, The Associated Press 2004-05-22
With identity theft rampant, we need to be cautious with our personal information. But consumer advocates say there's something else we ought to be vigilant about: expensive services for identity theft protection.The prevalence of credit card fraud and other identity-related crimes has given rise to a cottage industry of services aimed at protecting people from falling victim.
These products include access to credit reports, e-mail alerts about changes in your credit status, and insurance that can cover expenses you might incur in righting any wrongs.
While some services are offered for free by financial institutions, others cost well over $100 a year.
That gives pause to consumer advocates, who say some of the services offered _ like lawyers' fees -- are rarely needed.
A more common scenario is that someone misappropriates your credit card, which technically counts as identity theft, but your liability for that is limited by federal law to $50 -- and that amount is often waived.
"Generally I think it's a good concept, but I think the prices are exorbitant," said Evan Hendricks, who publishes the Privacy Times newsletter and recently released a book about the credit system. "They are taking advantage of the fear of the fastest-growing crime."
Some credit experts also complain that ID-theft protection services are being offered by companies that could do more to stop the problem in the first place.
Consumer advocates say credit card companies make it too easy to open accounts, offering "instant credit" and mailing out reams of preapproved applications. The critics also blame credit bureaus for not catching discrepancies in information submitted by fraudsters.
"They give credit to anybody using your name," said Edmund Mierzwinski, consumer program director at U.S. Public Interest Research Group. "Now they want to charge you 100 bucks a year to hear about it."
In a 2003 study for the Federal Trade Commission, the market research firm Synovate determined that 10 million Americans were hit by some form of identity theft in the previous year. On average, victims lost $500 and had to spend 30 hours resolving the mess.
A new federal law that begins to take effect in December will let Americans check their credit reports for free at least once a year, so people can spot inaccuracies brought about by fraud.
Until then, people can get their reports for $9 or less, though free reports are already available in Colorado, Georgia, Maine, Massachusetts, Maryland, New Jersey and Vermont -- and nationwide for people who are unemployed, on welfare or have been denied credit or victimized by fraud.
Still, providers of ID theft protection say their services go much further. The e-mail alerts about changes in the credit report, for example, help consumers spot potential fraud quickly enough to limit damage.
"Getting your credit report once or twice a year is in no way going to help you combat identity theft, especially if you get hit a day or two after you checked," said Chris Atwood, a vice president at Equifax Inc., one of the three main credit bureaus.
Equifax's Credit Watch offers e-mail alerts, assistance from ID theft experts and up to $20,000 in insurance, which can cover lost wages for people who have to take time off from work to sort out ID theft problems.
It costs $9.95 a month or $99.95 per year, though Equifax recently launched family plans. Two parents and a teenager, for example, could be covered for $224 a year.
For $10.95 per quarter (nearly $44 per year) rival credit rating agency Trans Union LLC sells a monitoring service with e-mails and $2,500 in insurance. Transunion also offers 24-hour phone access to ID theft specialists who can help rectify problems. Monitoring of a consumer's credit score is an additional $4.95 per quarter (nearly $20 annually).
John Danaher, president of TransUnion's Trulink consumer services division, said the product has more than 150,000 customers, a number doubling each year.
A third credit agency, Experian Information Solutions Inc., claims 1.6 million subscribers for its monitoring services, including its $89.95-a-year Credit Manager.
On the other end of the cost spectrum, Fair Isaac Corp., the company whose FICO rating system determines consumers' credit scores, has a monitoring service that begins at $19.95 per year.
While these services are marketed as salves for the growing problem of ID theft, there's another driver: Credit bureaus that historically were esoteric providers of information to businesses see additional revenue streams in selling services to individuals.
For example, Atwood's personal solutions unit at Equifax brought in $70 million of the company's $1.2 billion in revenue in 2003 and is on pace to contribute $100 million this year.
Then there are services promoted by credit card companies. Privacy Guard from Trilegiant Corp. runs $120 annually and gives customers access to credit databases and medical and driving records. Trilegiant has marketing relationships with about 50 financial institutions and credit card companies.
But should credit-related companies be selling such services?
"We need prevention, not insurance, in this area," said Gail Hillebrand, a senior attorney for Consumers Union. "And unfortunately, there's only so much consumers can do with individual prevention steps."
She said additional prevention must come from businesses that give credit or hold sensitive data on their customers.
But TransUnion's Danaher said creditors can't keep people from being careless with bank statements and Social Security numbers. In many ways, "the onus is really on the consumer," he said.
Robert Smith, 30, who wrote a book on preventing identity fraud after serving nine months in prison for the crime, doesn't believe ID theft protection services offer much defense.
Even so, Smith, who runs a marketing agency in Rockford, Ill., and his wife belong to two such programs. After someone passed bad checks in his wife's name, Smith decided it couldn't hurt to buy a little extra peace of mind.
Naomi Lefkovitz, a Federal Trade Commission attorney who specializes in ID theft, said she finds the services too expensive for herself, "but I would never tell somebody, `Oh, don't bother,' if they're nervous. Because if that buys them peace of mind, then it's money well spent."
However, for those who do sign up, Lefkovitz has this advice: "Understand what you're getting."