Consumer Fraud Recovery Costs Rocket 70% in One Year

Rising costs aren’t just happening in grocery stores. They have caught up to fraud-recovery costs when consumers work to untangle the mess caused by identity theft and scams. The average out-of-pocket expense for a consumer in that situation ballooned 70% from $119 in 2022 to $202 in 2023, according to the new “Resolving the Shattered Identity Crisis” report issued by Javelin Strategy & Research Wednesday.

Now in its 21^st year, the study also found the time consumers needed to mend their accounts after a fraud attack increased from six hours to 10 hours in 2023, while combined losses from traditional identity fraud and identity-fraud scams remained relatively stable at $42.9 billion, Javelin says.

Why is that? Consumers increasingly own online accounts, not just for financial services but for streaming services, subscriptions, loyalty programs, mobile-phone service, and a host of other activities, says Suzanne Sando, Javelin’s senior analyst for fraud and security. Remedying a fraud incident takes time, in part, because of this proliferation of digital accounts. “A lot of it has to do with this huge digital footprint,” Sando tells Digital Transactions News. Dashlane, a password-manager service, found the average Internet user has 240 online accounts that require a password.

Factor in increased credit card use—U.S. credit card balances totaled $1.13 trillion in the fourth quarter, according to the Federal Reserve Bank of New York—and the temptation for criminal activity is at a fever pitch.

“There’s just more transactions out there tied to your name,” Sando says. “The cleanup of that, the investigation, and the restoration is very time consuming.” Issues surrounding account takeover and new-account fraud are the proverbial rat’s nest to unwind, observers say.

Another factor might be consumer awareness of fraud attempts. “Consumers are becoming more engaged in that resolution process,” Sando says. “They are more empowered to say, ‘This looks wrong, something in my account looks wrong and we have to fix it.”

While financial institutions are paying more attention to educating consumers about fraud, there is room to do more, Sando says. One area that could be improved is how financial institutions handle the resolution process. Here, consumer empowerment alone is not enough, she says.

Her top piece of advice for financial institutions is to have dedicated personnel on hand to assist consumers recovering from fraud incidents. Generally, when individuals call a call center they are connected with staff trained to be generalists, Sando says, adding, “Having staff specifically trained in investigations, having the right costs, having people trained that are empathetic to the process, will make a huge difference to the fraud victim.”