Protectors, Too, Gather Profits From ID Theft

Melody Millett was shocked when her car loan company asked her if she was the wife of Abundio Perez, who had applied for 26 credit cards, financed several cars and taken out a home mortgage using a Social Security number belonging to her actual husband.

Melody Millett found that the Social Security number of her husband, Steven, was being used to apply for financing under another name.

Articles in this series examine the causes and the impact of identity theft.

Federal Trade Commission (consumer.gov)

Free annual credit report (annualcreditreport.com)

Privacy Rights Clearinghouse (privacyrights.org)

Identity Theft Resource Center (idtheftcenter.org)

Internet Crime Complaint Center (ic3.gov)

United States Postal Inspection Service (usps.com)

Beyond her shock, Mrs. Millett was angry. Five months earlier, the Milletts had subscribed to a .99-a-year service from Equifax, a big financial data warehouse, that promised to monitor any access to her credit records. But it never reported the credit activity that might have signaled that they were victims of identity theft.

"I feel like the whole thing is a sham," said Mrs. Millett, a 37-year-old information-technology manager from Overland Park, Kan. "You feel completely violated because here are the people who know the industry. They hold all the data." The services, she contends, are oversold.

It is not just criminals who are profiting from identity theft; financial institutions are making money, too. Fear of identity theft has helped give rise to a nearly billion-dollar business in credit-monitoring services sold by the major credit bureaus - companies like Equifax, Experian and TransUnion - as well as direct marketers and banks.

Javelin Strategy and Research, which analyzes the credit-monitoring market, says more than 12 million Americans are now subscribers. The services alert them when lenders have requested their credit files, usually an indication a credit application has been made in their name.

Credit monitoring has quickly gained traction with consumers through aggressive advertising that often promotes its value in protecting against identity theft. But its abilities are far more limited than is commonly perceived.

In the meantime, measures that could stem fraud from identity theft - like legislation empowering consumers to block access to their credit records, making it impossible to extend new credit - have faced stiff resistance from industry groups.

"Identity theft has essentially become a business - not just for bad guys but for good guys, too," said Robert Gellman, a privacy consultant in Washington. "A lot of the people that are involved in profiting legally from identity theft are direct participants in the whole credit system that doesn't have the protections in place to prevent identity theft in the first place."

Some criticism has been aimed at banks, which tolerate a certain amount of fraud as a cost of doing business. But the biggest beneficiaries from identity theft have been the three credit bureaus.

Banks and other lenders have long bought information like a person's payment history or debt load to assess a loan's risk. But credit monitoring turned the system on its head and helped create a new, consumer- focused financial data industry.

In addition to selling files to lenders in bulk, the bureaus now market largely the same records to individuals, including entries that reflect applications for credit, new accounts or balance changes. While the data is sold to a big financial institution for 20 cents to a report, according to analysts and industry executives, it can be repackaged and sold to consumers in the form of credit monitoring for to a month.

Persuading customers to sign up can be costly. But today, Wall Street analysts estimate credit monitoring alone to be a 0 million category, growing 20 percent a year or more.

"It's a pretty big market considering that 10 years ago it didn't exist," said J. Bradford Eichler, a consumer data company analyst at Stephens.

Peace of Mind, at a Price

Representatives of Equifax, Experian and TransUnion, whose consumer affiliates are being sued by the Milletts, would not comment on the couple's specific contentions because of the continuing litigation. But they say credit monitoring is a valuable tool.

"Our products give consumers an early warning system so they can limit the damage and take care of the problem right away," said John Danaher, president of TransUnion's online consumer services arm.

And indeed, many consumers speak glowingly of their experiences with credit monitoring. Wendy Barrington, a 36-year-old Houston woman, recalled the annoyance a friend faced for months after her financial information was stolen.

"I am not about to risk something I have worked so hard on," said Ms. Barrington, who pays about a month for TransUnion's credit-monitoring service. "All it takes is one person stealing your information and you are in a world of hurt."

Still, some consumer advocates caution that people may be overpaying for that peace of mind.