Expert: More Transparency Needed To See True Scope of Identity Theft

By Lee Rood, The Des Moines Register


The number of actual incidents of unauthorized credit and debit card use and identity theft are believed to be far higher than the 1,113 incidents reported to police last year in Iowa.

Why isn’t the official number higher? Some say banking policies that benefit consumers lead to underreporting of crime.

Many banks don't hold consumers responsible for unauthorized transactions — including those related to identity theft — if individuals notify the bank in a timely fashion.

The federal Electronic Fund Transfer Act protects banking customers from errors, loss or theft of their debit cards. The law limits a consumer’s liability to $50 if the debit card holder notifies the bank within two business days after discovering a theft.

But consumers aren’t as likely to file complaints with police when they don’t have a significant financial loss.

Banks and credit card companies contend they are being more aggressive in their efforts to prevent such crimes.

Chris Hoofnagle, an identity theft expert at the University of California-Berkeley College of Law, said banks too often forgo participating in criminal investigations, choosing to spread the costs of their untold losses to customers instead.

“The victim, whether bank or individual, must be willing to cooperate and have spent time documenting the crime,” Hoofnagle said.

“Many banks do not cooperate because they risk having to appear in court to discuss how the institution was swindled.”

Hoofnagle said he doubts banks and credit card companies are likely to do more until they are held accountable in court.

He pointed to a 2007 case out of Tennessee, Wolfe v. MBNA, in which the victim of identity theft sued a bank for negligence in issuing a credit card to an impostor.

The bank was found to have engaged in no identity verification at all, Hoofnagle said.

“The bank reacted in a telling way: It argued that it had no duty to verify and no duty whatsoever to the victim,” he said. “MBNA's attitude is the problem. We need law enforcement attention to the general feeling among banks that the costs of fraud can be externalized to victims.”

Hoofnagle has argued to Congress that banks and credit card and payment companies should be required to report data publicly, as well as the kind of fraud attempted and losses incurred.