An epidemic of identity theft is fueling a growth industry of companies promising to protect you from data thieves.
In the past year, bandits stole tens of thousands of personal records from ChoicePoint Inc., they hacked into Bank of America's electronic files and they plundered Lexis-Nexus data -- to name some of the larger jobs. In 2005 alone, tens of millions of American consumers were put at risk of identity theft.
You do need personal data protection -- just don't expect one company to provide a cure-all.
"Carefully review and understand the limitations of any service offered in conjunction with identity theft in order to make an informed buying decision without regard to marketing spin," advises the San Diego, CA-based Institute of Consumer Financial Education.
First, you don't actually lose your identity when you are the victim of ID theft and wander aimlessly like some Jane or John Doe. ID theft occurs when someone steals your personal identifying information.
With your Social Security number, driver's license number, credit account numbers, passwords or other information in hand, thieves can masquerade as you to access your financial accounts, withdraw cash, make credit purchases, and open additional accounts in your name.
Any so-called "credit monitoring service," "identity theft insurer," "identity theft protection service," "identity theft risk management company" or other similarly named operation that claims their service "protects" or "guarantees" against identity theft is using a marketing claim virtually impossible to prove, says the institute.
The nonprofit consumer education institute has teamed up with Salt Lake City, UT-based Global Fraud Solutions , which sells identity theft-related, self-help, educational software, to say when it comes to preventing identity theft, it's important you know what you are getting for the money.
"Most of these services require an ongoing monthly service fee to perform tasks that an informed consumer can and should easily do him or herself generally at little, if any, cost," the institute says.
Here's what their research found:
Credit Monitoring Services
Most credit monitoring services only monitor one bureau. Some services provide an initial three-bureau report on the first order, and then revert to monitoring only one. That's of little use in some cases because some creditors will report to only one bureau. Others don't report unless an account goes to collections, says the institute.
Also, credit monitors rarely check credit reports not available from the big three -- Equifax, Experian and TransUnion. Specialty data banks like ChoicePoint, MIB Group, ChexSystems and others may have a file on you.
Bottom line, you don't need to pay anyone to keep tabs on your credit report. You can do it yourself for free.
By Sept. 1, with the final roll out (slated for the Eastern U.S. and U.S. Territories) of a provision in the Fair and Accurate Credit Transactions Act (FACTA), an amendment of the Fair Credit Reporting Act (FCRA), anyone in the nation can check their own credit report at the big three credit agencies as well as major specialty data warehouses.
You are entitled to one free credit report once a year from each individual company. The provision has already rolled out to consumers who live in states in the West, South and Midwest. If you stagger your free reports through the year, you'll get much the same service a credit reporting service provides for a fee.
To obtain your free report from each of the big three agencies visit annualcreditreport.com. Visit the individual websites of the other data gatherers for your free report from them. FACTA also provides other data protection provisions including fraud alerts, credit freezes and other help you can obtain simply by visiting the FTC's FACTA information online.
Identity Theft "Insurance"
The Institute of Consumer Financial Education calls identify theft "insurance" a "misnomer" and says it can give you a false sense of security. The coverage offers reimbursement for limited expenses related to identity thief -- some preapproved amounts for legal fees and time lost from work -- but not actual identity theft caused financial losses -- say a false charge for a $1,000 plasma screen tv purchase -- and it can't protect you from becoming a victim of the crime.
The policies come with large deductibles, $500 or more, and do little to reduce the time and hassle of the work required by the victim to resolve the incident. The institute says if the deductible is zero or low, the insurance may be worth an annual premium of $25 to $45, but reading the fine print remains crucial.
Identity Theft Protection Services
Many companies offer ID theft "protection" and "resolution" services for an ongoing fee but such a service can't protect you from ID theft any more than you can. This year 55 million American consumers were put at risk of ID theft because of serious breaches at major financial institutions.
The services come with substantial exceptions that trigger their "credit cleaning" services for fees that range from $120 to $200 for those enrolled with the company, more -- $300 to $1800 -- for those who seek their services and are not enrolled.
For the money, again, you get services you can perform yourself -- disputing charges, writing letters and making phone calls -- and in some cases you will have to do anyway if the creditor refuses to talk to a third party. The companies offering these services may require you sign over a power of attorney that gives them the right to act on your behalf -- a dicey requirement.
The institute says the best approach to preventing identity theft is proactive risk management through consumer education and knowledge of federal law that grants consumers a host of rights, protective provisions and resolution services -- for free.
"Good record keeping and a common sense approach to destroying personal information before discarding will go a long way. The preferred method of prevention, however, is education combined with guided assistance in using the appropriate risk management tools," the institute says.