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Fraud alerts do NOT require lenders to contact you

Posted on Apr 13, 2008 by Tom Fragala

The misconception that fraud alerts by law require that you be contacted continues on unabated. In fact, a fraud alert is just words on your credit report. Can it be effective in some cases? Yes. Are fraud alerts some kind of "system" that connects lenders and the credit reporting companies together in some automated fashion to protect consumers? No.

It is dismaying that even leading experts like Javelin Strategy & Research make significant errors that perpetuate the misunderstandings about fraud alerts. In their research report entitled "Identity Fraud Protection Services: Double Digit Growth to Continue", they write on page 8 about fraud alerts: "Requires lenders and merchants to confirm an applicant's identity to open a new line of credit." (my emphasis). This is not accurate. There is no law, either federal or state, that requires any lender, bank, credit card issuer, or merchant to pay heed to a fraud alert. Do some of these companies pull a credit report and check to see if the individual has reported fraud (or suspected fraud)? Yes. Is it compulsory? Absolutely not.

Update: Are fraud alerts a good idea of you are a victim of identity theft? Yes, depending on what has happened (i.e., if your personal credit or Social Security number were compromised). Can fraud alerts help you detect identity theft fraud if you use them as a prevention tool? Yes, they may help (however, they don't always work and only help with credit-related identity fraud). This is why you get fraud alert assistance as part of our MyTruston Plus package, along with several other tools to help prevent/detect ID theft (and recover afterwards). Fraud alerts are a nice option to have, yet their effectiveness is overrated.

Update 2: Luke at Javelin (and Mary in the comments below) pointed out to me that in their report, page 19, Figure 11, in reference to the "Fraud Alerts" type of services, Javelin says "Eager lenders may not always verify the applicant's identity before granting credit." This is accurate. I'd like to expand on that: lenders may even check the identity, pull a credit report and still not see the fraud alert (or ignore it).