As a victim of identity theft myself, I’ve experienced these practices first hand. Over the last year and a half, several credit accounts have been fraudulently opened in my name. In every case, the accounts were opened with online lenders using verifiably incorrect information, such as bogus telephone numbers and out-of-date home addresses. Looking up my name in the phone directory would have been sufficient to detect the fraud. In the most recent case, someone purchased a Cadillac Escalade (a $39,000 vehicle) using a credit account opened in my name, despite my having placed a fraud security alert on my credit report.
You can find lots of advice on protecting yourself against identify theft, but in my opinion, most of it is pointless. Bad lending practices mean that your identity can be stolen with as little as your name and a made-up phone number. And if you think your Social Security number is safe, you’re fooling yourself, because it’s on virtually every form you fill out. The only way to protect yourself is simply to check your credit record frequently and be alert to signs that your identify has already been stolen.
But what should be done to reign in the lenders? They already bear most of the cost, because they have to absorb the losses from loans that don’t get repaid and products that don’t get paid for (except when identity theft victims foolishly pay off debts they didn’t incur instead of protesting the charges). They continue to use loose lending practices because the gains exceed the losses. But those practices also impose external costs on the victims in whose names they issue credit. At a minimum, the victims experience the inconvenience of protesting charges; in some cases, they are denied credit at crucial moments.
“The industry is highly competitive, and credit issuers are still making more money signing up new customers than they are losing from fraudulent accounts,” said Beth Givens, executive director of the Privacy Rights Clearinghouse. “Of course, victims of identity theft are the collateral damage of this diabolical business model.”So here’s the question I pose to my readers: should lenders be made liable for damages to identity theft victims, or punished in some other way when they facilitate identity theft, in order to give them an incentive to adopt more scrupulous lending practices?