Identity Fraud, Part 2: Digging Yourself Out of the Wreckage

Part 1 of this three-part series describes the size and complexity of the identity fraud problem, and touches on some of the consequences that go beyond financial damage.

So it’s happened. Someone’s stolen your identity and now you’ve got a collection agency on your case, demanding payment for a car you didn’t buy or a credit card you didn’t take out.

What to do?

The first thing is not to panic, said Jay Foley, executive director of the Identity Theft Resource Center.

Getting out of an identity theft hole takes careful preparation and attention to procedures to make sure your rights are preserved.

The good news is that most consumers have very low liability for credit fraud. Federal law limits liability for unauthorized credit card use to US$50. You didn’t sign loan documents for that new car, so you don’t have any legal responsibility to pay it. Also, you shouldn’t have to pay income taxes on the wages earned by someone who used your Social Security number to get a job.

You shouldn’t have to, but proving it is another issue.

It can take six to 18 months to fix an identity theft problem, and potentially hundreds or thousands of dollars in administrative costs, lost wages and possibly even legal fees, Foley said.

Your reaction should depend on the level of fraud detected.

Level 1: The Odd Charge

If you simply see a weird transaction on a credit card that you can’t identify, call the issuing bank. If you still can’t figure out where the charge came from, report it as fraud and ask that the card account be closed and a new one with a different number opened, Foley said.

That should be the end of it, but keep an extra close eye on your credit accounts, just in case.

If you get a call from a collections agency, things are a little more complicated.

Financial institutions aren’t always as organized to handle identity fraud as they should be, given that 8.3 million Americans were touched by the problem in 2005, according to the most recent Federal Trade Commission statistics.

“A lot of this, unfortunately, is not as easy as it appears,” said Tom Harkins, chief strategy officer of Secure Identity Systems.

Level 2: Credit Repair

There are four steps to take when you learn you’ve been the victim of significant identity fraud:

  1. Contact credit bureaus to set up fraud alerts in a bid to stop further unauthorized activity on your accounts. You only need to contact one of the major credit bureaus, which is required to contact the others, according to the FTC.

    Once that’s done, you should check your credit reports, if you haven’t already, to spot other suspicious accounts. Federal law gives everyone access to one credit report from each of the major bureaus each year, but fraud victims are given an extra copy to help work through problems.

  2. Next, contact the financial institutions that hold accounts you believe were tampered with or fraudulently opened.

    Don’t try talking to customer service agents, Foley warned. “He doesn’t make any money by talking to you. He makes money by selling things to other people.”

    Instead, go directly to the fraud department. Follow up in writing — by certified mail, return receipt requested. Keep copies of everything. That way, you’ll have proof of your correspondence should a credit card issuer forget you’re a fraud victim and try setting a collection agency on you.

  3. You’ll eventually need a police report, so file a complaint with your local police department. Many law enforcement agencies will not investigate routine identity theft cases, in large part because they are almost impossible to solve and the cost to local residents is often relatively small. Nonetheless, a police report is your ticket to resolving many issues with financial institutions, and can help you get a seven-year fraud report placed on your credit files.
  4. Once you’ve resolved fraud issues with the companies involved, demand that they send a clearance letter showing that they have canceled the debts and closed the accounts.

Some companies that monitor credit offer clean-up services on the back end. Some insurance companies also offer policies that cover the financial cost of identity theft.

Consider such services and policies carefully, Foley said.

While there are benefits to having experts who routinely deal with identity theft handle matters for you, not every company follows through on its promises, and, in some cases, these plans can be costly.

“You can spend more on premiums over time than it would cost to fix the problem yourself,” noted Foley.

Level 3: Criminal Entanglements

Most consumers should be able to handle recovering from small and even moderate financial fraud on their own, said Paul Stephens, director of policy and advocacy for the Privacy Rights Clearinghouse. Larger cases, and those involving other forms of fraud, may take assistance.

That’s because clearing a criminal identity theft case — in which someone claiming your identity commits crimes and is caught — can be more difficult.

Contact the law enforcement agency that arrested the individual claiming to be you and ask to file an impersonation report, advises the Identity Theft Resource Center. You’ll then need to go through a potentially lengthy process of proving your identity, likely involving giving the agency fingerprints and other details.

Once that’s completed, the agency should give you a clearance letter that you’ll pretty much need to carry with you forever. It also should ask criminal record databases to update their information. But that’s only the first step.

After you’ve completed that work, you’ll need to ask the court where the criminal was tried to update its records, removing your name from the rolls of convicted criminals. If the charges involved in the case are serious, you may want to consider hiring an attorney.

Identity Fraud, Part 1: A $45 Billion Snowball

Identity Fraud, Part 3: Taking the Target Off Your Back

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