Identity theft topped the list of fraud complaints for the 13th consecutive year according to a Federal Trade Commission (FTC) report. The report, released earlier this week, included consumer complaint statistics for 2012. During the last decade only in 2003 has identity theft increased so dramatically (33% increase) compared to the prior year as in 2012 (32% increase).
Seventy percent of the 2.1 million complaints filed in 2012 were fraud related with identity theft, a type of fraud, making up 18% of the total complaints followed by debt collection fraud at 10%. Last year was the fifth consecutive year that debt collection fraud, which includes unfair debt collection practices by creditors and third-party collectors, was ranked the #2 consumer complaint.
Overall, fraud complaints were up 10% in 2012 compared to 2011. Identity theft as a whole has not been declining as some pundits once suggested it would. Identity theft complaints in 2012 totaled 369,132 compared to 86,250 in 2001 when the FTC began tracking identity theft complaints. Although this is more than a four-fold increase in complaints filed, the total identity theft complaints filed are 3 million since 2001.
The numbers of complaints received annually are much smaller than the annual estimates of identity theft incidences in the U.S., which have been projected at approximately 10 million by the FTC. This estimate is based on a study commissioned by the FTC early last decade that determined that most victims do not report identity theft to authorities.
Victims of identity theft may address (but not necessarily fully resolve) identity theft cases with a financial institution or creditor, and the incident goes unaccounted. Other victims may not resolve the fraud or report it. A minor portion of the FTC data is contributed by state law enforcement organizations. According to the report, “Forty-two percent of identity theft complainants reported whether they contacted law enforcement. Of those victims, 68% notified a police department. Fifty-four percent of these indicated a report was taken.”
Although many states require law enforcement to take a report from identity theft victim, because of the high incidence of identity theft and the general inability for local police to solve the insidious crime due to its complexity, many police departments discourage reporting, require victims to self-report by filing a form online or in person, while others don’t take reports.
In my own identity theft case, discussed in this column, the local police required a self-report, which I submitted online over seven months ago. To date, even after multiple inquiries with the precinct captain, the department has not responded, and my state requires law enforcement to take a report under law. However, they do not require law enforcement to investigate the complaint.
The FTC Consumer Sentinel Network Report for 2012 (as well as previous reports) divides identity theft in several major categories each composed of one to several subcategories. The category of Government Documents and Benefits Fraud composed 46.4% of all the identity theft reports in 2012 and increased 126% compared to the prior year.
This category consists of four subcategories: tax or wage fraud (43.4%), government benefits applied for/received (1.6%), government documents issued/forged (0.8%) and driver’s license issued/forged (0.6%). The first three of these subcategories increased dramatically in 2012 compared to 2011: 138%, 41%, and 32% while the driver’s license fraud decreased slightly (-1%) compared to 2011.
Most notable is the tax and wage fraud increase of 138% representing nearly 93,000 more reports compared to 2011. Tax and wage fraud primarily reflects fraudulent tax returns filed in the name of the identity theft victim, where the identity thief obtains the tax refund belonging to the victim. To do so, the identity thief must have knowledge of the victim’s name, Social Security number and some idea of their reported wages.
Wage information can be obtained from employers, W-2 forms and tax returns. Taxpayer wage information can be obtained through theft of the information in the workplace, mail theft, and by other means including phishing and other social engineering.
Unscrupulous tax preparers may also be involved in this type of fraud as was reported recently in this column. It is critical that consumers take appropriate steps to protect their wage information and report tax fraud to the IRS and the FTC and to file a police report locally.
During the last year the IRS intensified its crackdown on identity theft to protect taxpayers. This recent push is after last year’s enforcement efforts helped the IRS protect $20 billion of fraudulent refunds including those related to identity theft, compared to $14 billion in 2011. By late 2012 the IRS assigned more than 3,000 of its employees, more than twice those assigned in 2011, to work on identity theft related issues.
While some types of identity theft are on the rise, like tax and wage fraud, other types of identity theft declined in 2012 compared to incidences reported in 2011. Last year there were double digit decreases in identity theft related to establishing new telephone accounts (-21%); stealing from existing bank accounts (-14%); obtaining employment (-11%); obtaining auto (-12%) and real estate (-17%) loans; data breaches (-15%); evading law enforcement (-12%); leasing of housing (-25%); and insurance (-12%).
In addition to the category of government document and benefits fraud, which increased overall by 126% as discussed in previous paragraphs, the following subcategories of identity theft also showed double digit increases in 2012 compared to 2011: opening new credit cards (39%); opening personal/business/student loans (23%); and attempted identity theft (28%).
These statistics should remind us that fraud and identity theft are crimes of opportunity. New opportunities for the thieves arise as we migrate to Web-based and telephone transactions. For example, more people are filing online tax returns, which have given identity thieves the ability to file a tax return in your name fraudulently before you do either online or through the mail. The thieves collect your tax return before you file. A recent example of bank account fraud involved getting into victims banks account and making substantial withdrawals over the phone.
Consumers reported paying $1.5 billion in total for all fraud complaints including identity theft in 2012. The average and medium amount paid was $2,350 and $535.
Fifty-nine percent of consumers that reported fraud said they made a payment. They also reported that the fraudulent payments were made primarily by wire transfers (47%), credit card (17%) and bank account debit (14%).
Consumer loss could be mitigated by educating consumers to make online purchases with credit cards rather than by providing payment to online retailers by using bank account information and debit cards. With these payment types, the identity thieves fronting as a business can wipe out the victims accounts, whereas purchases made with credit cards are made with the creditor's money and can be disputed if fraud is involved.
Fifty seven percent of the fraud complaints identified the method of initial contact. Email contact was the most common method of initial contact at 38%, followed by telephone contacts (34%). Twelve percent of the initial contacts were made through the Internet—Websites, and 9% was by snail mail.
Consumers should use extreme caution when responding to unsolicited emails and telephone calls. The safest approach is to respond to neither. Before responding to any offer, especially those that sound too good to be true, one should thoroughly research the company on the Internet. Social engineering can be used to perpetrate fraud with any of the reported methods of initial contact.
The 50-59 age group reported the most (23%) of all types of fraud (excluding ID theft) whereas the 20-29 year old age group reported the most identity theft (23%). It appears that identity theft affects younger age groups whereas other fraud affects the older age groups. The under 40 group composed 64% of all the identity theft complaints filed whereas the 40 and above age group composed 68% of all of the other fraud complaints.
Florida, Georgia, California, Michigan and New York reported the highest incidences of identity theft composing 48% of all identity theft complaints in the nation. Maine, Montana, Hawaii and the Dakota’s had the lowest reported incidences of identity theft composing less than 1% of all identity theft complaints nationwide.
The top seven metropolitan statistical areas for identity theft reports were all in Florida. The South Florida Area (Miami, Fort Lauderdale, and Pompano Beach) composes 52% of all identity theft complaints reported in Florida and 10% of all identity theft complaints in the U.S. The top seven (all in Florida) compose 15% of all identity theft complaints nationwide.
These statistical areas are ranked by complaints per 100,000 population and not ranked by the actual number of complaints. For example, although the Auburn-Opelika, Alabama statistical area had 174 complaints the complaints per 100,000 population put the area at #42. By contrast, the 50-ranked statistical area (Phoenix-Mesa-Glendale, Arizona) logged 4,931 identity theft complaints.
The Consumer Sentinel Network Data Book also provides the fraud and identity theft statistics for each state and a compendium of other data on fraud and identity theft complaints. For example, we recently published a statistical analysis of trends between the 2011 and 2012 Consumer Sentinel Network Data for the State of Wisconsin.