The Wall Street Journal. Complete Identity Theft Guidebook: How to Protect Yourself from the Most Pervasive Crime in America (Wall Street Journal Guides)

Book by Cullen Terri

CHAPTER 1

What Is Identity Theft, Anyway?

Jerome Powell remembers being irritated with himself for not paying closer attention to his driving. When the Mountain View, Colorado, police car’s blue lights came on behind him, Powell, a government contractor, had just driven through a yellow light as it turned red. Now he would be late for his next appointment. He apologized to the officer and handed over his driver’s license and insurance information. He watched in his rearview mirror as the officer radioed from his cruiser for a license check.

It seemed to be taking a long time to write a routine ticket. Finally, the officer approached Powell’s window and told him to get out of the car. Powell was stunned to find himself under arrest on two outstanding felony warrants. He was shocked and humiliated as the officer made him put his hands behind his back and then cuffed him and read him his Miranda rights. The Navy veteran spent hours in jail, shaking from fear that he might wind up charged with a crime he didn’t commit.

The warrants for his arrest were issued in 2003, when a thief used Powell’s driver’s license to buy more than $10,000 in computer equipment and other items. Despite overwhelming evidence that it was a case of identity theft—the stolen goods were delivered to the apartment of a career criminal who bore no resemblance at all to Powell—he was forced to spend several thousand dollars to post bond and get a lawyer to clear his name.

Jerome Powell’s unnerving and expensive experience is a true case of identity theft—the thief used Powell’s driver’s license to impersonate Powell. Not to be picky about it, but what the media and most people call “identity theft” is actually an umbrella term for two different crimes: identity theft and identity fraud. As in Powell’s case, identity theft occurs when criminals steal personal information and use it to impersonate the victim. An illegal immigrant using a stolen Social Security card to get a job is a good example of such an impersonation, as is a driver who has lost his or her license because of multiple convictions for driving while intoxicated and buys a fake driver’s license from an underground dealer containing the name and information of an identity-theft victim. True identity theft accounts for about a third of the 685,000 identity crime complaints reported to the Federal Trade Commission in 2005.

Far more common is identity fraud. It happens when thieves obtain a victim’s sensitive personal information to steal money from bank accounts, buy goods and services with existing credit-card accounts or use the data to open new credit lines. The shocking thing is that these types of criminals are frequently people we know. Such betrayals by family or close friends are emotionally draining and almost certainly underreported since victims often find it difficult to report the crime or feel pressured by family members to keep the theft quiet.

Not Abigail Kelly. Abigail had given her Social Security number to her sister Delia after Delia said she was going to make Abigail the beneficiary of her life-insurance policy. Delia promptly used Abigail’s information to open fraudulent credit and utility accounts. As a result, Abigail not only suffered damage to her credit history, but she didn’t get the job after an employee background check turned up an arrest warrant for an unpaid home heating bill in her name in Maine. Abigail had never even been to Maine. But Delia lived there. Abigail later learned that her sister was behind numerous accounts opened in her name, though Delia wasn’t arrested or charged with any crime. Local law enforcement refused to get involved in what looked like a family dispute, so Abigail wound up suing her sister in civil court instead. After Abigail sued her, Delia finally agreed to pay most of the $50,000, but the incident tore their relationship apart. “You are dead to me,” Delia later told Abigail.

Routine one-on-one crimes are the most common and are largely ignored by the media and, unfortunately, many times by law enforcement. It’s the big-time scams and plots that get the attention. In August 2005, employees at Sunbelt Software Inc. stumbled upon a massive identity- theft ring while researching “CoolWebSearch,” a dangerous software program that hijacks Internet servers and Web home pages—as well as other browser applications. The software was routinely obtaining and broadcasting data such as individual names, bank-account numbers, passwords and PINs, and other extremely sensitive personal information from millions of infected computers. That investigation continues today.

It’s surprisingly easy to become an identity thief or fraudster by joining the ranks of criminals who simply buy the information from any number of legal or illegal sellers of sensitive consumer data. Once little-known to most Americans, the data-broking industry burst into the spotlight in February 2005, when ChoicePoint, a seller of consumer data to financial institutions and government agencies, disclosed that criminals posing as legitimate businesspeople had purchased personal information on 145,000 people. (Later, the figure was revised to 162,000.) Americans were staggered by the types of personal information being sold by ChoicePoint, including their names, their spouses’ names, current and previous addresses, phone numbers, Social Security numbers, names of employers and even information about family members and neighbors. While individuals can sometimes buy such data legally, most legitimate data brokers sell only to corporate customers. But the fact that there’s no regulation of legal data sales means it’s easier for criminals to get their hands on your information.

COMPANIES RESPOND TO DATA BREACHES

Here’s a sampling of what some specific companies and organizations have offered to do in response to disclosures that sensitive consumer information was lost or stolen from their databases.

Time Warner

A contractor moving backup tapes discovered that one tape containing data, including many Social Security numbers, on 600,000 current and former employees, was missing. Time Warner offered a year of free credit-monitoring service.

Fidelity Investments

A Fidelity employee’s laptop, containing personal information on 196,000 current and former Hewlett-Packard workers, was stolen from a rental car. In response, the fund giant alerted credit-reporting agencies and offered free credit-monitoring service for a year to current and former HP employees.

Tufts University

Administrators discovered unusual activity on a university-owned computer with data, including some Social Security numbers, on 106,000 alumni. Tufts set up an 800 number for assistance and encouraged people to put alerts on their credit reports, but did not offer to pay for monitoring.

University of California, Berkeley

A laptop was stolen containing Social Security numbers belonging to 98,000 students, alumni and applicants. UC Berkeley set up a hotline and encouraged people to put alerts on their credit reports, but didn’t offer to pay for monitoring.

Wells Fargo

Four computers containing sensitive personal data for thousands of people were stolen from a vendor that prints loan statements. Wells Fargo responded by offering a year of free credit monitoring using its own service.

Source: The Wall Street Journal Online.

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Over the last five years, media coverage has increased as dozens of companies, universities, government agencies and other organizations have reported that vast amounts of sensitive consumer information was either lost or stolen. The list of companies that have reported lost or stolen consumer information reads like a “Who’s Who” of big business: Bank of America, Fidelity, Hewlett-Packard, Time Warner and Verizon, among others. In some instances, data-storage tapes went missing or laptops containing sensitive information were stolen; in others, employees of the companies or organizations obtained unauthorized access to the information. Even the federal government isn’t immune. In 2006, thieves stole data on about 26.5 million military personnel from the U.S. Department of Veterans Affairs. The laptop with the missing data was recovered a month after it was stolen, and two teens were arrested for the theft. But the department stumbled twice more, first when it canceled the credit-monitoring service it had offered the victims of the laptop theft, infuriating innumerable veterans who were counting on it to help protect the breach of their sensitive information. And then it happened again! Another department laptop disappeared. Needless to say, there are some decidedly unhappy vets wondering just how inept the department can get.

Not surprisingly, victims are beginning to fight back in the courts against companies and organizations that report breaches of sensitive consumer data. In June 2006, a coalition of veterans groups filed a class-action suit against the federal government in the U.S. District Court in Washington, D.C., seeking $1,000 in damages for each of the roughly 26.5 million military personnel, both current and former, whose data was on the stolen laptop mentioned earlier. In July 2005, a group of plaintiffs filed a class-action lawsuit in California Superior against CardSystems Solutions Inc. after the company disclosed that computer hackers had obtained data on about 200,000 credit- and debit-card accounts.

GARDEN VARIETY IDENTITY FRAUD

I’ll get into some of the more exotic types of identity theft and fraud later. For the moment, let’s take a look at some of the most common forms of identity crimes. It isn’t hard to guess that by far the favored tool of identity thieves is the ubiquitous credit card. We all have them and we love to use them. So do identity thieves. The Federal Trade Commission (FTC) found that 26 percent of all complaints of identity fraud in 2005 involved fraudulent charges on an existing account or new accounts opened using lost or stolen consumer information.

How easy is it to fall victim to credit-card fraud? Let me count the ways.

We use credit cards so often and in so many places—online and in person—that it is almost impossible to avoid tripping up and revealing your account information to a potential thief. I shudder to think of how careless I was with my credit-card account information before I discovered that I’d become the victim of identity fraud. I would routinely crumple up credit-card receipts containing my signature and entire account number and then casually toss them in the nearest trash receptacle for a would-be thief to snatch. When making travel reservations at work, I’d broadcast my credit-card number when giving it out to hotels or car-rental agencies, so that anyone within the sound of my voice could jot it down. When using ATMs, I worried more about the guy behind me invading my personal space than I did about whether the offending person was “shoulder surfing” to learn my account’s password. Online, I remembered— occasionally—to check to see if a site’s Web address started with the telltale “https://” and the tiny closed-padlock symbol at the bottom of the Web browser that indicated I was shopping at a secure site. I almost never checked sites such as the Better Business Bureau (www.bbbonline.org) and TRUSTe (www.truste.com) to ensure that the Web site I was using was a legitimate business.

Then a phone call from my credit-card issuer made me aware of just how easy it is to fall victim to identity fraud. The company’s representative said the company noticed I’d made two purchases within hours of each other using my card—one in New York, the other in France. Fortunately for me, the card company put the purchases on hold until it could contact me and verify that I had made them. I was shocked—and a little scared. If my credit-card information had been stolen, what other personal information could the thief have?

So now I pay close attention to things like keeping my voice down when making travel reservations or making sure no one gets too close in the ATM line. I also routinely monitor my credit-card statements online for signs of fraudulent charges. When shopping online, I always use a credit card, rather than my debit card, which is attached to my checking account, because federal law limits liability for unauthorized credit-card use to $50 per card, though many companies will waive this amount if they are notified of the charge in a timely manner. Some debit cards don’t have this kind of zero- liability protection against fraud, but, more importantly, even if your bank offers zero-liability coverage on your checking account, it could take weeks to recover your account after a thief has wiped it out—and you could find yourself vulnerable to bounced-check fees on outstanding payments.

CALLING ALL THIEVES

After credit-card fraud, phone, cable and utilities fraud is the second most common form of identity theft, making up 18 percent of all complaints reported. Dishonest people steal personal information in order to apply for cell-phone contracts or improperly gain access to cable, telephone, gas and electric energy, or other types of utilities. It’s a difficult crime to combat, which is why it’s so popular among identity thieves. They open accounts in one place and then quickly move on to the next to avoid capture. By the time victims discover the crimes, the thief is usually long gone.

Kevin Scott of Philadelphia discovered he was the victim of utility fraud when he requested a copy of his credit report after being denied a loan. A thief had obtained Scott’s Social Security number and used it to open utility accounts at several addresses, racking up thousands of dollars in phone, cable, gas and electric bills. The utility companies allowed the criminal to open these accounts despite the fact that duplicate accounts already existed in Scott’s name at his true address. They also never bothered to contact him. He spent hundreds of hours clearing his good name at companies such as Bell Atlantic, Comcast Cablevision, PECO Energy and Philadelphia Gas Works. He was also frustrated because state and local law enforcers refused to help him track down the thief, despite the fact that authorities had his picture on file after the thief obtained a Pennsylvania driver’s license using Scott’s name.

TAKE IT TO THE BANK

Bank fraud is only slightly less common than utilities fraud, which is surprising given that banks are among the more

security-conscious businesses—and fooling around with a bank can earn a thief a visit from the Federal Bureau of Investigation. Bank fraud accounts for 17 percent of reported identity-theft cases, with nearly 2 million Americans reporting that thieves transferred funds out of their checking accounts in 2004. The average loss per incident was $1,200. Fortunately, consumers rarely are left holding the bag. If the fraud is reported promptly, most banks won’t hold the customer liable for losses resulting from the crime. While fraudulent loans accounted for some bank fraud, the most frequent types of fraud involved electronic funds transfers and forged checks.

Mailboxes are the venue of choice for bank fraudsters. It isn’t difficult to recognize a box of checks sitting in a mailbox, although it takes a diligent thief to check dozens of mailboxes on any given day to find the occasional box of checks. More sophisticated thieves look for bill-payment envelopes left in the mailbox for pickup—then use special chemicals to erase the ink and insert different names.