Identity Fraud Cases and Costs Plummeted Last Year

Thursday, February 17, 2011

Bill Gerneglia

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Article by Mark Henricks

The number of identify fraud victims fell 28 percent in 2010, while the dollar amount of fraud fell even more sharply.

A report by Javelin Strategy & Research said the decline in victims and amount of identify fraud, which slid 34 percent from $56 billion to $37 billion, was probably due to the steep drop in reported data breaches, which were down from 604 cases in 2009, with 221 million records exposed, to 404 cases in 2010, with 26 million records exposed.

In releasing results of its 2011 Identity Fraud Survey Report, Javelin noted that costs were being shifted to consumers, who saw their costs rise. Also, rises were found in so-called “friendly fraud” cases as well as non-credit card and new account types of fraud.

The number of identity fraud victims decreased by 28 percent to 8.1 million adults in the United States, three million fewer victims than the prior year, Javelin said. The total amount of $37 billion in fraud was the smallest amount found in the eight years the study has been conducted.

Identity fraud, which is generally defined as the unauthorized use of another person’s personal information to achieve illicit financial gain, is changing as well as declining, said James Van Dyke, president and founder of Javelin Strategy & Research.

Van Dyke said economic conditions may have contributed to some of the drop. Fraud generally moves opposite to retail sales -- when retail sales increase, fraud decreases, suggesting economic hardship as an contributor. Increased security measures and law enforcement successes were also factors, he said.

While the mean fraud amount per victim declined from $4,991 in 2009 to $4,607, which Javelin credited to fewer data breaches, consumer out-of-pocket cost due to identity fraud increased 63 percent from $387 in 2009 to $631 per incident.

Consumer fraud costs include paying off fraudulent debt as well as legal and other fees to resolve fraudulent claims. Javelin said the increase could be due to changes in the frequency of specific types of fraud.

New account and debit card fraud grew in popularity. New account fraud was most damaging and was responsible for the greatest fraud amount at $17 billion. This type of fraud is harder to detect and is the most likely to severely impact the victims. Existing card fraud, meanwhile, declined by 38 percent to $14 billion from $23 billion in 2009.

Fraud perpetrators increasingly emphasized opening new non-bank and non-card accounts, such as health club memberships, telephone service and cable television subscriptions.

Javelin noted that checking credit reports will not always catch this type of fraud. Consumers may need to study financial statements, and consider using a service that monitors public records, the company said.

New account fraud was the type of fraud most likely to involve friendly fraud perpetrated by people known to the victim. It accounted for roughly 30 percent of new account fraud for which the cause was known, Javelin said.

The survey involved more than 5,000 telephone interviews with U.S. consumers conducted from September through November 2010.

Cross-posted from CIO Zone

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