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The growing problem of ID theft

On first viewing, those clever TV commercials where an identity thief recounts through the mouth of a victim all the great stuff he bought with the stolen credit card information might bring a smile. But the smile quickly fades when it happens to you.

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By now, if you haven't had a credit card misused, you probably know someone who has. In a 2004 report, the Federal Trade Commission estimates that 9.9 million Americans, or 4.6 percent of the population, had their identity hijacked in 2002 alone. More than half of those, 5.2 million, came through credit card accounts, at a cost of $47 billion. On average, victims lost $1,180 and spent 60 hours resolving the problem.

The warm-fuzzy ad campaigns seem to be working. According to a June survey on Internet security by the Cyber Security Industry Alliance, three-fourths of all respondents say they feel good about the Internet, but 97 percent consider identity theft a very-serious or somewhat-serious problem.

There is a growing public suspicion that thieves have never had easier access to our personal information, known as identifiers, than they do today, despite the reality that far more card fraud occurs offline than online.

Credit much of that uneasy feeling to the rash of high-profile security breaches. In the most recent, CardSystems Solutions, a third-party credit card processor, put more than 40 million Visa and MasterCard holders at risk of fraud when its Tucson, Ariz., database was compromised. The company admitted it was not in compliance with the card companies' security rules. In response, Visa USA and American Express have recently announced their decisions to end business relations with the processor.

Other recent high-profile breaches involving Wells Fargo, Bank of America, Time Warner and ChoicePoint have left consumers understandably wondering: If this is happening to the big guys, how exposed am I at the lower rungs of database management? And what can I do to protect myself?

The good news is: We may be making headway in the war on credit card fraud. The bad news is: Our legislative defense against the greater threat of identity theft continues to struggle in a climate of watered-down consumer rights.

Card hacking vs. identity theft
Mari Frank, the author of "The Identity Theft Survival Kit" who consulted with Sen. Dianne Feinstein, D-Calif., on California's trend-setting anti-ID theft statutes, knows firsthand the damage identity thieves can do: Her identity clone wracked up $50,000 in purchases, including a Mustang convertible. Frank estimates it took her 500 hours and the better part of a year to regain her credit.

She says the high-profile cases often alarm the public without educating them on the important distinction between credit card hacking, where typically only your name, address, account number and PIN are exposed, and the larger threat of identity theft where your Social Security number, mother's maiden name and other personal identifiers may be acquired. Criminals use the latter to fraudulently obtain everything from phone service and cable TV to legal representation and operating cash, of course.

"When you have a security breach where your total identity is revealed, similar to the Wells Fargo, Bank of America, Time Warner and ChoicePoint breaches, we're talking about your sensitive identifiers, which can be used for a variety of reasons such as financial identity theft, criminal identity theft or terrorism," says Frank. "That is much scarier because those can be used across the world, and if they are used, you're going to face hundreds of hours trying to get your life back. If someone uses my MasterCard, I see (the charge) on the bill and I'm going to call up my credit card company and know I'm not going to be responsible for the charges."

Despite the bad press, the credit card industry has made considerable progress in fighting electronic fraud in recent years, according to Todd Linden, president and CEO of Card Commerce Inc., a Los Angeles processor of merchant loyalty accounts. He says the industry standard of multiple firewalls, technology that blocks access to database applications and encryption of account numbers has reduced fraud overall.

In addition, back-end "smart" security systems that learn each cardholder's spending patterns and flag anomalies have reduced losses by catching fraud at the first or second purchase instead of the fifth or sixth. A Visa spokesman, who requested anonymity, says the company's fraud rate has been in decline in recent years and is now at an all-time low of 5 cents per $100 transacted.

-- Posted: July 20, 2005




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