Almost daily someone asks me about identity theft protection or identity theft insurance. Usually, they are just interested in what I personally think is the “best” product out there for protecting yourself from identity theft. Remember- It is not “if” your information will be exposed, but when- and with how much damage.This is my personal rant-my soapbox about the types of "identity theft protection" products out there.
Spoiler alert: There isn’t an effective identity theft protection product.
Typically, a company claiming to be an identity theft protection company will provide one or all of these services; access to credit reports, credit monitoring, and database monitoring. Unfortunately, these services cause security problems themselves. First, you are often required to provide all your personal information to a company so they can provide your credit report. Insider threat aside, they are charging you for a service you can obtain for free by visiting www.annualcreditreport.com or calling 1-877-322-8228. You can obtain your own credit report and review it regularly by spreading out the requests made to each credit bureau by four months. Did you know you can also get a free credit report if you dispute an inaccuracy, are currently unemployed or looking for work, or recently had a negative decision made based on your credit? Sure, access to your credit reports is a great tool. However, it is simply a tool. Many who sign up for these services feel that as long as they have “identity theft protection” they don’t really need to watch their credit reports closely. The idea that someone else is monitoring it provides a false sense of security. You are the only one who knows what should be in your credit report, and the only one who can accurately identify early signs of identity theft.
If you have been a victim of identity theft, or have reason to believe so- you can place a fraud alert. A fraud alert also gives you free access to all three credit reports whenever it is placed. The initial fraud alert lasts for 90 days, but can be extended with a police report to seven years. A seven year fraud alert entitles you to TWO free credit reports from each of the credit reporting agencies annually, so as long as the alert lasts. That is 6 reports a year- equating to a different credit report every other month. All for free. The fraud alert is a “flag” on your credit that says you were a victim of identity theft and that companies should take extra steps to verify your identity before extending credit. (This typically involves sending a letter or calling you at home if an application is received). Sound familiar? This is often the advertised “protection” these companies are offering… only it is free. You just need to call (or go online) one of three credit reporting bureaus, and identify yourself as a victim of identity theft who wishes to place a fraud alert. That bureau will then notify the other two. You must respond to the confirmation letters for your fraud alert to obtain your free credit reports, they are not sent automatically.
Security freezes are another question I get quite commonly. Some of the protection companies out there simply place a security freeze on your credit report. This is also a service that is typically free if you have a police report, or live in certain states. With a Security Freeze, lenders will not be able to gain access to your credit file unless you give permission by "thawing" the frozen file using a secret code, similar to a PIN number. However, the process for placing a freeze involves sending a lot of personal information to the credit bureaus- and even more when you forget the pin number. Notice I said “when” and not “if”. In my experience, most people lose the pin number to their security freeze and neglect checking their credit because of the hassle. This, again, lures consumers into a false sense of security. There is plenty of identity theft that can occur if you have a freeze, and in many instances a freeze just makes it more difficult for you to legitimately check your credit reports to discover the suspicious activity. Payday loans, utility accounts, medical identity theft and criminal identity theft can (and do) still occur with a freeze. It is more common for clients with credit freezes to have identity theft that has been occurring for years than clients who find discrepancies when they request their report quarterly, for just this reason. Security freezes should really be utilized by individuals who are experiencing repeated identity theft, and are comfortable corresponding directly with the credit bureaus. Otherwise, some of the most dangerous kinds of identity theft- including medical identity theft- can occur without detection.
Fraud alerts are not perfect- it is up to the company to take precautions in opening an account. Some occasionally ignore the fraud alert and open the account without further verification. Some go to the other extreme and request you physically appear and provide two forms of photo identification before opening an account. Security freezes cannot be ignored, but consumers who use them tend to ignore the types of identity theft that don’t need a credit report to occur yet still appear on the credit report as a symptom of the fraud. Fraud alerts and security freezes don’t apply to your current accounts, so it is important to monitor your statements closely for fraud and notify your financial institution right away. It is a common misconception that identity theft protection services help protect you against fraud on your current accounts- that is not true. It is not safe to provide a third party with enough financial information in order to monitor your transactions, and they would not be able to distinguish most fraud anyway. Clearly fraudulent charges- such as a sudden $3,000 charge from China when your spending habits are always in Michigan- are typically detected by your financial institution (a service they provide for free) and resolved internally.
Most of these companies claim to monitor thousands of databases looking for signs of misuse. Fantastic- except that it doesn’t help you at all. Suppose that one of these programs does notify you that your social security number is being traded like a stock on some black market internet site. Now what? They’re not in the business of tracking down and apprehending these criminals. Often the alert you receive from these services doesn’t even tell you where the information came from, and instead alerts are generic such as “We are alerting you that your address has been changed in public record”. You must go back to the credit reports to find and correct the information. It’s a great reminder to check up on your information- review your SSA earnings statement, EOBs and so forth… but these are all reports and protective steps you can take anyway. For free.
Many of the companies provide a kind of “insurance” component to their services. Read the fine print. Typically insurance only covers actual expenses you incurred such as fax or mailing fees, and occasionally lost wages if you can prove that there was no other way to resolve the identity theft. Strictly identity theft insurance companies don’t fix your credit report for you, they just help with the expense you incur as you embark on the frustrating task yourself. If you cannot afford to take unpaid time off from work (who can in this economy?) this is nearly useless. Even the “guarantees” that are out there are useless since they require that you prove it was a fault in the system that resulted in your identity theft. In the case of many types of fraud, as LifeLock’s Todd Davis found out, their system is not designed to catch it… and therefore, no million dollars.
Identity theft is a scary proposition. Victims spend an average of 330 hours repairing their credit after having their identities stolen, and 70% report making repeated attempts to have inaccurate information removed from their credit reports. Navigating the confusing maze of legislation and paperwork can be daunting, added with the fact that it is nearly impossible to reach a live human at the credit bureaus. Many people are disappointed when they receive no assistance from law enforcement and are frustrated by the complex process of disputing the account. I understand why people want assistance- It is important that you have an expert or group of experts to turn to during this time. I do not intend to specifically promote the company I work for, but I do honestly believe in the work we do for people at ID Experts. You can see from our resources page and blog that we believe in educating consumers and advocating for victims rights. The following is a general recommendation based on my own experience as an identity theft victim, as a consumer, and a security professional.
Consumers should look for is a company that specializes in identity theft restoration. A good company will be willing to spend the time necessary to educate you about free services available to you as a consumer, but will “take over” if you become a victim. From my conversations with clients, I have not heard of another company that takes the time to educate consumers they way we do. The company should also allow you to speak with the same person twice, or allow their representatives to provide their names so you can get consistent answers. Often, just having my direct extension makes all the difference to a client. No identity theft protection service or product is theft-proof, so it is important to have someone to turn to when it fails. Credit monitoring is a great tool- but it is just a tool. It is not an impenetrable shield, but rather a method available to you to assist you in accessing the information you need to protect yourself. Don’t believe me? The FTC and other consumer advocate groups do not recommend these services either.
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