Chapter 18. How Identity Theft Works

One of the most well-publicized threats to personal security in recent years has been identity theft, in which someone's private financial information is stolen and then used illegally.

This information can be used in a variety of ways. In the simplest way, someone uses the stolen credit card or bank account. However, the information can also be used to open bank accounts, get new credit cards, and take out bank loans in the victim's nameand the criminal gets off scot-free, while the victim may have to spend years clearing his name.

Identity theft can also be used by terrorists or illegal aliens who want to establish a legal identity in the United States.

There's good reason that identity theft has gotten a lot of publicityit's very big business. According to a study done by the Council of Better Business Bureaus and Javelin Strategy & Research, identity theft cost consumers a staggering $57 billion in 2005.

The survey shows that, despite the publicity surrounding the practice, identity theft continues to grow. It found that it cost U.S. consumers 4% more in 2005 than it did in 2004. And the average fraud also grew, from $5,885 to $6,383.

One of the more surprising results of the survey is that those with low incomes are more vulnerably to identity theft than those with higher incomes. And young people are more vulnerable than those who are older.

The survey did not explain why those who earn less money are more vulnerable to identity theft. One reason, though, might be that they could be more susceptible to some of the get-rich-quick or "credit repair" scams that lead to identity theft.

Most headlines in recent years about identity theft have focused on how the Internet is used to steal people's identity. For example, phishing scams, in which a phony email gets someone to log in to a phony website and submit personal information, have gotten a good deal of press. And many people know that it's dangerous to enter their credit cards into sites that do not appear reputable.

Surprisingly, though, the survey found that the Internet is not the primary method criminals use for stealing people's identities. It found that only 3% of identity theft results from phishing attempts. And overall, Internet fraud accounted for only 9% of identity theft cases.

By way of contrast, 30% of victims had their wallets, checkbooks, or credit cards stolen or lost. Fifteen percent were victimized by family, friends, or acquaintances. Another 15% were victimized by fellow employees, and 8% were victimized by stolen mail or misdirected mail.