What’s the Catch? Identity Theft Monitoring Services

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Sep 30, 2014
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Credit Cards, Identity Theft, Personal Finance, Lesson Idea

Home Depot, Target, insert almost any retailer here.  Stories of data breaches abound so interest in credit monitoring or identity protection services are also growing.  Which makes the story this week about a fine levied on U.S. Bank all the more interesting.

Audio here:

Here are the details (from Marketplace):

The Consumer Financial Protection Bureau just fined U.S. Bank in connection with identity protection and credit monitoring services it was selling. Customers were charged for credit monitoring by a company the bank hired, called Affinion.

Banks need written permission to monitor a person’s credit report. But the CFPB says U.S. Bank started charging consumers before they signed permission forms the bank sent out. Their credit was never monitored, but they were charged anyway, according to the CFPB.

“The bureau determined that this conduct was an unfair practice and ordered U.S. Bank to repay consumers approximately $48 million,” says Deb Morris, the deputy enforcement director at the CFPB.

As for how consumers can protect themselves: if that free trial sounds too good to be true well…it probably is:

Mierzwinski says fraud in these anti-fraud products is widespread because they’re profitable, and banks can automatically charge us once we sign up. Mierzwinski says don’t even sign up for stuff that’s free at first.

“The free trial offer only lasts for three or five days,” he says. “And if you forget to or fail to cancel, they start billing your credit card on a monthly basis.”

Which of course is the ultimate irony now isn’t it?:

“It’s quite an irony that these identity theft products have been consistently found to be sold in a deceptive manner,” says Prentiss Cox, an associate professor of  law at the University of Minnesota Law School.

Here is a thorough analysis of these services from Consumer Reports:

Almost 50 million people subscribed to some form of identity-theft protection in 2010. Those services, which cost about $120 to $300 a year, promise to protect your ID by monitoring your credit reports 24/7, scouring “black-market chat rooms” for your personal information, removing your name from marketing lists, and filing fraud alerts. Some throw in up to $1 million in insurance.

More of these pitches are coming from banks, which account for more than half of the $3.5 billion a year spent on ID-theft protection subscriptions. In a sense, consumers who buy this protection from their banks are helping to foot the bill for services that financial institutions are obligated to provide by federal law to shield their customers from losses stemming from credit-card and bank-account fraud.

In the past we’ve found that these protection plans provide questionable value. And some promoters of these services have been slapped by the Federal Trade Commission for misleading sales practices and false claims. We dug into the latest products sold by more than two dozen banks, credit-reporting bureaus, and independent companies…”

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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