Identity Thieves

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There are no national figures on prosecution rates for identity theft, but everyone involved agrees they are low and that the only practical alternative is prevention. Victims are advised to place fraud alerts on their credit reports, which flag potential lenders to contact their home or office before approving an application. Two months after Johnson posted these preauthorization advisories, Gateway's lending arm called to say it had rejected a fraudulent application. The same day, American Express phoned to see whether Johnson had received an Optima card--one he hadn't applied for.

This fall the FTC increased its enforcement staff by 50%, to about 50--at a time when the agency's hot line is fielding 12,000 calls a month. Bills have been introduced in Congress that would require credit bureaus to investigate discrepancies in individual reports, penalize lenders for ignoring fraud alerts, truncate card numbers on receipts to prevent "Dumpster diving" and fine companies for refusing to provide relevant documents to identity-theft victims. James Huse Jr., inspector general of the Social Security Administration, supports a bill that would stop the indiscriminate display of Social Security numbers on public documents as well as the sale of the numbers online or by other means.

But companies can't afford to wait around for the feds. In 2000, identity theft cost financial institutions $2.4 billion in direct losses and related expenses, such as technology and consumer education, according to consulting firm Celent Communications. Other experts estimate the broader category of application fraud costs the industry as much as $35 billion a year, or roughly $170 for each credit user in the U.S. Visa and MasterCard have taken both high- and low-tech steps in cutting fraud losses from 16[cents] per $100 transaction in 1990 to 6[cents] in 1999, according to the Nilson Report. But card companies are still looking for ways to stop crooks from "skimming," or copying data encoded on a card's magnetic stripe--the largest source of fraud losses after lost or stolen cards.

Because merchants often end up footing the bill when crooks order online or by phone, a handful of major retailers are beginning to upload mountains of fraud records into a national database. This project will allow Dell Financial Services, for example, to warn Toyota's lending arm before it gets burned by the same guy. Experian, a major credit bureau, is spearheading the American coalition and is also preparing the U.S. launch of its proprietary program, Detect, which identifies fishy new applicants. For mom-and-pop e-tailers, risk-management companies like ClearCommerce and CyberSource license fraud-warning packages for as little as $25 a month.

Businesses are also catering to a widening field of justifiably paranoid consumers. Landlords and employers are flocking to Factual Data Corp., which for a couple of bucks will run Web searches to see whether a potential tenant or new hire is applying with someone else's Social Security number. Pricey monitoring services like Equifax Credit Watch will contact you the same day changes are posted to your credit report.

The onus is on consumers to check their credit reports periodically for errors, especially since a recent Supreme Court decision restricted the time during which they can sue a credit bureau that mistakenly gives their information to a criminal. Consumers have to file suit within two years of the wrongdoing--bad news when the FTC says it takes the average identity-theft victim a year to detect a problem.

Johnson's detective is still waiting for creditors to cough up the necessary paperwork to get the investigation off the ground. In the meantime, Johnson has marked his calendar with six-month reminders to check his credit reports. And he shreds credit-card offers into tiny bits before sprinkling them in different trash cans around the house. "Paranoid?" Johnson says. "I've learned you can't be too careful."