How to Stop Identity Theft

The Federal Trade Commission reported this month that for the third straight year identity theft topped the list of fraud complaints by consumers. Three straight years! That is amazing to me, mostly because if anyone really cared, I think we could curtail the crime in a matter of a few weeks.

I've moved recently, which means a lot of change of address forms. Almost all of that can now be done on companies' Web sites, though, so the process has been painless. With some services like ING Direct I received email from them telling me that a change was made to my account. This was for security, of course. If someone changed the address on my account without my say so they could receive statements and possibly more. I have set up this kind of automatic email notification for profile changes in my work. They are not at all hard to implement.

So why don't the major credit bureaus inform you when someone uses your information to apply for credit? This simple step, which would cost fractions of a penny to perform for each request could virtually end identity theft. Well, it isn't as if they haven't figured this out already.

The three major credit bureaus, Experian, Equifax, and Transunion are central to the problem. When you apply for credit, the financial institution you petition turns to them and asks for your credit history. And they charge money for the service. But they're not detectives, scouring the globe looking for information about you. They rely on the very same companies that subscribe to their service to ask for information about you to provide the information about you. The credit bureaus are information brokers, not investigators.

The credit bureaus want to treat you like a customer, too. Experian, for instance, will inform you by email whenever your credit score changes. Only they want $79.95 per year for the information. Similarly, Equifax offers to help protect you from identity theft for $69.95 per year. All for something that I think if done by email would cost maybe 50 cents per year.

Whoa! Some protection racket they're offering. Is Tony Soprano acting as a consultant for these firms?

Two main problems here:

1. The credit bureaus constitute an oligopoly. If I could write to Experian tomorrow, tell them I no longer wanted them to act as my broker, and instead switched to Monkeyman Credit Information Broker, then they would be a lot more friendly in making this information available to me. After all, they aren't making most of their money from you and me. They make it from the financial institutions that use their services. Online auction power eBay is huge, but they have never even tried to charge ordinary people for buying at their auctions because the real money comes from sellers. If buyers had to pay, they would use another online auction system like uBid instead. And if Credit Bureaus faced the same competition eBay did, they would not charge you for this basic protection, either.
2. The credit bureaus are not liable in any way for identity theft. I like to believe that companies will act in their own best interest and that the United States is already far too litigious a society. The problem is that in the absence of competition, lawsuits and criminal liability are just about the only way to make an act of change be in the company's best interest. If victims of identity theft could sue credit bureaus, not only would they offer notification of credit applications for free, the credit bureaus would not allow you to apply for credit without being registered for that notification.

Basically, the way things are, identity theft costs these companies nothing and your fear of identity theft can actually increase their revenues if you buy into their protection racket. It will stay that way until there is real competition, or a real threat of criminal or civil liability.

When that happens, we can just login to the credit bureaus, sign up for email notification of credit application, and kill off identity theft in a matter of days.

Until then, you can count on more consecutive years of ths being the top claim of fraud to the Federal Trade Commission.