Consumers questioning need to pay for identity theft, fraud protectionby Elizabeth Dunbar, Minnesota Public Radio
St. Paul, Minn. — The basic pitch from banks and credit card companies has been around awhile: We'll monitor your credit, alert you if we see fraud, and help you recover if your identity is stolen -- all for a low monthly fee.
But fewer consumers are signing up, likely because they are less scared and a bit smarter about protecting themselves.
Reporter Elizabeth Dunbar spoke with the executive director of the national Identity Theft Resource Center about whether paying to protect your identity is worth the cost.
Identity theft and fraud incidents dropped in 2010, and more consumers are shredding documents, watching for strange charges on their accounts and checking credit reports regularly.
Many consumers are skeptical about offers for extra protection.
"I don't think it's a great solution," said Andrew Kirkman of Minneapolis, one of several members of MPR's Public Insight Network who said they aren't enrolled in any fee-based identity theft or fraud protection service.
Nevertheless, industry analysts say big banks will consider making fee-based protection services a bigger part of their business model, as other sources of revenue decline under new federal regulations.
That means Kirkman will continue hearing the marketing pitches. But instead of signing up, he's chosen to take his own precautions: shredding documents and old credit cards, withholding personal information, and taking care only to use his credit card on websites he's confident about.
Most of the fee-based protection services Kirkman has been offered would only alert him after fraud or identity theft had already happened, and that's something he could figure out on his own, he said.
"Being more educated is a better defense," Kirkman said.
FEWER ID THEFT VICTIMS, LESS FEAR
Kirkman is part of the vast majority of U.S. consumers who didn't experience identity theft or fraud last year. In 2010, 3.5 percent of the population reported being victims of identity theft or fraud, according to a report released last month by Javelin Strategy and Research, whose reports have been cited by the Federal Trade Commission.
The rate was close to 5 percent in 2009, but the 2010 number was the lowest Javelin had recorded in eight years of conducting the survey, said Robert Vamosi, who analyzes security, risk and fraud for the California-based research firm.
Vamosi said the recession was one reason -- overall credit card use declined during the downturn. Also, there were no high-profile data breaches by retailers, and more retailers improved how they recorded and stored credit card information.
The lack of scary headlines might have given people less incentive to sign up for extra things like credit monitoring or personal information monitoring, he said. According to Javelin's research, fewer people signed up in 2010 for such services, which cost an average of $12.50 a month.
An estimated 26 million people are enrolled in credit monitoring, while 14 million are subscribed to a higher level of protection that involves Internet searches and personal information monitoring, according to Javelin's research. That compares to more than 170 million credit cardholders in the U.S.
"People aren't really thinking about having that service unless it's put in front of them," Vamosi said. "Consumer interest is waning a little bit. That doesn't mean that the fraud risk has gone away."
PERSUADING THE SKEPTICS
Marketing can play a big role in attracting new people to identity theft and fraud protection services, and there's strong evidence it's worked in the past.
Between 2002 and 2007, the number of people enrolled in protection services through banks and credit card companies more than doubled, according to industry publication Online Banking Report. The jump happened during a big advertising push that resulted in some companies getting in trouble for deceptive ads.
Concerns about questionable marketing practices resurfaced late last year in Minnesota, when Attorney General Lori Swanson accused Discover of trying to trick consumers into signing up for credit monitoring and other fraud protection products over the phone. Discover hasn't commented specifically on the lawsuit, but said it wouldn't sell a product if it harmed relationships with Discover customers.
Deception and questionable marketing aside, having your identity stolen or being the victim of credit card fraud can leave people feeling duped and cheated, and that risk could be enough to motivate someone to sign up for a protection service.
"They're really willing to go to pretty great lengths to be sure that that doesn't happen to them," said Kathleen Vohs, a marketing professor at the University of Minnesota's Carlson School of Management.
Vohs said it's much harder for companies to reach the other part of the population -- those who think it won't happen to them.
It isn't clear how many Minnesota credit cardholders are enrolled in credit monitoring and other services, but most of them know it's available.
U.S. Bank, Wells Fargo, Discover and American Express all let their customers know about the services through methods including direct mail, phone solicitations, ATM ads and information at bank branches and on online banking sites. Delta Air Lines recently offered 5,000 bonus frequent flier miles to entice customers into signing up for identity theft protection through an American Express program called Single Identity.
Despite such marketing, Wells Fargo said only 20 percent of its customers enrolled in the identity theft protection services signed up as a result of direct solicitation. Robert Dudacek, senior vice president at Wells Fargo Insurance, also said enrollment numbers at Wells Fargo have been steadily increasing, which goes against what Javelin has found.
"The vast majority of customers are enrolling due to an interaction they initiated with us," Dudacek said. "Our growth has come from [customers'] interest in the product, rather than our outward promotion of it."
The bank declined to release specific enrollment figures, but Dudacek said the financial crisis might have prompted more people to sign up.
"Consumers are being a little bit more [conscious] of their credit and how their credit affects how much they pay for loans," he said.
PROTECTION AS ROUTINE PART OF CONSUMER BANKING
Bank customers enjoy free online banking and free checking accounts, so paying for an added service like identity protection might not seem worth it. But what if customers already paid for their accounts and a protection service were rolled in as part of it?
New regulations limiting fee income have already led some big banks to stop offering totally free checking accounts. If banks begin charging for regular accounts, it would make sense for them to put protection services in the mix, said Jim Bruene, an analyst who founded the Online Banking Report and blogs about industry issues at netbanker.com.
"It will get packaged into premium offerings," Bruene said. "You'll get your credit score and VIP customer service and mug on Christmas if you pay $10 a month or something -- all part of a bigger package."
Under that scenario, fees from protection services would become a bigger revenue source for banks. Currently, add-on fees overall account for less than 10 percent of financial institutions' revenues, said Julie Conroy McNelley, a senior analyst at the financial services industry research firm Aite Group.
"They're definitely going to try to boost that," Conroy McNelley said.
The protection product industry isn't big enough to recover all fraud losses. Javelin's research shows the industry is worth $2.4 billion, whereas identity theft cost consumers, merchants, banks and credit card companies $37 billion in 2010.
Still, banks are moving toward capitalizing on the fact that over half of financial fraud is detected by the consumer first, Conroy McNelley said. Fee-based identity protection services "provide the financial institution with a way to deputize the consumer to fight fraud," she said.