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The fallacy of fraud alerts

If you think putting a fraud alert on your credit report will stop an identity thief, think again.

"Just because a fraud alert is on there does not mean it provides much of a measure of protection," says Judith Collins, director of Identity Theft Partnerships in Prevention at Michigan State University.

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A fraud alert is a statement that's placed on your credit report to alert creditors that your private financial information has been or may be compromised. A fraud alert also lists your telephone number. Creditors are asked to call and verify all credit applications made in your name before granting credit.

What good is a fraud alert?
Fraud alerts are supposed to curb identity theft by preventing impostors from receiving credit in victims' names. But a fraud alert will only work if a creditor takes the time to read it. This doesn't always happen. And some lenders grant credit without even pulling a person's full credit report.

"A fraud alert is supposed to be a warning to protect a company from fraud, yet they choose to blindly go against it," says Jay Foley, co-executive director of the Identity Theft Resource Center.

Keep in mind that fraud alerts are advisory only. Lenders are not legally obligated to act on them in any way.

Each of the three major credit-reporting agencies offers two levels of fraud alerts. For details, check out this chart:

Fraud alert levels
Each of the three, major credit-reporting agencies offers two levels of fraud alerts, a basic alert and a seven-year fraud victim statement. A seven-year fraud victim statement is issued if you can verify that you've been a victim of fraud. All alerts are free.
Equifax
6-month fraud alert
7-year fraud victim statement
Experian
90-day security alert
7-year fraud victim statement
TransUnion
1-year security alert
7-year fraud victim statement

Lenders that brush off consumer fraud warnings and ID verification requests could wind up issuing credit to impostors time and time again, and the victims get stuck with a credit mess, time and time again.

Identity-theft victims end up monitoring their credit reports and disputing inaccurate information long after learning of the crime.

Just ask Tracey Thomas of San Francisco. A health care worker stole her identity in late 1999. Thomas learned of the crime in March 2000 and immediately put a fraud alert on her credit report.

"She was still able to get credit in my name with no problem at all. So was I when my credit wasn't trashed," Thomas says.

An uneasy pattern set in over the next several months. Posing as Thomas, a thief opened credit accounts, ran up balances and walked away from the bills.

Thomas then went to work informing creditors and the credit reporting agencies that a thief was making charges in her name.

As soon as Thomas got her credit report cleaned up, her impostor started charging again.

"She'd wait for me to clean it up and apply for credit all over again," Thomas says.

All told, a thief was able to run up $15,000 of charges in Thomas' name.

Since placing a fraud alert on her credit report in March 2000, Thomas has applied for credit on four separate occasions. Three out of four creditors granted her credit without first verifying her identity.

"Only one creditor has ever bothered with my fraud alert," Thomas says. "One credit card company was responsible enough to see there was a fraud alert and obey it."

Can politicians help?
Legislators are looking at ways to make fraud alerts more effective deterrents of identity theft.

A U.S. Senate bill S. 223 introduced by Sen. Dianne Feinstein, D-Calif., would give the Federal Trade Commission the authority to impose fines on creditors that fail to heed fraud alerts.

A state Senate bill in California would require banks and retailers to honor all fraud alerts. According to SB 25, which was passed by the California Senate on June 4, any business that pulls a credit report with a fraud alert must contact the consumer at the phone number on the alert before approving new loans and credit.

Any federal bills aiding identity-theft victims are likely to be addressed later this year when the Fair Credit Reporting Act, which is up for renewal, is reviewed.

"It's going to require legislation," Foley says. "Voluntary programs to check fraud alerts are already in place and they don't work 100 percent."

Credit reporting agencies, while making it easier to place fraud alerts on a consumer credit file with a new one-call system, are no help when it comes to enforcing fraud alerts.

"It's incumbent on credit grantors," says Jeffrey Junkas, a spokesman for TransUnion. "We've done our part in informing credit grantors of a consumer's wishes in the fraud alert."

As long as some credit grantors continue to ignore fraud alerts, identity-theft victims and their credit reports will remain vulnerable to new credit assaults.

"There's a very high stress level," says Collins, whose identity was stolen almost four years ago. "The problems go on and on. Once an identity is stolen, it's gone."

A thief could strike again at any time.

"You never know," Collins says. "I still don't know."

 

 
-- Posted: Dec. 8, 2004
   

 

 
 

 

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