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4 things you might not know about identity theft

by Neal O'Farrell on February 6th, 2012

One of the biggest surprises for many victims of identity theft is the realization that many things they assumed about the crime and its aftermath were actually wrong. And by the time they realize the truth about identity theft, it’s too late.

So with that in mind, I thought I’d clear up some of the assumptions you may be making and which may be completely wrong. Let me know if any of these sound familiar:

Zero liability is a promise, not a law
It’s a mistake victims often make assuming that if they fall victim to credit card fraud the credit card company is obliged by law to make them whole. Only it’s not. There’s no zero liability law, just a promise by credit card companies not to hold victims liable for fraudulent charges. It’s self preservation really, and the cost of calming consumers and making sure they don’t worry unnecessarily about using their credit cards.

If your Social Security number is being used by 100 other people, don’t expect the Social Administration to do much
You’d think that given the Social Security number is the crown jewel for identity thieves, and loss of your number could lead to a lifelong fight for your identity, the Social Security Administration would be leading the fight against identity theft. Sadly no. Even on their own web site they don’t hesitate to explain that they don’t investigate identity theft and instead will refer you to other sites, like the FTC and Internet Crime Complaint Center, who also won’t investigate your case.

If you’re a victim of identity theft, you could be blacklisted by your bank

This is a growing trend, where victims of identity theft are not held liable for any losses but instead suffer the humiliation of being told by their bank or credit union that they must close their accounts and take their business elsewhere.

Talk about insensitivity, but I can only assume that banks regard victims as an ongoing liability likely to be victimized again and again. So rather than carry that risk they’d prefer to push it on to their competitors.

Don’t expect the thief to be caught or prosecuted
One of the many facts that set identity theft apart from most crimes is the lack of any real satisfactory resolution. If you’re ever a victim, don’t expect to get your day in court to watch your thief face justice and head to prison for the next decade. Identity theft is not a priority for law enforcement, and most police departments investigate less than 1% of identity theft cases. Of those investigated, only a tiny minority is ever prosecuted, and in those very few cases the thief is often allowed to strike a deal that results in little real punishment.

Why zero liability could be meaningless

I’m pretty sure that you’ve heard of zero liability by now – that promise by your credit card company that in the event of a fraud using your credit card, you won’t be liable for any losses. It was a concept introduced years ago by the credit card industry to allay fears consumers had about using their credit cards and shopping online.

Banks were just as quick to jump on the bank wagon and start throwing about similar promises, which unfortunately led consumers to believe that their ATM/debit cards and their bank accounts were covered by zero liability too.

Victims of fraud, however, are finding out the hard way that they were wrong. The truth is, most banks don’t offer zero liability in the case of ATM or debit card fraud, or unauthorized transfers from your bank account. Instead, they’re covered by something known as the Electronic Fund Transfer Act, which has much looser rules when it comes to reimbursing defrauded customers.

For starters, even if you report the theft or scam within 48 hours of discovering it, you’re still on the hook for $50. If you report the fraud outside the 48 hour window, you’re on the hook for the first $500 in losses. And for many victims that’s a month’s rent or a month’s worth of groceries.

And as banks face a tough economy and limits on the fees they can charge their customers, they’re getting tougher on victims of fraud and identity theft. As head of the Identity Theft Council, I’m seeing an increasing number of victims being told by their bank that for a variety of reasons their claim for fraud has been denied and they will not be reimbursed their losses.

Some of the banks rely on outdated security advice that doesn’t seem to take into consideration threats like skimming. Banks will often deny a claim for fraud if both the victim’s card and PIN were used in the transaction and if the victim did not previously report the card as missing. The banks are assuming that if the card and PIN were used, and the victim did not report the card missing, then the transaction could not have been conducted by anyone other than the victim.

But in skimming cases, especially those using compromised card readers, the thieves are able to steal the victim’s card and PIN to make new cards, and start withdrawing money on the other side of the country. So either fraud help desks are not aware of frauds that can capture both the card and PIN, or are simply using that as an excuse to avoid liability.

And is if that were not bad enough, I’m also hearing from victims who, after they’ve notified their bank that they have been a victim of identity theft, are told to close their accounts and take their business elsewhere. It’s as though the banks regard victims of identity theft as a greater liability and would rather push that liability to a competitor.

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