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Identity theft: Recent trends

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Today is the kick-off of National Consumer Protection Week 2014, a week for consumers to recognize and report scams, identity theft and unfair business practices. Today, we explore identity theft trends from the 2013 calendar year (CY).

Over the years, we have conducted an annual comparison of the last two years of data compiled in the FTC’s Consumer Sentinel Network Reports. The most recent data for CY 2013 was released on Thursday. We continue our annual report on the trends of different types of identity theft by comparing some of the 2013 and 2012 data.

The companion article, Identity theft: Top consumer complaint and decreasing?, concluded that identity theft has been the top consumer complaint for the last 14 calendar years running and that identity theft is increasing at a significant rate despite recent Federal Trade Commission (FTC) data that suggests a decrease, primarily in tax-related identity theft.

Tax-related identity theft

The significant decrease in tax-related identity theft is an apparent anomaly resulting from a change in how the Internal Revenue Service has been handling tax-related identity theft cases with taxpayers. Tax-related identity theft increased at least 33% in 2013 compared to 2012 according to a recent Treasury Inspector General Report.

Our conclusion, based on IRS statistics, is that tax-related identity theft has been the highest incidence type of identity theft for the last few years. Even though we regard the FTC data as suspect in this type of identity theft, 30% of all identity theft complaints were Tax and Wage-Related Fraud in 2013.

Tax refund fraud is relatively easy. The crooks only need a name and Social Security number (SSn) of a living or deceased person. The victim’s W-2 form is not necessary as suggested in some public services messages. The IRS started processing tax returns on January 31, 2014 although the deadline for employers to file wage information is February 28th for paper forms and April 1 for electronic filing. The IRS routinely issues refunds to taxpayers prior to reconciling the taxpayer’s reported W-2 wages or 1099 earnings with those filed by employers. This customer friendly refund policy by the IRS has created an opportunity for outlaws.

Fraudulent tax returns are filed early, before the victim files their tax return. Victims often learn from the IRS that a refund has already been issued, and the victim’s refund is delayed until an IRS investigation is concluded. If you expect a tax refund, it is best to file early in order to prevent a fraudulent refund from being issued to a crook.

The IRS recently released its annual list of the “Dirty Dozen” tax scams for 2014. Identity theft has been on the top of the list since 2012, and several other items in the current dirty dozen list contain elements of identity theft including #2-Pervasive Telephone Scams, #3-Phishing, #4-False Promises of “Free Money” from Inflated Refunds, #5-Return Preparer Fraud, and #7-Impersonation of Charitable Organizations.

If you are not familiar with tax-related identity theft and how to recognize and prevent it, familiarize yourself with the IRS Taxpayer Guide to Identity Theft.

Government benefits applied for/received

This FTC subcategory of ID theft increased by 13% in 2013, however overall it only made up 2.3% of all identity theft complaints received by the FTC. Benefits may include unemployment, FoodShare (food stamps), and other subsidies administered at the state or county level. Generally, some type of fake/forged identification is necessary to commit this type of identity theft through an application process. Identification, such as a Social Security card and birth certificate, which are easy replicate, along with a picture identification, such as a driver’s license, passport or student identification card are often acceptable to make a fraudulent application. Curiously, forged government document complaints decreased a total of 23% in 2013.

Financial identity theft

We include the FTC Categories of Credit Card, Bank and Loan Fraud under this heading of Financial Identity Theft. As discussed in the companion article, Identity theft: Top consumer complaint and decreasing?, financial identity theft is often resolved by the consumer’s financial institution (credit card company, bank or lender) and not through the FTC, especially if the fraud was on an existing account. It is likely that millions of incidences of financial identity theft go unreported to state and federal consumer complaint clearinghouses, such as the FTC.

For 2013, financial identity theft made up 28.5% of all the identity theft complaints received by the FTC; the breakdown is: credit card (16.9%), bank (7.7%) and loan (3.9%). There was no significant change in the total financial identity theft complaints between CY 2012 and 2013, however, there were some remarkable differences with the three types of fraud that compose financial identity theft.

Credit card identity theft complaints decreased 1.6% from CY 2012 to 2013. Credit Card and Bank fraud each include subcategories of “new” and “existing” accounts. As a result of the Target, Neiman Marcus, and other retailer data breaches late last year (On Friday it was disclosed that the U.S. Secret Service is currently investigating a possible data breach at Sears), it can be expected that incidences of existing credit card fraud will increase in 2014.

Bank fraud complaints involving identity theft decreased in 2013 compared to 2012 as follows: electronic fund transfer (-3.1%), new account fraud (-9.0%) and existing account fraud (-5.7%). The significant decrease in new account fraud could be a result of stricter banking regulations (Red Flags Rule) with respect to opening new accounts.

For those concerned about identity thieves wiping out their bank accounts, only 4.5% if all identity theft complaints involved electronic fund transfers or existing account fraud.

Loan fraud increased almost 28% in 2013 with the following increases in the three loan subcategories: auto (44.1%), real estate (25.7%) and business/personal/student (20.9%). These were increases over CY 2012.

New account fraud (credit card, bank and loans) made up 17.3% of all identity theft complaints received by the FTC in 2013, whereas the remainder of financial fraud (11.2%) was on existing accounts.

Credit monitoring services can provide an advanced warning of new account fraud, whereas the so-called Web-monitoring services, provided through premium-type identity protection services (typically bundled with credit monitoring), can be effective in providing an advance warning if a consumer’s existing financial account number is being sold on illicit Websites or chatrooms.

Phone and utility identity theft

New utility and wireless accounts made up 12.3% of the total identity theft complaints in 2013, and together these two subcategories increased 21.5% compared to CY 2012. Contributions from fraud on new and existing telephone accounts were not significant.

With respect to prevention, credit monitoring services can provide an advance warning to new phone and utility account fraud.

Other identity theft

This category consists of a dozen different types of identity theft—everything from identity fraud involving medical to magazines most of which make up less than one percent of the total ID theft complaints. Two types of identity theft that get continued attention are medical and child identity theft. Complaints involving medical identity theft was 1% of the total complaints for 2013 with an insignificant increase over 2012. Child identity theft is not even categorized most likely because all the other types of identity theft can involve children, teens, adults, and deceased.

Identity theft victim age

The distribution of identity complaints by age group for the 200,393 consumers that reported their age in an identity theft complaint is shown in the figure. The distribution pattern, with the highest incidence of complaints in the twenty-something group and with decreasing victimization for each decade age group, has been typical over the last several years. It has been suggested that younger people are more open or careless with their personal information and as people age they become more protective of their personal information.

Top ten states for identity theft

The top ten states for identity theft per capita in 2013 were:

  1. Florida
  2. Georgia
  3. California
  4. Michigan
  5. Nevada
  6. Maryland
  7. Arizona
  8. Texas
  9. New York
  10. Illinois

The top ten list for CY 2012 included the same states except that Illinois moved in and Alabama moved out. The rank of the first four states remained unchanged with Florida remaining the #1 state with regard to complaints received by the FTC.

Florida was also the leading state in CY 2012 and 2013 for tax-related identity theft. Complaints from Florida decreased by over 32,000 in CY 2013. This is consistent with our interpretation explained in the companion article, Identity theft: Top consumer complaint and decreasing?, where the decrease in 2013 identity theft complaints to the FTC was attributed to a different reporting mechanism for tax-related identity theft.

It is not surprising that the top metropolitan area for identity theft-related consumer complaints is in Florida—the Miami/Ft. Lauderdale/West Palm Beach area. Six of the top ten metropolitan areas for identity theft are in Florida, and 18 Florida Metro areas in the in the top 50.

Hooking and cleaning the victim

How are victims being lured into fraudulent transactions? If a financial transaction occurs, how do victims pay the thieves? The FTC does not separate identity fraud from the total of all fraud complaints with respect to these questions.

E-mail has been the #1 mode of contact with victims in 2011 (42%) and 2012 (38%). In 2013, e-mail (33%) became the #2 mode of initial contact, and the telephone became the #1 method to approach prospective victims (40%). Other common methods listed by victims include the Internet (15%) and snail mail (5%).

Consumers must increase their awareness with regard to pretexting and social engineering. Unless the consumer initiates the contact through a telephone call or email, all consumers (you, your parents, your children, and everyone you know) must understand that they must never ever share personal information no matter how urgent or legitimate an email or phone call appears or seems to be.

While bank wire transfers have been the most common manner in which victims pay-off the thieves: 47% in 2011, 45% in 2012 and 34% in 2013, that payment method is declining in favor of issuing or depositing money onto a prepaid debit card. During the last three years the prepaid debit card has increased from a few percent to 28% in 2013. Two other popular methods of putting money into the hands of crooks is via credit cards (12%) and bank account debit (11%).

Identity theft and fraud are not decreasing despite the anomalous data released recently by the FTC. Thieves are taking advantage of every opportunity to scam victims and to scam the system, such as the IRS tax refund system and the health care system and recent reforms (ACA).

After 14 consecutive years of being the #1 consumer complaint in America, maybe it is time for consumers to accept that there is no escaping identity theft. It is just a matter of time when one will become a victim of identity theft that will involve a considerable loss of time, money and/or emotional well-being.

The risk of identity theft is significant compared to many risks that consumers insure against such as fire, accidents and theft. Comprehensive identity protection services are available today at rates that most can afford that can protect an entire family against this formidable risk.

Author's Note: Our analysis of the CY 2013 FTC data includes a separate article on identity theft trends in Wisconsin.

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