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On the Road to Recovery

By: Hank Thompson

Look around a room with a handful of people. Statistically speaking, at least one person out of five has been a victim of identity theft and can relate to the destructive effect it can have on our lives.  In 2003, a study by the Federal Trade Commission described identity theft as the fastest growing white-collar crime in the United States and stated that, in the five years leading up to the study, 27.3 million Americans were victimized by identity theft, resulting in losses of more than $53 billion. Banks and major businesses took the brunt of this burden, losing more than $48 billion.

Unfortunately, little has changed in the past two years. The number of fraudulent bank accounts opened increases every day and, too often, community banks are hit hardest with regard to loss of funds and reputation when a customer falls victim. Individual victims may suffer psychologically, but banks are taking the hit directly to their bottom lines. Every auto loan, mortgage or line of credit opened under a false identity can cost banks tens of thousands of dollars (or more). Once a fraudulent account has been opened, the damage has already been done. At this point, preventing the problem has failed. The best way to salvage the customer relationship is by having a powerful and painless identity theft recovery program at the ready. 

Cost of convenience
In order to compete in today’s hypercompetitive retail banking environment, financial institutions strive to be the first, the best and the fastest. From instant loan and credit card approvals to online payments and billing, there are many convenience-driven outlets by which a customer’s identity can be compromised.

A number of red flags for identity theft can go unnoticed or undocumented as a result of a bank’s pursuit of convenience. Some examples include an individual reporting a lost or stolen credit card while also requesting an address change; an increase in spending habits; or spurts of expensive purchases. Banks, caught up in the essence of quick service, often miss these warning signs, despite their focus on prevention technologies.

Prevention is not perfect
Nothing can prepare bank customers for the frustration and time required to regain his or her identity. A stolen or compromised identity disrupts lives, leaving victims to spend months trying to deal with the after effects. In fact, a 2003 study by the Colorado Public Interest Research Group estimated that victims will spend an average of 600 hours each reclaiming their identities. That number has tripled since 2000, when a joint California Public Interest Research Group and Privacy Rights Clearinghouse study reported it to be 175 hours. Victims are left with unwarranted debt along with the embarrassment of having loans refused, all because of blemished credit histories which were no fault of their own.

The emphasis on prevention strategies and technologies is a result of every institution wanting to show customers it is ahead of the pack. Prevention is the buzz of the financial industry, and hence, the focus is usually placed solely on those methods. The saying, “An ounce of prevention is worth a pound of cure,” only applies if the prevention is a surefire deterrent. The financial industry may be taking prevention as the final and only solution to identity theft; however, prevention is not a guarantee — in fact, 100 percent prevention is impossible. A financial institution — as well as individual customers — can do everything right in regards to prevention (e.g., shredding bills, not giving out sensitive information, etc.), and still fall victim to identity theft.

Recently, several major data collection companies left almost a half-million Americans vulnerable to identity theft when they announced thieves had tapped into databases filled with sensitive and personal information. No one could have imagined the ChoicePoint, LexisNexis, DSW, or Bank of America incidents because no one can predict or mandate human behavior or the lengths to which thieves will go to steal. These were instances — now becoming all too familiar — that no form of preventive technology could have anticipated.

The challenge is that no matter how much banks spend on firewalls or any other form of theft technology, criminals will continue to refine their techniques, leaving them one step ahead, or just a half-step behind the “secure” systems.

In addition, outside of the bank’s control, customers use their Social Security numbers for a variety of day-to-day tasks, from car loans to credit cards to even acquiring something as simple as a cell phone. Many things cannot be done without giving a SSN. But doing so can put the bank at risk for loss.

Thwarting the criminal element
The truth is, identity theft prevention is not as high-tech as consumers might think. If anything, prevention depends as much on common sense as technology.

Technological advances in the fight against identity fraud were spawned from the Internet explosion. Yet despite all of its perceived risk, the Internet does not lead to as many identity theft and fraud cases as daily activity (e.g., haphazardly throwing away bank and credit card statements and personal information). In fact, a 2005 study by the Better Business Bureau and the Privacy Rights Clearinghouse revealed that 68.2 percent of information was obtained off-line versus only 11.6 percent obtained online. So, if advancing technology is not the only answer, what is?

Some financial institutions offer credit monitoring for their customers as a way to prevent identity theft. However, credit monitoring is only effective to a certain degree. Its benefit is that it alerts customers to suspicious new account activity — primarily activity that affects credit scores. What credit monitoring does not do is inform customers about account takeover, which is when a fraudster obtains an individual’s personal information such as account numbers and Social Security number, and proceeds to change the official mailing address with the accountholder’s financial institution. According to the FTC, account takeover represents approximately two-thirds of all identity thefts. Furthermore, once a customer is aware a problem exists, he still is left to reverse the damage.

Recovery is the key
With the continuous swells of identity theft across the United States, it would be prudent for financial institutions to take the appropriate steps to assure their customers are prepared if they are faced with an identity compromise. One such way is through offering a comprehensive identity theft recovery program that can eliminate the hassle and emotional drain of rebuilding a customer’s character and credit as well as squelch any ill will the victim may feel toward his or her community bank. Having a recovery solution in place before the problem occurs also helps reduce financial risk to the bank because the sooner an incident is addressed, the less likely financial damages are to increase.

Recovery is not a license for customers to unscrupulously spend money or to “throw their SSNs around.” Customers need to know that preventive measures along with a degree of common sense are still necessary, but recovery is the safety net needed whenever identity theft does happen. Recovery, in addition to prevention, ensures a comprehensive identity theft plan.

Preventive measures against identity theft will only safeguard customers to a certain point and do not offer a complete solution to the epidemic. Resources focused solely on preventive technology and anti-phishing software would signify shortsightedness for banks because a piece of the puzzle is missing. Recovery is a necessary, often vital, step in determining whether or not the customer relationship can be salvaged.

Identity theft recovery programs provide financial institutions with a solution for customers that can quickly stop the bleeding of identity theft and prevent further damage. They offer the immediate service required during a customer’s time of need, providing early intervention from experienced fraud specialists on behalf of the victim through access to real-time credit reports, placement of consumer notices, and/or fraud alerts and communication with creditors. Early intervention is the essential step to minimizing the damage before the situation turns into a full-blown identity theft nightmare for the consumer.

“When identity theft happens, you are left feeling vulnerable and damaged,” said an anonymous identity theft victim. “There is a miscommunication between the victim and credit bureaus that makes you out to be the criminal. My credit was frozen, I had to acquire a new Social Security number, and I will now spend the next seven years repairing the damage one individual has done. Everything from buying my house to filing taxes has now been next to impossible — it has become an emotional drain not only on myself but on my family as well.”

In addition, recovery programs may greatly benefit a bank’s senior citizen customer base. When a senior citizen is affected by identity theft, the automatic solution is to go to a loved one, friend or the bank for help, which now will cost them the extensive hours and money to help repair the damage. Recovery not only empowers a senior citizen to take control of the situation, but also alleviates extra strain put on family and friends to solve the problem quickly.

Lessons learned
The key is to find responsible recovery programs that will ensure customers spend a minimum amount of time regaining their identity and not be forced to bear the majority of the burden of managing the recovery process through an identity theft recovery kit filled with pamphlets with phone numbers, template emails, and step-by-step instructions. 

Financial institutions can learn from a nationally recognized auto club company that prides itself on a full-service mentality. The company is built on the premise that it will change the tire for you as opposed to providing you the tire jack and then telling you how to do it. Responsible identity theft recovery programs, much like this auto club company, are built on the concept of convenience and the notion that customers in need do not want to fix a problem when someone else can do it faster and more reliably

Identity theft recovery programs provide customers with peace of mind and the assurance of knowing they are prepared — even for the worst — while financial institutions benefit from adding a new product offering to ensure customer retention.

Hank Thompson is executive vice president of business development for Louisville, Ky.-based BSG Financial, LLC, a leading provider of profit-enhancing programs and marketing services to the financial services industry.

© Copyright BankNews, July 2005