Debunking myths about identity fraud

Javelin Strategy & Research has just released its Identity Fraud Survey Report. While identifying significant risk differentiators between age and income demographics, the report highlights an important reduction in fraudulent new account openings using private information. Interestingly, the report also says that more fraud happens via physical channels, such as in-person transactions, and by the direct theft of personal data by individuals, rather than taking place online.

Let's drill down a bit into some of the critical findings of the study, which is based on telephone interviews with 5,000 adults.

Identity fraud is declining in the United States--down an estimated 12 percent from the prior year--translating into total fraud reduction of approximately $6.4 billion. Indeed, about 500,000 fewer adults in the United States were victims of identity fraud in 2006 than 2005. It is estimated that 3.7 percent of Americans were victims in 2006, as opposed to 4 percent in 2005. Losses from identity fraud are calculated at $49.3 billion in 2006, down from $55.7 billion in 2005.

Why the decline? Factors cited in the report are better consumer education and awareness, and the increased use of online banking and financial sites that enable people to monitor their accounts more frequently.

Fraudulent new account openings have dropped from the prior year, with average fraud amounts also decreasing significantly. Such fraud has dropped from 1.5 percent for respondents for the prior year to a current rate of 1 percent. Plus, when fraudulent accounts are opened, victims are detecting the fraud more often using online channels, such as the viewing of statements. As such, average fraud amounts are dropping from $10,000 the year before to $7,260 now.

Here, too, education, awareness and online monitoring are attributed for the improvement.

Young adults are at the highest risk for identity fraud. This supposedly is because adults between the ages of 18 and 24 are least likely to take routine but important safeguards like shredding documents and implementing antivirus software and firewalls. This leads to more than 5 percent of them becoming victims of identity fraud, in comparison to an overall adult fraud rate of 5.3 percent. Strikingly, more than 50 percent of young adult victims know their perpetrators, which include their friends, neighbors and co-employees, contrasted to a rate of just 23 percent for all adults.

Thus, contrary to the notion that tech-savvy young adults are ahead of the game in the new Information Age, the report proves this not to be the case when it comes to identity fraud.

Americans earning less are least likely to be victims. Of those earning $15,000 or less, only 2.8 percent report identity fraud, compared to 7.3 percent who earn more than $150,000. However, when people with lower incomes are victimized, the misuse lasts twice as long and the fraud is more difficult to uncover, taking an average 70 percent longer to detect than fraud in higher income populations.

The results of identity fraud differ in the income segments. People who earn more than $150,000 are more than twice as likely to move from paper statements and bills to electronic alternatives in an effort to ward off fraud. Lower-income victims, on the other hand, are more than twice as likely to reduce their overall spending.

At the end of the day, the report certainly paints an illuminating picture in one very important respect. Namely, it debunks the notion that online transactions and activities increase the incidence of identity fraud when contrasted with physical interactions. Indeed, the report suggests that electronic alternatives have helped to protect potential victims of identity fraud.

In terms of practical advice to prevent unauthorized access to personal information, the report offers the following advice:

•  Only carry credit and identification cards that actually are used; do not carry a Social Security card, and lock personal information and sensitive documents in a secure location.

•  Protect accounts by adding difficult-to-discern PINs and passwords to them. Have PINs and passwords in a secure location, and change them frequently.

•  Replace paper invoices, statements and checks with electronic versions; utilize automatic payroll deposits.

•  Do not provide personal information over the phone unless you placed the call and are certain who you are speaking with; do not respond to automated phone messages or e-mails requesting you to call a number to resolve an account issue.

•  When responding to an e-mail from a business you have an account with, do not link to the business site from the e-mail; go to the business site independently by using your search engine and typing in the URL.

•  Install and regularly update firewall, antispyware and antivirus and browser security software on computers.

•  Shred all sensitive documents prior to disposal.

•  Use a secure mailbox for incoming mail.

Hopefully, with education and awareness such as this, we will continue to see identity fraud drop in the coming years.