How Well Do Consumers Protect Themselves from Identity Theft?

By Milne, George R. | The Journal of Consumer Affairs, Winter 2003 | Go to article overview

How Well Do Consumers Protect Themselves from Identity Theft?


Milne, George R., The Journal of Consumer Affairs


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.

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