Behind ID Theft’s Somber Toll

Some 47% of U.S. adults have reported identity theft over the past two years, while the fraud’s toll ballooned to $712.4 billion in 2020, up 42% from 2019, according to a report released in March by Aite Group, a Boston-based research and consulting firm, and sponsored by Giact, an Allen, Texas-based financial-services security firm.

The startling rise in this fraud stems at least in part from the onrush of e-commerce transactions and other card-not-present activity following the arrival of the coronavirus pandemic in March last year, earlier reports have said. A study released in January by TransUnion LLC, for example, found 100 million suspected fraudulent transactions in the six weeks following March 11 last year, up 5% from the weeks ranging from Jan. 1 to March 11.

Still, as Aite’s latest study points out, identity theft goes well beyond the one-off fraudulent credit card transaction and involves methods such as application fraud and account takeovers that can be devilishly hard for victims to untangle. ID theft losses overall increased 42% in 2020 from 2019, driven by such factors as phony unemployment claims, according to Shirley Inscoe, author of Aite’s report, “U.S. Identity Theft: The Stark Reality.”

Aite’s study, which canvassed more than 8,600 consumers, found 37% had been a victim of at least some sort of application fraud. These applications can range from tax filings to snatch refunds to consumer loans and even to mortgages, according to the report. “Fraudsters have no shame and will go to any length to benefit from the sound financial reputations others have established over the years,” the report notes.

Fraudulent applications for credit cards, though, have affected 25% of consumers surveyed for the report, second only to checking-account applications (27%). In all cases, at least half the victims knew the person who misused their identity. And the impact of the fraud can fall on financial institutions as much as on affected consumers.

In the case of fraudulent credit card applications, 12% of those who reported being satisfied with the way the issuer resolved the matter still said they were unlikely or extremely unlikely to do business with the institution again. Among those who were dissatisfied, that number shoots up to 42%.

Aside from fraudulent applications, some 38% of consumers reported having been victimized by criminals who gained access to credentials that allowed them to hijack an existing account. By contrast with activity in 2019, account takeovers involving peer-to-peer payments occurred “far more often” in 2020, the report says. Consumers in general during the pandemic relied more heavily on services like Venmo and Zelle to transfer funds and make payments.

Indeed, the report surfaces stark differences in behavior throughout the pandemic between consumers who suffered ID theft attacks and those who didn’t. Overall, only 37% of consumers who experienced ID theft did not make any change in their banking activity. Some 74% of those who did not sustain ID theft said the same thing. Fifty-six percent of those who experienced ID theft used a new credit card, for example, while the same was true for only 15% who did not suffer an attack.