Filed under: Identity Theft

Comments

BK on Jun 3, 2006

I'm going to take issue with your perspective on this one. Banks do not benefit from the misfortune of consumers when it comes to fraud of any kind. When fraud occurs it is a lose-lose situation. When banks (and businesses in general) take steps to protect consumer information and fight fraud it is a win-win. Here's how:

First, in cases of identity fraud (in fact almost all types of fraud), the victim rarely loses any money. Almost all financial institutions will eat the entire cost as long as the victim wasn't completely negilent (i.e. writing PIN on back of ATM card). The consumer loses in time/hassle/lost wages - but very rarely actually bears the burden for the fraudulent transactions. Thus, minimizing fraud directly enhances a bank's bottom line by reducing operational fraud loses. As an aside, lower fraud loses also means lower operational risk, which under Basel 2 can mean lower capital requirements.

Second, institutions that prove to consumers they are actively fighting fraud and protecting consumer information will win market share and brand loyalty. This translates directly in to higher profits. The evidence for this lies with the insitutions who have lost consumer data - they almost always experience some level of attrition, and at minimum loss of consumer confidence.

I really think Mr. Alston is quite correct, and working in the fraud prevention business I have some perspective. Fraud is not a zero sum game between the consumer and the financial institution. The banks and the consumers are on the same side - neither wants fraud to occur, and both are hurt by it. Both parties are responsible to taking steps within their control to prevent it. The financial institutions that work to safeguard consumer information and minimize other forms of fraud will see higher profits due to improved customer retention, increased market share and reduced fraud loses.

Tom Fragala on Jun 3, 2006

Thanks for the comments BK.

I agree with you for the most part. I actually did not say that banks benefit from the misfortune of customers. I said "consumers are very touchy about the idea that a bank can make money off their misfortune." Believe me that is true, I work with victims all the time--and I have talked to bank executives and they are also concerned about this.

I do disagree that "in cases of identity fraud (in fact almost all types of fraud), the victim rarely loses any money." First, to say "all types of fraud" is incredibly broad--all types of fraud means everything from check fraud, to consumer fraud, to corporate accounting scandals. Also, when you mean victim, do you mean consumers? Because MANY businesses are the target and victim of fraud directly. Second, the data does not back that statement. There's so much proof that consumers lose billions every year to fraud, I don't know where to start. First try the ID Theft Resource Center's survey "IDENTITY THEFT: THE AFTERMATH" 2003 and 2004.

I am in contact with victims every day who have lost thousands of dollars to work-at-home scams, cashier's check fraud, internet auction fraud, and much more. I was also a volunteer with the Santa Barbara DA's office helping elder and dependent adult victims of fraud. Do you want me to put you in contact with the assistant DAs that prosecute these fraud cases? Trust me—people lose a LOT of money. I can also put you in touch with the victim advocate who has seen many elderly people lose their life savings to fraud.

And see my blog post here (http://blog.trustoncorp.com/2006/05/all_your_accoun.html) that describes how one man lost $20,000 to bank fraud. Also, there are hundreds of millions of losses to 419/Nigerian schemes--check out the US Secret Service website--and bank do NOT take the loss on that, trust me. I don't want to seem like I'm lecturing you, sorry.

However, I DO agree that businesses, banks included, take MORE loss than consumers overall. And I am not a person that bashes financial institutions like many consumer advocates do. Banks and other financial institutions work very hard and have thousands of dedicated people working to investigate and stop fraud. Heck, I'm a paid member of the ACFE so I know all about fraud professionals.

You also said "The financial institutions that work to safeguard consumer information and minimize other forms of fraud will see higher profits due to improved customer retention, increased market share and reduced fraud loses." That sounds good in theory—it was part of my sales pitch selling consumer fraud recovery solutions to banks!! But how many banks have you seen advertise or tout their fraud prevention and safeguard measures? None. They don't want to bring attention to fraud--it's not great way to attract customers. Also, banks are SUPPOSED to be extremely safe. To advertise your safeguards from fraud is incongruent--it's like saying, hey we have money on our bank. It's a given. I’ve talked to bank marketing people about this.

Last point. Banks have a tremendous amount of trust from consumers, and rightly so. (They are also very highly regulated.) I think banks, CU's and other financial institutions make a good platform for offering services that can safeguard and aid consumers in dealing with ID theft. I just didn't see any actual specific solutions offered in the article. I have a few ideas myself of what makes a good service. And frankly, the vast number of credit monitoring and Id theft recovery services are not a great fit. They all require consumers to provide a THIRD PARTY with sensitive, personal non-public information (SSN, account numbers, etc). This is very bad.

Any service than can help consumers prevent, detect and recover from ID theft without risking their personal information has a huge opportunity.

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