ID Theft: A $1bn a Year Crime
March 2003
Identity theft, reportedly America's fastest rising crime, cost US lenders at least $1 billion last year.Precise figures on the exact loss due to identity theft are hard to pinpoint, but there is little doubt about the seriousness of the problem.
In 2002, 161,819 individuals in the US reported to the Federal Trade Commission that their identity had been stolen - bringing the number of reported US incidences of identity theft to nearly 300,000 since the launch of a database clearinghouse in 2000.
"Lenders have always been willing to accept a certain amount of risk," said a senior analyst, "and fraud losses, if they're not actively rising, have been an area of complacency. Periodically, though, it's critical that lenders revisit their assumptions on the fraud issue - and given the current potential economic and geopolitical impact on their bottom line, now is the time."
Lenders are the most vulnerable to identity theft fraud at new account opening, where even the most sophisticated forms of identification (biometrics for example) are of no value.
Almost 10,000 victims had fraudulent home loans, totalling a thumping, $300 million taken out in their name last year, while another 68,000 were the victims of credit card-related ID fraud, Pratt told MSNBC.
The best way for lenders to put a dent in this type of loss is to prevent the stolen identity from being used in the initial loan application process.
The problem with this approach is that technology to authenticate a person's identity at the point of sale is not mature and the loss associated with identity theft "so random and unpredictable" that financial services institutions (unless they have been involved in substantial losses of this type) have been unable to justify the IT expenditures.
Even with the rise in exposure through compromised internal databases, identity theft is an unquantifiable risk for most lenders.
"Financial services institutions should take a strategic, enterprise-wide approach to implementing technology solutions to deal with fraud, and identity theft in particular. Ultimately, the emergence of an industry initiative or consortium that could link key information databases, perhaps in partnership with one or all of the U.S. credit bureau, could produce the greatest payback for the lending community,"
Its report investigates regulatory issues, and looks at whether there is a viable market and return-on-investment for technology that prevents a loan account being opened by a person who has stolen another's identity.
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