Friday, November 18, 2016

A “Credit Freeze” can be used against you

By Greg Wright
Certified Fraud Examiner
Certified Financial Planner™

Identity theft continues to be more frequent and is particularly troublesome for seniors.  Two simple changes by regulators could diminish identity theft by 90% or more.

Denise had heard me last year when I spoke to a group of seniors. She called recently telling me that her father was a victim of identity theft and asked for my help.  Her father was in a nursing home, and she just learned that his credit had been used in an attempt to finance improvements to a house not connected to him.  She had heard me speak and wanted to know if I could help.

I suggested that she contacted the Indiana Attorney General’s Identity Theft Unit and gave her the contact information. 

However, she wanted a prompt answer and wanted to know who had stolen her father’s identity. I explained that, unfortunately, few victims of identity theft ever discover who actually stole their identities or where they got the information. 

I suggested that she first placed fraud alerts with credit bureaus and request credit reports to review suspicious transactions.  Also, her father’s credit should be frozen[i].  More about a credit freeze later. 

The next step is to obtain copies of the credit application, and paperwork that might identify the fraudster.  Since the construction work had not started and her father had not been (yet) harmed financially, the vendor would not cooperate.  He voided the transaction and did not want to become involved.

Denise was insistent on knowing more, and she wanted information about the owner of the property.  It turned out that the property owner had over 50 judgments pending, evictions, history of bankruptcy, etc.  Again, I suggested that she turn the matter over to the Attorney General.  We both suspected that the point of compromise was her father’s nursing home.  This is not an unusual place for data compromise, and quite often the source of medical identity theft.

Identity fraudsters often use a mail drop to shield their identity.  The former insurance agent that stole 3,000 identities in Fishers a few years ago used the mailboxes at homes that were vacant.  Other fraudsters use “virtual” mail drops that do not supervise their clients and enforce the requirements set forth by the U.S. Post Office[ii]

Some identity theft fraudsters will issue a credit freeze on an account they are trying to loot.  Imagine what might happen if someone – posing as you -- established a “Credit Freeze” (also known as a Security Freeze) on your credit.  All it takes to freeze your credit is the following information:
  • Your full name
  • Social Security Number
  • Date of birth
  • Current address
  • All addresses where you have lived during the past two years
  • Email address
  • A copy of a government-issued identification card, such as a driver’s license or state ID card, etc.
  • A copy of a utility bill, bank or insurance statement, etc.

You can easily obtain a counterfeit driver’s license and copy of a utility bill.  There are several organizations selling false documents over the internet for “amusement purposes only.”  Someone could grab your picture from Facebook or Google and do this in a few minutes. 

Imagine that your credit has been frozen by a fraudster, and you cannot prove that you are you.  The fraudster can change your mailing address, file for a tax return, borrow money, even sell your home.  A credit freeze can be used against you.

Where will this end?

Two simple changes would end the identity theft nightmare:
  1. Enforce the “know your customer” rules for all financial institutions involved in the extension of credit.  These rules currently apply to all financial institutions and are designed to prevent money laundering, and violators face stiff fines.  Both the institution and the individual employee approving these transactions face fines.  Use these existing laws to deter identity theft.
  2. Mandate the Social Security Administration to allow credit reporting agencies to determine if a Social Security number matches the name provided.  Currently, approximately one-third of the Social Security numbers are concurrently used by two or more persons.  We’ll save that tidbit for a future column.

According to the U.S. government statistics, over 17 million citizens have been victims of identity theft.  Seniors and children are more frequent victims of this crime.  Criminals have pivoted to using identity theft because they believe that they are less likely to be caught than any other type of financial crime.

[i] A credit freeze, also known as a security freeze, is a consumer right provided by Indiana law.  Placing a credit freeze on your credit reports can block an identity thief from opening a new account or obtaining credit in your name. A credit freeze keeps new creditors from accessing your credit report without your permission. If you activate a credit freeze, an identity thief cannot take out new credit in your name, even if the thief has your SSN or other personal information, because creditors cannot access your credit report.
[ii] USPS Application for Delivery of Mail Through Agent Form 1583.