Identity Fraud in Decline, but Costs Up

November 12, 2008

This article is included in these additional categories:

Privacy & Security | Retail & E-Commerce

Identity fraud has been declining in most parts of the United States, even as the costs to those who are defrauded increase and fraudsters turn to unexpected channels to commit fraud, according to a Javelin Strategy & Research study released earlier this year, reports Retailer Daily.

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Criminals obtain the majority of information mostly from stolen personal belongings and through telephone calls, rather than online – that’s now a three-year trend – the 2008 Identity Fraud Survey Report found.

The cost per defrauded consumer in 2007, however, increased 25% from the previous year, according to the study.

Identity fraud is defined as the unauthorized use of another person’s personal information to achieve illicit financial gain.

Key Findings

  • Overall, identity fraud is declining in the United States. It was down an estimated 12% in 2007 vs. 2006, or a total fraud reduction of $6 billion.
  • Traditional methods still pose the greatest risk. Fraudsters are turning to lower-tech methods by using telephone theft more than ever before. Access through mail and telephone transactions grew from 3% of ID theft in 2006 to 40% in 2007.
  • States are not affected equally. Fraud risk is lowest in the Northeast; residents in California, Idaho, Illinois, West Virginia, and Delaware states are at the highest risk.
  • Fraud response varies by age. Young adults who fall victim to fraud are most likely to purchase ID fraud insurance and sign up for fraud alerts. Older adults who fall victim often react by no longer sending bill payments and checks through unsecured mailboxes.

Below, additional findings from the Javelin report.

Per-Consumer Cost Up

Approximately 300,000 fewer adults in the United States fell victim to identity fraud in 2007 than in 2006. This continues the year-over-year decrease since data was first collected by Javelin in 2004, when 4.25% of the overall adult population in the United States was victimized. In 2007, 3.58% of the country’s adults were victims of identity fraud.

The annual cost of identity fraud in this year’s report dropped nearly 12% over the previous year, from $51 billion to $45 billion. These figures represent the total amount that criminals were able to obtain illegally, before detection.

Factors that contributed to this decline include greater consumer vigilance and awareness, improvements in systems and practices by companies that manage personal information, the increased frequency of viewing personal account information, and consumers’ more frequently updating spyware and anti-virus software, Javelin said.

However, over the past three years during which overall fraud declined, the cost per consumer – the total out-of-pocket expense consumers incur when falling victim to ID fraud, not those costs borne by businesses – increased: The cost per consumer in 2007 averaged $691, an increase of 25% over the $554 recorded in 2006.

Criminal Activity in the Phone Channel

The most significant new avenue for theft of information in 2007 was the ubiquitous telephone channel. Access through mail and telephone transactions rose from 3% of theft in 2006 to 40% in 2007.

The dominant method used by fraudsters in this channel was vishing, a technique in which criminals use telecommunications, voice over Internet protocol (VoIP), and other technologies to obtain information from consumers.

Unsuspecting consumers receive phone calls from parties claiming to represent nonprofit organizations, billing institutions, or other financial institutions in an attempt to gain personal financial information such as Social Security numbers, bank account numbers and credit card numbers.

Wireless phone accounts are the most frequent types of new accounts opened fraudulently by criminals using other persons’ data. Criminal wireless account openings increased from 19% to 32% of new account fraud last year, exceeding fraudulent new credit cards, loans, checking or savings accounts.

Geography Makes a Difference

On average, New England and the Plains States reported the fewest incidents of fraud per capita.

Respondents in California, Illinois, Idaho, West Virginia and Delaware reported the highest incidence of ID fraud.

Generally, states with dense metropolitan areas such as California are more likely to have higher fraud rates, due to higher income levels and commerce activity.

Victims React More Effectively to Fraud

Respondents age 18-24 who reported falling victim to ID fraud in 2007 were the most likely group of consumers to put fraud alerts on their credit reports, with 67% acknowledging that this as an immediate first step.

Of that age group, 47% purchased identity fraud insurance – nearly three times the rate of any other age group polled.

Older adults, commonly considered a leading demographic group preyed upon by criminals, have learned from ID prevention campaigns urging Americans to move financial transactions to more secure methods, such as online.

Respondents age 65 and older who fall victim to ID fraud are now the least likely to send checks through the mail, one of the most common methods criminals use to obtain personal financial information.

About the study: In its fourth consecutive year, the Identity Fraud Survey Report is independently produced by Javelin Strategy & Research. In October 2007, more than 5,000 telephone interviews with consumers identified important findings about the reduction of fraud while at the same time highlighting new areas of concern for Americans. Funding for the survey is provided by CheckFree, part of Fiserv, Inc., Visa Inc. and Wells Fargo & Company.

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