How Well Do Consumers Protect Themselves from Identity Theft?

Beginning of article

Identity theft is a serious and increasingly prevalent crime, and consumers need to take preventative measures to minimize the chance of becoming a victim. In an effort to assess consumer preparedness, this exploratory study measured the self-reported behavior of 61 college students and 59 non-students on thirteen identity theft preventative activities that were suggested by the Federal Trade Commission. Consumer education appears to be adequate for several identify theft preventative behaviors, but not for others. In addition, students and non-students demonstrated some interesting divergencies in behavior. Based on these preliminary findings, areas for increased consumer education and future research are recommended.

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The Economist (2001) reports that identity theft, defined as the appropriation of someone else's identity to commit fraud or theft, continues to be one of the fastest growing white-collar crimes in the United States. Identity theft can occur when another person, using a victim's personal information (most often social security number, name and address), opens up a credit card account (or other accounts such as a wireless phone) and incurs expenses. The billing statement is often diverted to another billing address so that the victim is not aware charges have been made and payment is overdue, which results in a bad credit rating. Individuals' identities can be obtained through theft of wallet, mail, trash, or online surveillance (FTC 2001). Often the victim is not aware that his information was misappropriated, and when the crime is discovered, reclaiming one's identity is a lengthy and costly experience.

The prevention of identity theft, as shown in Figure 1, depends upon the collective actions of government, businesses, and consumers. The government has the ability to pass criminal and civil legislation to help directly deter theft and influence business policy by requiring better information handling practices and record security, and educate consumers to better protect their personal information. Historically, the Fair Credit Billing Act, which limits the credit card holder to $50 liability for unauthorized charges, was the primary consumer protection effort. Subsequently, the Identity Theft and Assumption Deterrence Act (1998), which designates a maximum penalty of 15 years in prison and a $250,000 fine, has been used to prosecute offenders and act as a deterrent to thieves. In addition to federal legislation, many state laws have been passed (www.consumer.gov/idtheft/statelaw.htm). The Federal Trade Commission (www.consumer.gov/idtheft/) and other advocacy groups have educated consumers about how to prevent identity theft and how to recover if one is a victim of this crime. In an effort to reduce privacy concerns businesses have made efforts to shore up the security of their customer databases.

The effectiveness of the identity theft prevention efforts outlined in Figure 1 has not been empirically investigated in the academic literature. The purpose of this study is to begin exploring the effectiveness of the consumer education effort by measuring the extent to which consumers protect themselves from identity theft. This exploratory research examines the self-reported behaviors from two small samples: one of a cross section of consumers and one of college students. The results indicate that for these samples that some preventative behaviors are being followed while others are not and that there may be differences among consumer segments. A related purpose of this initial empirical effort is to help identify the issues that need further investigation.

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The article is organized in four sections. The first section provides background about the scope of identity theft, how consumers are harmed, and how consumers can minimize its occurrence. The second section reports the study methodology. This includes sampling and data collection procedures, and questionnaire and measurement development. The third section reviews the results. The fourth section discusses the implications of the findings.

BACKGROUND

The literature addressing the issue of identity theft is sparse. Law review articles have provided a general overview of the problem (e.g., Hoar 2001), while others have evaluated the effectiveness of the courts and existing statutes to provide a remedy to the victims of identity theft (e.g., Alwin 2002; Saunders and Zucker 1999). In the marketing and public policy literature, identity theft is not directly addressed. However, related research has focused on privacy/security issues (Milne 2001; Miyazaki and Fernadez 2001) and fraud (Lee and Geistfield 1999; Norrgard and Norrgard 1998). The popular press, following the recent emergence of the identity theft crime, has begun to write stories that can inform consumers. An electronic search of the Lexis-Nexis major newspaper database for the term "identity theft" returned 1,892 articles, 768 (40.6%) of which were published in 2001 (see Figure 2). Given the nascent stage of this phenomenon, this review will focus on describing how identity theft generally occurs, how consumers are harmed, and what behaviors are recommended to minimize the occurrence of identity theft.

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How Identity Theft Occurs

While the rise in the crime rate corresponds with the growth …