Consumers are scared into spending money unnecessarily every day. The newest bogeyman is identity theft.
That's not to suggest identity theft isn't a serious problem for some people. And part of being a smart consumer is protecting your personal information so it's not misused. But the attention identity theft receives seems overblown: Just 1.5 percent of Americans annually fell victim to thieves opening accounts fraudulently, according to a report by the Federal Trade Commission.
The fear generated by incessant discussion of identity theft, however, can make people susceptible to sales pitches for ID theft products and services. Many are not worth buying. In fact, some come-ons could be attempts to steal your identity.
"There are companies now that are victimizing the victim," said former thief Frank Abagnale, who by age 21 cashed $2.5 million in fraudulent checks and was the subject of the book and film, Catch Me If You Can.
For the past 30 years, Abagnale has been on the right side of the law as an ID theft expert who works with authorities and private companies to prevent fraud.
He has written a new book, Stealing Your Life: The Ultimate Identity Theft Prevention Plan.
The truth is, identity theft often does not cost consumers a lot of money, at least directly.
"Victims are generally not liable for losses based on fraudulent actions taken by identity thieves using their personal information," the FTC report said. Federal and state laws limit a consumer's liability. Of the consumers in the FTC study who discovered the identity theft within five months, two-thirds had no out-of-pocket expense. The most serious type of ID theft - opening new credit accounts - cost consumers an average of $1,180, most of it in cleanup costs.
Of course, when banks and other companies absorb the cost of theft, consumers ultimately pay in the form of passed-along higher prices. Perhaps the bigger cost is the hassle of cleaning up after ID theft, which on average took 30 hours, the FTC said. Other estimates are far higher.
A big problem with ID-theft statistics is that misuse of a credit-card number counts as identity theft. In fact, it's the largest category by far of identity theft. But consumers are protected from fraudulent charges on their credit cards. It's no-cost because most card companies won't hold you liable even for the federal limit of $50 per card. And resolving the problem is relatively low-hassle. Just phone your card company and dispute the charges. It will issue you a new card.
Adding to the fear is the perception that ID theft is usually perpetrated by some anonymous criminal who has chosen to become your evil twin and rip you off. The fact is, more than half of serious ID thefts are perpetrated by people the victim knows.
Still, the FTC receives far more complaints about identity theft than any other category of fraud.
So what identity-theft safeguards are worth paying for? Here are a few products and services, and advice from Abagnale and other experts and resources on whether you should buy them:
Identity-theft insurance. No.
While cheap, many experts say this is not worthwhile. Insurance, which costs roughly $2 to $15 a month, covers some incidental costs of cleaning up a case of identity theft. It includes such reimbursements as mailing costs, phone calls, and lost wages, which doesn't help people on a salary. Some might cover pre-approved attorney fees.
But most victims of ID theft incur few, if any, out-of-pocket expenses and won't collect anything from insurance. Many policies have a several-hundred-dollar deductible that will exceed the costs of cleaning up the mess.
The biggest problem with ID theft insurance is that people misunderstand it to mean that if someone steals money from your bank or investment account, for example, the insurance company will repay you. Not so: Insurance won't pay for any money stolen from you.
While $25,000 in ID theft coverage sounds like a lot for a small premium, policies are so limited that you're extremely unlikely to recoup anything near that much. Abagnale, Consumer Reports and the Privacy Rights Clearinghouse are just a few of the experts advising against buying ID theft insurance.
"Everyone should have a shredder," said Abagnale, who has tested about 200 of them. "It's very important to shred things that have your name and pertinent information about you."
Micro-cut shredders, which turn paper into tiny chips that can't be reassembled, are ideal. That is opposed to a ribbon shredder that cuts in strips. "It takes about an hour to put back together a bank statement that's been shredded on a ribbon-shredder," Abagnale said.
As a general rule, the smaller the confetti a shredder makes, the better.
Credit-monitoring service. Maybe.
Credit monitoring doesn't prevent the crime of someone applying for credit in your name. It just alerts you that something already has happened.
Monitoring services typically cost $50 to $155 per year, with $12.95 a month a common price point.
But monitoring your credit reports is something you can do yourself.
If you're unwilling to do it and want to buy monitoring, make sure the service has two features. First, it must monitor all three main credit bureaus: Equifax, Experian and TransUnion. Second, it should notify you immediately of a problem, not every three months or by mail.
Get a service that will notify you the same day by e-mail, text message or phone call, Abagnale said. As full disclosure, Abagnale endorses a brand of micro-cut shredder and a credit-monitoring service, although his advice for this column did not highlight brand names.
Credit reports. No.
You no longer have to buy credit reports. You can receive them free from all the credit bureaus once a year at www.annualcreditreport.com.
Again, this is something you could do yourself, though it can be time-consuming.
If your identity is stolen, restoration services - sometimes available through insurance policies - promise to help you clean up the mess and reclaim your identity. But realize that a restoration service can't necessarily do everything for you. Many creditors will only deal with you, not a third-party service, unless you sign over power of attorney to the restorer.
Credit-card insurance. No. If you're not liable for fraudulent charges on your credit card, what are you insuring?
So, if ID theft typically doesn't cost consumers much money, why are there so many consumer complaints to the FTC? Abagnale thinks ID-theft victims feel violated, similar to having their home broken into and ransacked, even though nothing was stolen. They get very upset, not at losing money but that someone would rob their most personal asset - who they are.
Gregory Karp writes for The Morning Call in Allentown, Pa.