Identity fraud is declining in most parts of the U.S., and criminals are turning to telephone and mail more often than ever to commit fraud, according to an annual study by Javelin Strategy and Research with funding by CheckFree, Visa and Wells Fargo. While overall identity fraud declined, cost per consumer rose. The study also evaluated risk by age and region. California and Illinois residents are among those at most at risk for identity fraud.

Javelin Strategy & Research defines identity fraud as the unauthorized use of another person’s personal information to achieve illicit financial gain.

Now in its fourth consecutive year, the comprehensive survey is independently produced by Javelin Strategy & Research. Funding for the survey is provided by CheckFree, now part of Fiserv, Inc., Visa Inc. and Wells Fargo & Company. In October 2007, more than 5,000 telephone interviews with consumers identified important findings about the reduction of fraud while at the same time highlighting new areas of concern for Americans.

“Javelin’s 2008 Report confirmed what we believe to be true: that while fraud is declining, it is still a concern for the American public,” said James Van Dyke, president and founder of Javelin Strategy & Research. “The good news is the leadership role many businesses are taking in educating consumers about ID fraud risk factors is paying off. Still, fraudsters are getting creative and leveraging new techniques to commit fraud, so Americans need to be as diligent as ever in protecting their personal information.”

Key Survey Findings

• Overall identity fraud is declining in the United States: Down by an estimated 12 percent over 2006, which represents a total fraud reduction of $6 billion.
• Traditional methods still pose the greatest risk: Fraudsters are turning to lower-tech methods by utilizing telephone theft more than ever before. Access through mail and telephone transactions grew from 3 percent of ID theft in 2006 to 40 percent in 2007.
• States are not affected equally: Fraud risk is lowest in the Northeast while residents in California and other states are at the highest risk.
• Fraud response varies by age: Young adults who fall victim to fraud are most likely to purchase ID fraud insurance and sign up for fraud alerts. Older adults who fall victim often react by no longer sending bill payments and checks through unsecured mailboxes.

“The 2008 Javelin Report clearly identifies how significantly identity fraud impacts consumers,” said Steve Cole, president and CEO, Council of Better Business Bureaus. “For every headline-grabbing data breach there are many businesses setting good examples, but businesses must continue to fight the issue with more consumer education and best-practices to safeguard customer data.”

Continued Decline of ID Fraud, But Per Consumer Cost Up

Approximately 300,000 fewer adults in the United States fell victim to identity fraud in 2007 than in 2006. This continues the year-over-year decrease since data was first collected by Javelin in 2004 when 4.25 percent of the overall adult population in the United States was victimized. In 2007, 3.58 percent of the country’s adults were victims of identity fraud.

The annual cost of identity fraud in this year’s report dropped by nearly 12 percent over the previous year, from $51 billion to $45 billion. These figures represent the total amount that criminals were able to obtain illegally, before detection.

Factors that contributed to this decline include greater consumer vigilance and awareness, improvements in systems and practices by companies that manage personal information, the increased frequency of viewing personal account information, and consumers more frequently updating spyware and anti-virus software. As businesses and consumers work together to protect sensitive data by responsibly adopting online financial services, such as online banking and bill paying, Javelin expects the fraud reduction trend to continue, although at a slower pace than in the past.

A troubling trend was identified in 2007. Over the past three years, overall fraud declined, while the cost per consumer rose. This cost is defined by the total out-of-pocket expense consumers incur when falling victim to ID fraud, not those costs borne by businesses. The cost per consumer in 2007 averaged $691, an increase of 25 percent, over the $554 recorded in 2006.

Criminal Activity in the Phone Channel

The most significant new avenue for theft of information in 2007 was the ubiquitous telephone channel, which saw a sharp rise in incidents. Access through mail and telephone transactions rose from 3 percent of theft in 2006 to 40 percent in 2007. The dominant method used by fraudsters in this channel was vishing, a technique in which criminals use telecommunications, voice over Internet protocol (VoIP) and other technologies to obtain information from consumers. As consumers shift more financial transactions to secure online arenas, fraudsters have become more creative in utilizing traditional telephones, both land lines and wireless, to access information. Unsuspecting consumers receive phone calls from parties claiming to represent non-profit organizations, billing institutions or other financial institutions. Far too many of these consumers provide the callers with personal financial information such as Social Security numbers, bank account numbers and credit card numbers, which are then used by criminals for fraudulent activity.

This year’s survey also turned up another compelling telecommunications trend. Wireless phone accounts are the most frequent types of new accounts opened fraudulently by criminals utilizing other persons’ data. Criminal wireless account openings increased from 19 percent to 32 percent of new account fraud last year, exceeding fraudulent new credit cards, loans, checking or savings accounts.

Geography Makes a Difference

For the first time, Javelin reported regional fraud incidence rate statistics. On average, New England and the Plains States reported the fewest incidents of fraud per capita. But five states were well above the national average for fraud when compared on a percentage basis to other states across the country. Respondents in California, Illinois, Idaho, West Virginia and Delaware reported the highest incidence of ID fraud. Generally, states with dense metropolitan areas such as California are more likely to have higher fraud rates, due to higher income levels and commerce activity.

About this study

The Javelin Strategy & Research report, The 2008 Identity Fraud Survey Report, is now in its fourth consecutive year. The comprehensive survey is independently produced by Javelin Strategy & Research. Funding for the survey is provided by CheckFree, now part of Fiserv, Inc., Visa Inc. and Wells Fargo & Company. In October 2007, more than 5,000 telephone interviews with consumers identified important findings about the reduction of fraud while at the same time highlighting new areas of concern for Americans

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