is going to do is cut me a check. You can tell me whether the amount of money they offer makes up for all the hassle you faced.
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