Friday, April 09, 2010

"How Lenders Overlook the Warning Signs of ID Theft"

Brad Stone's NY Times Blog entry "How Lenders Overlook the Warning Signs of ID Theft" discusses Chris Hoofnagle's paper "Internalizing Identity Theft. The abstract for that paper says:

"Why has identity theft remained so prevalent, in light of the development of ever more sophisticated fraud detection tools? Identity theft remains at 2003 levels – 9.9 million Americans fell victim to the crime in 2009."

"One faction explains the identity theft as a problem of a lack of control over personal information. Another argues conversely that identity theft may be caused by a lack of access to personal information by credit grantors. This article presents data from a small sample of identity theft victims to explore a different dimension of the crime, one that suggests alternative interventions."

"Drawing upon victim and impostor data now accessible because of updates to the Fair Credit Reporting Act, the data show that identity theft impostors supply obviously erroneous information on applications that is accepted as valid by credit grantors. Thus, the problem does not necessarily lie in control nor in more availability of personal information, but rather in the risk tolerances of credit grantors. An analysis of incentives in credit granting elucidates the problem: identity theft remains so prevalent because it is less costly to tolerate fraud. Adopting more aggressive and expensive anti-fraud measures is extremely costly and jeopardizes customer acquisition efforts."

Stone's article gives an overview of how lenders approved credit applications, "one victim found four of six fraudulent applications submitted in her name contained the wrong address; two contained the wrong phone number and one the wrong date of birth."

Stone's article was also picked up by Slashdot