Schneier on Security

Identity Theft Over-Reported

I’m glad to see that someone wrote this article. For a long time now, I’ve been saying that the rate of identity theft has been grossly overestimated: too many things are counted as identity theft that are just traditional fraud. Here’s some interesting data to back that claim up:

Multiple surveys have found that around 20 percent of Americans say they have been beset by identity theft. But what exactly is identity theft?

The Identity Theft and Assumption Deterrence Act of 1998 defines it as the illegal use of someone’s “means of identification”—including a credit card. So if you lose your card and someone else uses it to buy a candy bar, technically you have been the victim of identity theft.

Of course misuse of lost, stolen or surreptitiously copied credit cards is a serious matter. But it shouldn’t force anyone to hide in a cave.

Federal law caps our personal liability at $50, and even that amount is often waived. That’s why surveys have found that about two-thirds of people classified as identity theft victims end up paying nothing out of their own pockets.

The more pernicious versions of identity theft, in which fraudsters use someone else’s name to open lines of credit or obtain government documents, are much rarer.

Consider a February survey for insurer Chubb Corp. of 1,866 people nationwide. Nearly 21 percent said they had been an identity theft victim in the previous year.

But when the questioners asked about specific circumstances—and broadened the time frame beyond just the previous year—the percentages diminished. About 12 percent said a collection agency had demanded payment for purchases they hadn’t made. Some 8 percent said fraudulent checks had been drawn against their accounts.

In both cases, the survey didn’t ask whether a faulty memory or a family member—rather than a shadowy criminal—turned out to be to be the culprit.

It wouldn’t be uncommon. In a 2005 study by Synovate, a research firm, half of self-described victims blamed relatives, friends, neighbors or in-home employees.

When Chubb’s report asked whether people had suffered the huge headache of finding that someone else had taken out loans in their name, 2.4 percent—one in 41 people—said yes.

So what about the claim that 10 million Americans are hit every year, a number often used to pitch credit monitoring services? That statistic, which would amount to about one in 22 adults, also might not be what it seems.

The figure arose in a 2003 report by Synovate commissioned by the Federal Trade Commission. A 2005 update by Synovate put the figure closer to 9 million.

Both totals include misuse of existing credit cards.

Subtracting that, the identity theft numbers were still high but not as frightful: The FTC report determined that fraudsters had opened new accounts or committed similar misdeeds in the names of 3.2 million Americans in the previous year.

The average victim lost $1,180 and wasted 60 hours trying to resolve the problem. Clearly, it’s no picnic.

But there was one intriguing nugget deep in the report.

Some 38 percent of identity theft victims said they hadn’t bothered to notify anyone—not the police, not their credit card company, not a credit bureau. Even when fraud losses purportedly exceeded $5,000, the kept-it-to-myself rate was 19 percent.

Perhaps some people decide that raising a stink over a wrongful charge isn’t worth the trouble. Even so, the finding made the overall validity of the data seem questionable to Fred Cate, an Indiana University law professor who specializes in privacy and security issues.

“That’s not identity theft,” he said. “I’m just confident if you saw a charge that wasn’t yours, you’d contact somebody.”

Identity theft is a serious crime, and it’s a major growth industry in the criminal world. But we do everyone a disservice when we count things as identity theft that really aren’t.

Tags: banking, credit cards, crime, cybercrime, fraud, FTC, identity theft, insiders, laws

Posted on November 16, 2005 at 1:21 PM • 36 Comments