What does the identity theft report really tell us?

A recent
post by Jeff Sovern discusses a Department of
Justice Report indicating that identity theft is on the rise, and the
amount of loss suffered as a result of identity theft is increasing. These are alarming
statistics. But a few points should be mentioned before we begin to discuss how
to reduce the incidence of this crime, or whether existing laws are working.

            First, traditionally,
identity theft has been distinguished from simple credit card fraud. Identity
theft is a complex scheme whereby a thief steals personal information, adopts
the identity of the victim and applies for credit in the name of the victim.
Identity theft takes time, and requires the thief to actually assume the
identity of the victim. Credit card fraud, on the other hand, is a simple crime
whereby a thief makes a charge to an exiting account. The Department of Justice
report mixes and matches these crimes through its use of the term “Identity
theft.” According to the report, “Identity theft is defined as the
unauthorized use or attempted misuse of an existing credit card or other
existing account, the misuse of personal information to open a new account or
for another fraudulent purpose, or a combination of these types of misuse.”
Thus any unauthorized use of a credit card constitutes identity theft, and is
included within the report, as is any “attempted misuse,” which is often
resolve with no inconvenience or financial loss.

            According to the
report, the incidence of true identity theft, the misuse of personal
information, has been declining substantially, about 30% from 2005 to 2010. I
assume this is due primarily to one simple act by creditors—whenever a major
change, such as an address change, is made to an existing account notice is
sent to the prior address to confirm the change.  This usually alerts the consumer to the
beginning of an identity theft scam, which can be prevented before any problems
arise. This act, coupled with consumer awareness of the importance of reviewing one's credit report, should continue to reduce true identity theft.

            The report
also seems to indicate that loss allocation is not working to solve the problem
of unauthorized credit card use.  Notwithstanding the fact that maximum
liability for the unauthorized use of a credit card is capped by federal law at $50, the mean loss
reported is $1,260. To me, this indicates that either credit card issuers are
completely ignoring the law, or, the 
“misuse” was actually authorized. (A third alternative is that the
consumer was unaware of the law and simply paid the full amount.).

            More
surprising to me was the actual loss suffered as a result of true identity
theft. My identity was stolen, and while the process of repairing my financial
records was tedious, I did not lose any money. Once I was able to reach the
right person, it was relatively easy to establish that I was not in fact the
borrower. The Report, however, indicates that in 2010, the mean direct
financial loss suffered by the misuse of personal information, (true identity
theft) was $13,160. I can’t imagine how a loss of this much happens.

            I don’t
want to suggest that identity theft, in the broadest sense of the word, is not
a serious problem that imposes a large cost on consumers and the marketplace. I
do, however, suggest that we read the report carefully before we consider how
to resolve the problem.