Identification Theft: The Growing Scam Industry

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In the first of a two-part story, Mike Pesca examines identity theft and how it has become a multi-billion-dollar industry. The U.S. Federal Trade Commission estimates identification theft affects 10 million Americans each year, and the problem is only growing larger.


Starting on September 1st, you're going to be able to get a free copy of your credit report. There's a good reason to check it now. A credit report is one way to spot signs of identity theft--that is, someone pretending to be you in order to get to your bank and credit accounts. The Federal Trade Commission says last year crooks made off with more than $53 billion in cash and merchandise as a result of identity theft. Here with the first of two reports is NPR's Mike Pesca.

MIKE PESCA reporting:

You've heard the anecdotes, maybe from your co-worker who was surprised to find out she spent last week blowing $600 at a dog track in Georgia; or your neighbor, who suspects her daughter, at four, probably didn't apply for a car loan. Then there are the stats. Every year of this century, the FTC has fielded more complaints of identity theft than of any other type of consumer fraud. And, of course, there is just the name--identity theft. It's scary, postmodern, like something out of a Philip Dick sci-fi novel. But Mallory Duncan, vice president of the National Retail Federation, says what many call identity theft really isn't when you look closely at the 10 million cases reported each year.

Mr. MALLORY DUNCAN (Vice President, National Retail Federation): The overwhelming majority of those are not true identity theft, the serious identity theft, but rather tend to be credit and bank fraud cases.

PESCA: Since credit card fraud is much less onerous on the victim, Duncan makes this analogy to explain why using the catchall phrase `identity theft' as a stand-in for simple credit card fraud is scaring the public.

Mr. DUNCAN: If I were to re-label tuberculosis and the common cold, would the public's perception of them change? Sure they would.

PESCA: The problem with this analysis, say experts on identity theft or whatever you want to call it, is that one crime so easily leads to the next. Let's say your wallet is stolen. First, a thief might buy a chinchilla coat with your credit cards. That you catch. But then the next thing you know, he's gone out and opened new lines of credit at a half a dozen stores where he's bought matching boots and earmuffs. Although consumers only pay an estimated $5 billion of the $50 billion stolen, we all wind up paying for it in higher prices. Spreading out cost so we all pay a little is one reason why identity theft has long been seen as more of a nuisance than a crisis. So says Bob Sullivan, author of "Your Evil Twin: Behind the Identity Theft Epidemic."

Mr. BOB SULLIVAN (Author, "Your Evil Twin"): When there is real credit card fraud, when someone buys a $1,000 laptop from a store with a stolen credit card, ultimately it's that store that foots the bill. And, of course, that store has to charge higher prices to its consumers to recover the amount of theft there.

PESCA: So you might think that retailers would be leading the charge against identity theft. And yet remember it was Mallory Duncan of the National Retail Federation who was claiming that our worries about identity theft were overblown. You see, while retailers are getting ripped off, they're also dependent on the very mechanism that fuels the phenomenon. Bob Sullivan says to figure out the incentive for credit card fraud, look no further than the checkout counter where `Have a nice day' has been replaced with `Would you like to open a charge card?'

Mr. SULLIVAN: The fundamental problem is that you can walk into a Circuit City right now with nothing in your pockets and walk out with a $3,000 television set in about 10 minutes. And because you can do that, so can your imposter.

Ms. MARI McQUEEN (Consumer Reports): Easy credit and fast credit are kind of the lubricant of this economy.

PESCA: Mari McQueen is an editor at Consumer Reports.

Ms. McQUEEN: The credit industry does give consumers a lot of convenience and a lot of purchasing power, but the downside of it has been this growing problem with fraud and abuse.

PESCA: `Nonsense,' says Mallory Duncan of the National Retail Federation. The old way of granting credit, with applications that took days to approve, was not safer, just slower. He says to blame the criminals, not the credit.

Mr. DUNCAN: Does the existence of credit help create ID thieves? Certainly, just like the existence of money helps create regular bank robbers.

PESCA: Of course, when the Barker gang began knocking over banks, lawmen swooped in to try to stop them. Today, states are inventing new tools to fight ID theft. California, Texas, Vermont and a few others have passed freeze laws. These allow you to tell a creditor not to give out any more lines of credit in your name.

In addition to government interventions, many private businesses trading in identity theft protection have emerged. Such services as lawyers on retainer and credit monitoring are now available. Monday, we'll look at these weapons against fraud and get advice on which ones work and which ones are scams in their own right. Mike Pesca, NPR News, New York.

CHADWICK: OK. That's Mike Pesca coming up again on Monday.

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