Published March 09, 2014
| Consumer Reports
The big three credit bureaus and companies such as ID Guard, LifeLock, and TrustedID want you to spend $119 to $275 per year for identity-protection services built around credit monitoring plus other personal information tracking. But you're already well protected free by federal consumer rights, eagle-eyed creditors, and do-it-yourself safeguards, two recent studies show.
Although the number of identity fraud victims was up 4 percent last year, to 13.1 million, 81 percent of what is now dubbed identity fraud involves the theft of credit and debit cards or their account numbers, according to the latest study released last month by Javelin Strategy & Research, a California consulting firm that has tracked this crime since 2005. Existing card fraud jumped 46 percent last year, meaning 4.6 percent of all consumers last year were victimized, up from 3.1 percent in 2012, according to Javelin's data. That's bad news.
But the good news for consumers is that when someone steals your plastic, federal laws limit your loss liability to $50 per stolen card, if you report it within certain time limits after discovering the theft, loss, or unauthorized charges. Card issuers and payment processors also typically cover customers with zero liability policies to encourage consumers to use their brands.
Consequently, 94 percent of credit-card-fraud victims and 84 percent of debit and bank-account fraud victims lost no money out of pocket, according to a separate Department of Justice study released last December.
And there's more good news. The incidence of the kind of identity theft that you probably truly fear, which involves a crook stealing your Social Security number and other personal information to open new credit accounts in your name, plummeted last year to a "historic low," says Javelin. Only 0.5 percent of all consumers suffered that nightmare last year, down from 1.2 percent in 2012, the data show.
Read "Debunking the Hype Over ID Theft" for details on how credit bureaus try to scare scare up business for their costly protection services.
Javelin attributes the reduction in new account fraud to better identity verification procedures by lenders when customers open new accounts. There's also an economic incentive for crooks. "Existing card fraud is just easier than creating a full identity and opening new accounts," Al Pascual, senior analyst of security, risk, and fraud at Javelin, said. "Once you have the card or the account number, it’s a hop, skip, and a jump to getting a payoff for your crime."
Big security breaches have made plenty of cards available to criminals, and demand from them is strong, as evidenced by the fact that stolen-card prices were stable, at $20 to $50 per card, during the Target data breach last year. "Criminals like card data," Pascual said. "It has lower risk and takes less time and energy to turn it into cash."
The Department of Justice study also found that card issuers are much more effective at identifying existing account fraud than credit monitoring and identify protection services. Almost half of existing account fraud victims learned about the crime from their financial institution, while less than 1 percent discovered it from a credit monitoring service or credit report.
Think about that: Credit and identity monitoring services significantly inflate the need for their service by including existing card theft—for which their service provides poor protection. And while credit monitoring can help notify customers about new account fraud—after the fact—the incidence of that is small.
The poor performance of credit monitoring was all the more pronounced in comparison to do-it-yourself monitoring; 33 percent of existing account victims discovered the fraud while checking their account statement or balance, after realizing their computer had been hacked, or they came across it by accident.
How to protect yourself? Don't waste money on credit and identity theft monitoring. Instead, monitor your accounts regularly via online and mobile banking access to guard against existing account fraud. Set up free alerts on your debit and credit card accounts that will warn you, via e-mail or text message, about specific indicators of possible trouble, such as overseas charges or debits, an unexpectedly low balance, and transactions over a set dollar amount. If your Social Security number, driver's license, or other key identity information has been lost or stolen, consider placing a fraud alert and/or a security freeze on your credit reports at all three major credit bureaus—Equifax, Experian, and TransUnion—to thwart new account fraud.
And if your credit or debit card was compromised in a security breach, don't rely on free credit monitoring, which can give you a false sense of security, and don't wait for the card issuer to replace your card, because issuers are reluctant to incur the cost of replacing millions of cards. Instead ask for a replacement card yourself. "After a while, the news of the breach is forgotten and people stop monitoring their account for fraud," Pascual said. "Until those compromised cards are replaced, there's always the possibility of fraud from those accounts months and years later."
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