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FEBRUARY 11, 2003 SECURITY NET By Alex Salkever To Thwart the Identity Thieves With the problem getting worse each year, only a bold reform approach will do the job. How about a market-based solution?
Each of these frightening incidents occurred within the last six months. Connect the dots, and you find a uncontrolled epidemic of identity theft. It's not that no laws are on the books: All but five states have enacted their own identity-theft laws. The federal government passed the Fair Credit Reporting Act in 1996, which gives individuals better access to their credit reports. And Uncle Sam made identity theft a federal crime in 1998. None of these measures, however, has made even a dent in the levels of ID theft. According to numbers collected by the Federal Trade Commission, reports of identity theft rose by 88% last year to 380,000 from 220,000 in 2001. The real total could be closer to 1 million victims, considering that many don't bother to report their situation to the FTC. SKYROCKETING COSTS. Some states have enacted decent laws aimed at slowing this epidemic. In July, 2003, a California state law mandating that businesses disclose database security breaches to customers takes effect. And the federal government is finally tackling the problem in earnest this year with bipartisan support for a handful of ID-theft-prevention bills. Still, something more radical is required to fix a system so fundamentally broken. ID-theft complaints logged in the FTC's Consumer Sentinel database account for 43% all complaints. That's the highest percentage of any category for the third year running. Out-of-pocket costs for victims of ID theft skyrocketed from $160 million in 2001 to $343 million 2002, according to the FTC. Keep in mind, again, that the commission's numbers indicate only a trend and hardly capture the whole picture. Unfortunately, the trend is crystal clear: Identity theft will grow more common in the next year. Usually, victims don't realize that someone has started using their identity until 14 months after the fact. So the recent big arrests probably indicate that ID theft will rise again substantially in 2003. Based on these types of projections, consultancy Meridien Research found that ID theft costs to banks and brokerages alone will grow from $3 billion nationwide in 2002 to $8 billion in 2006 if current laws are not changed. BETTER CHANCES. For sure, change is afoot. California Senator Dianne Feinstein has introduced three bills (and a fourth is being worked out) aimed at stopping identity theft (see BW Online, 2/11/03, "'A Strong National Standard' vs. ID Theft"). The bills, among other things, require that retail establishments truncate credit-card numbers on printed receipts, penalize credit-card companies that ignore customer-fraud reports and continue to issue credit to an ID thief, prohibit the sale of Social Security numbers to the general public, and let individuals prohibit a company's sale or marketing of less-sensitive personal information like name, phone number, and e-mail address. In past years many of these provisions would have faced tough sledding against powerful lobbyists from credit-card companies, credit agencies, and big banks. Feinstein has proposed similar bills before, and they've never gotten to a full floor vote. This year, according to Feinstein, chances for passage look much better. Constitutient outrage and shocking stories told before congressional committees have helped galvanize lawmakers. One reform advocate startled Feinstein by securing a credit card in her name after purchasing her personal information on the Internet. The big kahuna, however, is California. The Golden State has already enacted many parts of Feinstein's legislation, and with its tech orientation and massive regional economy, California state policy can cause ripples far and wide. Effective January, 2003, businesses operating there can no longer use Social Security numbers to identify customers. Likewise, a new state law allows consumers to freeze their credit reports and stop all new additions so ID crooks can't grab new credit cards, bank accounts, or loans.
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