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Blame lenders, not thieves, for identity theft

Without lax lending policies, thieves might still get your personal data. But stealing it wouldn't be nearly as profitable.
By Liz Pulliam Weston

Now that intruders have raided a second big consumer database, we're bound to hear lots more calls for increased federal oversight of the companies that buy and sell our personal information.

What will get far less attention, unfortunately, is the fact that these incursions wouldn't be so incredibly damaging to consumers' finances if lenders didn't make that information worth stealing in the first place.

Think about it: The only reason an identity thief cares about knowing your Social Security Number or other private data is that it can be used to open accounts in your name and commit fraud. Lax verification procedures at credit card companies and other financial institutions make that possible -- even easy.

“Companies are so eager to grant credit,” said Linda Foley, executive director of the Identity Theft Resource Center, “that they will grant it to almost anyone for any reason.”

How ID theft became big business
Identity theft is now America’s leading consumer complaint, according to the Federal Trade Commission, with an estimated 10 million new victims each year. The thefts range from opportunistic one-time events to huge, organized crime rings racking up millions of dollars in fraudulent charges each year.

In the two recent cases, thieves posed as legitimate customers to gain access to databases compiled by ChoicePoint and by its rival, LexisNexis. LexisNexis' corporate parent said personal information on as many as 32,000 consumers was compromised; in the ChoicePoint raid, as many as 145,000 people had their information stolen. At least 750 so far have become the victims of fraud.

Consumers are basically helpless. They have no choice about being part of these massive databases, since the companies can legally collect and sell the information without consumers' permission.

And once their information is compromised, there's not a lot they can do to prevent the thieves from opening up accounts. But the thieves wouldn't be able to take over consumers' credit accounts, or get new credit in a victim's name, without plenty of help from careless banks, credit-card issuers and other lenders.

Some of the most common lending practices include:

Granting credit with incomplete and inaccurate identifying information.

Ignoring fraud alerts on consumers’ credit reports (a new federal law prohibits this, but consumer advocates aren't sure how well the prohibition will work in practice).

Sending out unsolicited applications and "convenience" checks.

Continuing to report inaccurate information to credit bureaus.

Ignoring and thwarting law enforcement attempts to investigate ID theft.
"The industry is highly competitive, and credit issuers are still making more money signing up new customers than they are losing from fraudulent accounts," said Beth Givens, executive director of the Privacy Rights Clearinghouse .“Of course, victims of identity theft are the collateral damage of this diabolical business model.”

The typical identity-theft victim, according to the clearinghouse, spends about 175 hours and $800 trying to clear up his or her credit report. Even consumers who aren’t victims pay in the form of higher interest rates and fees, thanks to rising fraud.

Here’s just a sample of how lenders aid and abet the bad guys:

Sloppy credit-granting practices
You would think that thieves would need more than one or two pieces of identifying information to steal your credit. You’d be wrong.

Lenders regularly open accounts without correct names, addresses or picture ID, identity-theft experts say.

“The Social Security number might be right but the name is slightly wrong and the address is wrong,” said Steve Blackledge, legislative director for the California Public Interest Research Group, known as CalPIRG, which issued a report about law-enforcement response to identity theft. “Most of this (credit granting) is computerized, and the computers aren’t catching it.”

The thief who stole Tom Richard’s identity got Sears to issue two MasterCards -- and to send them to a different address than the one listed on Richard’s credit report.

Richard, a Huntington Beach, Calif., resident, said Sears told him the application was taken over the phone and that enough information on the application matched his credit report for the company to issue the card. Sears sent a letter to Richard’s correct address advising him the card had been issued, which allowed him to call and report the fraud. But he was amazed that the company had granted the credit in the first place.

“I know that it is impossible to stop fraud,” he said, “but under these circumstances, shouldn’t Sears require the perpetrator to present in-person positive identification . . . if they cannot verify the mailing address?”

Ignoring fraud alerts
Consumers have the right to ask credit bureaus to put fraud or security alerts on their credit reports. These alerts signal lenders that the consumer wants to be contacted by phone before credit is granted. Typically, they’re placed by consumers who have already been the victims of identity theft.

Incredibly enough, lenders frequently ignore these alerts.

“Lenders say it’s too expensive for them to verify every credit application” by phoning the consumer, Foley said. Lenders are now required to make a "reasonable effort" to contact consumers before opening new accounts, but there's been little guidance about what that might constitute.

Unsolicited credit-card offers and “convenience” checks
You can add your name to the credit bureaus’ “opt out” list, which removes you from the mailing lists the bureaus sell to credit card issuers. (The number to use is 888 5-OPT OUT or 1-888-567-8688.)

But as anyone who has signed up with the service can attest, the credit-card solicitations keep coming, since not all lenders subscribe to the opt-out service. By ignoring consumers’ expressed wishes, these credit-card issuers give thieves a relatively easy way to set up a bogus account.

It’s even harder to convince your current credit-card issuers to stop sending those “convenience checks” -- which can be far more dangerous than a credit-card application. All the thief has to do is fill out the check and sign it to have instant access to cash.

Continuing to report disputed accounts
This is one of the reasons that cleaning up identity theft takes so long. A victim reports identity theft to a merchant or lender, who promises to remove the fraudulent charges or account from the consumer’s credit report. A few months later, however, the bogus charges surface again.

“It’s a bookkeeping or recordkeeping issue,” Foley said. “You think you have it cleared up, but it’s not properly noted in the file, so it’s reported again or sent to collections.”

Financial planner Eileen Freiburger said she’s spent years getting fraudulent accounts taken off of her credit report, but they keep reappearing. Her recent mortgage refinancing nearly was derailed by an old, fraudulent charge for $4,000 that she thought had been deleted from her report.

Lenders and merchants “just don’t want to clear it up,” Freiburger said. “The ball gets dropped.”

Refusing to cooperate with police
Law-enforcement agents say that one of the biggest frustrations they face in investigating ID theft, besides a lack of resources, is lender stonewalling.

Investigators interviewed by CalPIRG said they regularly encountered lenders who failed to return police calls, refused to provide copies of credit applications and even ignored some search warrants.

Companies don’t have to honor search warrants issued by out-of-state courts, Blackledge said, and many don’t.

Of course, some companies, stung by fraud losses too large to ignore, have taken steps to curb the trend. They’re requiring more identification, honoring fraud alerts and refusing to send goods or credit cards to addresses other than the ones listed on applicants’ credit reports. Some employ sophisticated software that analyzes applications for possible fraud.

But many companies still are refusing to change their procedures, and so identity theft continues to grow at an exponential pace.

“Unless some major changes are made in the way . . . credit issuers verify applications and grant credit,” Foley warned, “then we may very well all become victims of identity theft in our lifetime. It’s more of a reality now than a threat.”

Here's the point that The Legal Eagles would like to make. Persons whose identities were stolen should have 100% unlimited legal access, and 100% unlimited identity theft protection.

TheLegalEagles know that the best way for Americans to get both legal and identity Theft protection (according to the American Bar association), is by checking out a legal plan.


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