ID Theft Drops Sharply, but Out-of-Pocket Costs Soar

February 9, 2011

The number of victims of identity theft fell sharply last year, but consumers' out-of-pocket costs skyrocketed, a new study found. New-account fraud, including non-bank accounts, and "friendly fraud" were the most common types of crime.

The number of victims of identity theft fell sharply last year, but consumers' out-of-pocket costs associated with the crime skyrocketed, according to a new study.

The 2011 Identity Fraud Survey Report by Javelin Strategy & Research (www.javelinstrategy.com), found the number of identity-fraud victims dropped by 28% to 8.1 million adults in the U.S. -- three million less than the number of victims in 2009. The total amount of ID-fraud fell to $37 billion from $56 billion, the smallest amount reported in the eight years of the study.

Javelin noted that a marked decline in reported data breaches may also account for the drop in fraud. In 2010, there were 404 data breaches reported, with 26 million records exposed, compared with 604 breaches in 2009, when 221 million records were exposed.

“Economic conditions also appear to have contributed to this year-over-year decline, as well as increased security measures and some significant law enforcement successes,” James Van Dyke, president and founder of Javelin, said in a statement.

Despite the dramatic decline, consumer out-of-pocket costs soared. The mean consumer out-of-pocket cost jumped 63% to $631 per incident in 2010 from $387 a year earlier, Javelin said.

The firm attributed the increase to changes in the types of fraud perpetrated, specifically new-account fraud and debit-card fraud, which are more difficult to detect. Consumer-fraud costs include costs incurred by the victim towards payoff of any fraudulent debt as well as fees, legal or otherwise, to resolve fraudulent claims, Javelin said.

“[T]he rise in out-of-pocket costs carries a warning. Consumers cannot put their finances on autopilot or ignore important safeguards,” Van Dyke said. “Simple safeguards may dramatically reduce fraud risk, such as frequently monitoring banking, credit and other financial activities, securing computers and paper records, and activating electronic alerts to help prevent fraud and address the situation quickly when it occurs.”

Although all types of fraud declined over the past year, new-account fraud — when a criminal opens accounts in a victim’s name without his or her knowledge -- was responsible for the greatest fraud amount, to the tune of $17 billion, Javelin said. New-account fraud is harder to detect and is the most likely to hurt victims financially. Existing-card fraud dropped sharply, down 38% to $14 billion from $23 billion in 2009.

So-called friendly fraud — where the crime is committed by someone known to the victim – was one of the few types of ID fraud on the rise in 2010. Consumers between the ages of 25 to 34 were most likely to be victims of this type of fraud, Javelin said, with 41% of victims in this group reporting theft of their Social Security number.

“Account takeover” has become one of the most common forms of ID fraud, according to the report, with the two most-popular methods of account takeover being criminals adding their name as registered users on existing accounts or changing the physical address of the account (the latter was the preferred method for fraudsters, with 44% of account takeovers happening this way).

Another interesting note was that the type of new account fraud is changing. More criminals are stealing IDs to open non-bank and non-card accounts, such as health-club memberships, phone and cable subscriptions, the report found. This type of fraud will not necessarily be caught by checking credit reports, Javelin said.