Not a day goes by without another horrific story detailing yet another massive card fraud incident or case of identity theft. The parade of headlines can overwhelm you, but take heart: Not only are there practical precautions to head off the bad guys, but a host of promising technologies also offer real promise in combating fraud before it even begins.
Before we begin laying out the scope of the problem, though, understand that no reason exists for panic. There are a ton of costly add-on services out there that marketers will swear are the only things standing between you and financial disaster, but none can provide you with protection you can’t create yourself at little or no cost. You should think as carefully about the promises of fee-based services as you do about the precautions you take when shopping online.
The Scope of the Problem
First, the numbers: Identity theft is a problem, a real problem, and is growing in scope and complexity. According to the latest official statistics from the Department of Justice, in about 8.6 million households at least one household member reported an incident of identity theft in 2010. That’s a hefty increase from the 6.4 million households reporting identity theft in 2005, when the Justice Department first reported numbers on the issue, but hardly an explosive number given the astronomical increase in online activity among U.S. households. Remember, there are more than 609 million credit cards in circulation in the United States, according to the Federal Reserve Bank, so it’s worth keeping the threat in context.
According to the latest research from Cardbeat, a syndicated research report published by the Auriemma Consulting Group, about one-third of all respondents surveyed by the firm have never experienced any fraudulent activity on their credit cards or been notified by a bank, merchant, or other institution (37% and 36%, respectively) that their personal information may have been compromised.
Better yet, Cardbeat’s research found that respondents who have experienced fraudulent activity on their credit cards continue to show extremely high levels of satisfaction with their credit card issuers in handling the situation — 92% report being satisfied with the outcome, while 73% of victims report satisfaction with the involvement of merchants in addressing fraudulent activity.
Still, identity theft costs real money — $13.3 billion in real losses in 2011, according to the Justice Department. Sounds scary – and it is – but it’s important to remember that, despite all the headlines, you’re far more likely to fall victim to card fraud at the hands of a relative or close friend than an anonymous predator. The Justice Department’s own report on identity theft said that unauthorized use of credit cards by people know to the victim accounted for the bulk of the growth in household identity theft between 2005 and 2010. In fact, the most dramatic form of identity theft – someone using personal information stolen in order to open a new financial account – dropped from 23 percent of households reporting identity theft in 2005 to 14 percent in 2010.
Types of Fraud and Identity Theft
Much of the pain caused by fraud and identity theft depends entirely upon the form of the crime. The most common form of credit card fraud, people making unauthorized purchases, is the least painful; as most cards cap cardholder liability at the legal limit of $50, and the vast majority of issuers offer zero liability protection. So once you find unauthorized charges and report them, you’ll have to sign an affidavit (or not; some issuers simply take a cardholder’s word for it and initiate the chargeback process) and any unauthorized charges will be removed from your account. A new card will appear in the mail a short time later, and your finances will be as good as new.
Debit cards are a bit more of a headache. First of all, unless you are remarkably diligent at reviewing your account on a near-daily basis, debit card fraud can really sneak up on you, and then, if days have gone by since the suspicious transactions, you face a more lengthy process to make things right. And you’re out of that cash until the matter is resolved, which can take weeks to resolve, as you must sign affidavits assuring that the disputed transactions were not yours.
Much more rare, and infinitely more painful and expensive are the other forms of financial fraud:
- Criminal Identity Theft – When a perpetrator absconds with enough bits and pieces of your financial identity to replicate your identity and wreak havoc on your finances.
- Medical Identity Theft – Involves a perpetrator gaining access to your insurance account and using it to commit fraud (there have even been recorded instances of tax identity theft, where criminals access tax information to make off with refunds).
- Card Theft – A thief can gain access to your existing bank or credit card account through a variety of tactics, ranging from “skimming,” in which thieves copy the information contained on a card’s magnetic stripe, to make a counterfeit card, to “phishing,” in which hackers lead victims to official-looking websites designed to mimic their bank or card issuer’s site. Then there’s the brazen but effective theft of credit card themselves, or credit card numbers, which are then used online in what are called “card not present transactions” to rip off consumers.
- Dependent Identity Theft – When perpetrators gain access to a child’s Social Security number to assume their identity.
How to Decrease Your Risk
Before you run out and purchase one of the dozens of costly identity theft monitoring services on the market, there are a number of free–to-inexpensive steps you can take to gain more than a measure of protection against worst-case scenarios.
Security Freeze: A great first step, a security freeze gives you the ability to “freeze” or lock access to your credit file in case anyone tries to open up a new account or to get new credit in your name. If you put a security freeze in place at all three major credit bureaus, an identity thief cannot open a new account because the potential seller will find that they are unable to check the credit file. The credit bureaus will issue you a personal identification number (PIN) so legitimate applications for credit or services can be processed, so you’re still able to apply for credit whenever you desire. A few years ago, only a handful of states allowed you to put a security freeze on your credit file; now 47 states and the District of Columbia have passed laws requiring the credit bureaus to allow consumers to protect their credit files with a security freeze, and the credit bureaus now allow security freezes voluntarily in the rest.
Alerts: Banks and card issuers now offer an array of alert services you can tailor to your own concerns. You can dial your security level up or down, depending upon how aggressively you want to monitor your account, but at a minimum, alerts for transactions over some set amount ($250, for example) and for any international transactions on your account can help you head off trouble. Alerts can be sent to your e-mail or in SMS text to your smartphone.
Alerts, when combined with regular checks of your statements online, can help you guard against fraud and move quickly in the event that an unusual transaction pops up.
Credit Report Checkups: Also, be sure to check your credit reports – you can access a free copy annually from each of the three major credit reporting agencies – Experian, Equifax and TransUnion. If you plan ahead, you can ask for a credit report every four months or so.
Physcial Card Security & Document Security: Then there’s good, old-fashioned common sense: Make sure that you maintain physical custody of any cards you own, regularly shred those old statements, and go, now, and change the passwords on your online accounts to a combination of numbers and letters and symbols that is not your birthdate, your anniversary or some easy-to-crack code. Don’t carry your Social Security card unless you absolutely have to, and keep it in a secure location, along with any cards you are not currently using.
If You See Something Fishy, Act Now!
In the event of a questionable transaction, don’t waste a minute: call the bank or credit card company immediately, and get statements copied and start a file. Document, meticulously, your every exchange with the institution, and make sure you get the names and numbers of every person you speak with.
If it looks like the burden is on you to head off fraud, well, that’s because it is, for the most part. Working collaboratively with your bank and with your credit card issuers, you can take advantage of a variety of steps to ensure that you are staying one step ahead of the bad guys out there.