Credit Industry Strains to Stem Tide of Identity Theft
Fickenscher, Lisa, American Banker
Identity theft has become the fastest growing type of fraud, and one of the more difficult to combat.
Those who have been impersonated - often by people armed with personal information like Social Security numbers, credit card accounts, and credit histories - have learned too well how difficult such a scam is to fight. Consumer lenders and credit bureau s, facing the costs of identity fraud and concerned about their industry's image, have been able to mount only a tentative response.
"This problem has increased so much that, frankly, it is putting a strain on all of our systems to keep up with it," said Dennis Rice, director of compliance and fraud control services for Experian Inc., the credit information company formerly known as TRW.
The big three credit bureaus - Experian, Trans Union Corp., and Equifax Inc. -and most lenders do not track credit-identity fraud as a separate category.
MasterCard International Inc., one of the few companies that does, said losses from such activities amounted to $1.85 million for the first eight months this year, more than quadruple the $394,072 recorded in the comparable period of 1995.
However, Joel Lisker, MasterCard's senior vice president of security and risk management said, "I wouldn't suggest for a minute that this fraud isn't larger" than those statistics suggest.
Public consciousness of identity fraud spread in August and September after reports on television programs like "60 Minutes" and numerous articles in print media. The problem was also probed last April in congressional hearings.
More recently, Congress displayed its concern about personal privacy by asking the Federal Reserve Board and the Federal Trade Commission to investigate the use and collection of consumer information.
The FTC held a brainstorming session with business representatives, consumers, and consumer advocates in August, and plans another before the end of the year.
Also in August, U.S. Public Interest Research Group, a consumer advocacy organization, published a 40-page report on the subject, calling for stronger legislation covering credit bureaus. It was highly critical of lenders that extend credit without properly verifying the applicant's identity.
Some credit industry executives say all the attention is exaggerating the prevalence of identity fraud.
"Because it is so traumatic for so many people, it does contain all the magic ingredients of a good TV story," said Mr. Lisker.
Still, credit-identity fraud accounts for a tiny fraction of overall fraud losses. In MasterCard's case, the $1.85 million of identified losses is 0.4% of the $440 million MasterCard expects its members worldwide to lose through fraud in 1996. That projected total is $10 million less than was lost last year.
Industry executives believe the public outcry is driven, in part, by the fact the victims tend to be well-educated professionals with exemplary credit histories - above-average or upscale in many ways.
The fear seems to be that "if it could happen to them, it could happen to other people who are less sophisticated," said Mr. Lisker.
"The key to this whole thing is the credit report. It tells you my spending pattern and my limits, so (a thief) will choose a doctor over a janitor," said Alan Trosclair, vice president of fraud control at Visa U.S.A.
The attention to identity fraud has the credit industry on a hot seat, besieged by questions and accusations from legislators and angry consumers. Discussions of defensive strategies have taken on more urgency over the past two years as incidents have mushroomed.
Associated Credit Bureaus Inc., a Washington-based trade association, is looking at ways to limit access to credit reports, which are often cited as a rich source of information for scam artists.
The problem is that in some cases such individuals have legitimate or easy access to credit files. …