Identity Thefts in Banking Industry

What your bank should be doing to protect you from ID theft

A person we know suddenly learned he was a debit-card identity theft victim - while his debit card was locked in a bank safe deposit box. He immediately informed his debit-card issuer, a major bank, but the branch rep said there was nothing she could do. We directed him quickly to an identity theft hotline, buried on his bank's Web site.

Such a slow response by your bank could lead you to suffer a greater financial loss if an identity thief targets you. So it could pay when you open your bank account to find out exactly what steps your bank takes to curb identity theft. While many credit and debit-card accounts promise consumers zero liability if their credit or debit card is lost and stolen, that doesn't mean you can't suffer. Your bank may not buy your story and you may be forced to hire an attorney. Many victims don't prosecute because thieves often are family members. So you still could suffer un-reimbursed financial losses, lost wages and legal fees.

• Warning: Some 12% of major banks lack a zero-liability policy for debit cards that require access via a personal identification number or PIN, according to Javelin Strategy. So learn how your bank protects against identity theft, particularly before opening a PIN-accessed debit card. In USA, federal law limits card holder’s losses on a lost or stolen credit card to $50. In India there appear to be no such guidelines. Even if there is one, it is not widely publicized. You may have some protection for credit / debit cards - provided that you promptly notify your bank.

Nevertheless, losses when your identity is stolen, according to Javelin's 2008 Identity Fraud Survey Report, can escalate the longer the fraud goes undetected. Victims who detected the fraud within one day spent an average of $428. But those who took up to five months lost three times as much -- $1,207, its report says. Meanwhile, if somebody opens a new account in your name and nobody contacts you, you risk suffering greater losses. You might not hear about it until a debt collector calls or you're suddenly denied credit. This gives thieves a maximum amount of time to do their damage.

• Your bank can take precautions:

There are certain things your bank can do to nip an identity theft in the bud. It could pay to make sure your bank takes certain precautions, advocated in the Javelin Strategy survey:

• Provides you with the ability to create restrictions -- either online, by phone or in-branch -- on particular transactions. Don't think you'll ever conduct any wire transfers outside the United States? Bank only with institutions that let you limit those transactions.
• Eliminates distribution of your personal information and limits use of your Social Security number to the last four digits.
• Offers to email or text message you if there's ever a change of personal information, including a change of address, addition of a cardholder or unusually low balance on your account.
  Has a centralized fraud resolution department.
• Lets you quickly freeze your account.
• Requires at least two ways to confirm your identity both by telephone and online banking.
  Regularly educates employees on how to properly secure sensitive information.
  Regularly examines employees for insider collusion.
• Encrypts your personal identification numbers, passwords, Social Security numbers and other private data.
• Uses no hyperlinks in emails. This way, you can determine which emails don't come from your bank.

Meanwhile, Javelin Strategy reports increased theft via mail order or telephone order purchases. It cites a newer tactic, "Vishing," or using the Internet to place phone calls. Internet-placed calls are tougher to trace.

Bottom line: Never provide personal information -- even over the telephone. If you get a communication from your bank, call only the telephone number you already have -- not the one in the communication.

ID theft up or down?

It seems comforting that Javelin Strategy reports a 12% decline in identity theft in 2007. But not everyone agrees with that company's study, sponsored by Visa, Wells Fargo Bank and CheckFree Services Corp.

For one thing, the Federal Trade Commission reports a 32% rise in identity theft complaints to 258,427 during the 2007 calendar year. Plus, Chris Jay Hoofnagle, senior fellow at the University of California-Berkeley law school, complains that consumers, regulators and businesses have no reliable way to assess identity fraud at major financial institutions.

"Lending institutions should publicly report basic statistical information about identity theft events," he says. Information they should disclose: The number of identity theft events suffered or avoided; the form of identity theft attempted; the targeted product, such as a mortgage loan or credit card; and the amount of loss suffered.