Is Credit Card Fraud The Same As Identity Theft?

As an identity theft risk management specialist, I speak to various groups about identity theft awareness and prevention. My biggest challenge is to get people to realize that true identity theft is much more than financial theft.  Always at some point in the Q&A time of the presentation, someone will mention that they have had their credit card stolen or that they have had bogus charges show up on their credit card statement.  Does that mean, they ask, that their identity has been stolen?

The accurate but not-very-helpful answer is "not necessarily".  Credit card fraud by itself is not defined as identity theft by the Federal Trade Commission (FTC).  It can be an indicator of identity theft, but more often than not, it is just a case where a criminal has obtained a credit card number through a data breach or pickpocketed the card, either physically or by using RFID technology. That may be as far as the theft goes.

Sometimes the issuing credit card company will spot a potentially bogus charge and contact you to confirm.  Maybe the amount is higher than normal, or from an unusual location compared to your normal charges, or from an overseas location.  Or you might notice a bogus charge on your statement and report it to the company.  Regardless, their solution is to close out the card and issue you a new one.  Since there is a limited time that the stolen card information is good, the thief will try to use it quickly and often, then discard it once it is turned off.  Rarely does the credit card company try to locate and prosecute the thief; it costs too much in time and money to track the culprit down. Cheaper to eat the loss. So the thief gets away with the goods. It is a crime with a low risk of being caught.

As a card holder, you are inconvenienced by having to wait for your new card, then make sure any automatic payment places are notified of the new card, but essentially that is the end of it.

Frankly, I'm bothered by advertisements from some of the ID protection service companies that promote this idea that identity theft is primarily credit card fraud.  One company lauds their ability -- if you purchase their premium service -- to spot bogus charges on your credit; while that sounds nice, that is what the credit card companies do already (it is really in their interest to do so).  My question back to the protection company is why charge extra to do what is already being done for free? Why not focus energy on those aspects of identity theft that aren't being already covered?  Eh, I digress.

Credit card fraud can be, as I said, an indicator that true identity theft has taken place, so you can't just be complacent with your new card in hand. If you have had credit card fraud happen to you, be on the alert for other signs, such as strange calls or emails or letters, or expected bills not arriving, or -- in the extreme -- police knocking on your door with warrants for your arrest for a crime associated with your name. 

You should watch your bank accounts for unusual deposits or withdrawals and review any medical Explanations of Benefits (EOBs) to make sure you can account for all transactions. It is good to check with the credit bureaus to make sure no new accounts have been opened without your knowledge (you have the right to a free report annually from each of the big three at annualcreditreport.com).

Certainly if you are notified that your identity has been compromised in a data breach, as in the recent Equifax breach, then put yourself on higher than normal alert. It doesn't mean that your information will be used in some kind of fraud, but you are definitely at greater risk, and likely the risk doesn't go away with time, because the personal information that was compromised doesn't change (names, birthdays, social security numbers).

I hope you are seeing that true identity theft is much more than bogus charges on your credit card, because you are much more than your credit card!  Identity thieves want to become you, often committing crimes in your name. Or the thief sells your information to someone who needs the new identity, such as an illegal immigrant, so he/she can obtain credit or get a job.  You are left holding the bag (or taking the hit to your credit) at some point. Explain why you have unreported wages from three other jobs in two states on last year's 1040 tax filings when the IRS calls you in for an audit!

While fixing credit card fraud is a relatively simple matter of calling the credit card company, most of us have no idea how to watch for these darker attacks on our identities, much less how to recover from a true identity theft.  The FTC has some guidelines, but these are complex and labor intensive steps, and you never know if you have completely fixed the originating problem. Their steps are also after you have been victimized, not proactively minimizing the chance of becoming a victim.

This wider definition of identity theft and the record number of serious data breaches is why I believe we have reached the point where identity monitoring and restoration is as vital as auto insurance.  And like auto insurance, there are different prices and features from different providers.  Any coverage is better than no coverage, as long as you know what is really covered.  Be wise, and be safe.

I welcome your comments or questions.