Do You Need Real-Time ID-Theft Protection?

Even as the effectiveness of credit monitoring services comes under fire, some of the same companies are pushing a new generation of personal data tracking: identity theft protection that involves real-time monitoring of your most  important information.

Here’s how it works. Companies that track personally identifiable information, or PII, contract with third-party database providers and track any activity that involves a consumer’s name, address, date of birth or Social Security number. Some services also scour web sites where such information is illegally traded. Providers say that these services -- which can cost between $9.95 to $29.95 a month -- have the potential to catch identity fraud before it has occurred, thanks to the ability to monitor PII activity in real time. Credit monitoring, in contrast, alerts consumers after their information has already been misused -- one of the main reasons why the products have been criticized by consumer advocates.

While there is no hard data on exactly how many companies are offering real-time monitoring of personal data, two of the three large credit bureaus – Equifax and Experian – as well as at least one lender, Bank of America (BAC) and third-party vendors like LifeLock and IdentityGuard are already selling the service. “In the past year, there’s really been an explosion among vendors offering PII monitoring,” says Rachel Kim, an analyst with Javelin Strategy & Research and author of two comprehensive reports on identity protection services released in 2009 and 2007.

Providers hope that PII monitoring helps attract consumers who have been disenchanted with traditional credit-monitoring products. “These companies are struggling to keep their revenue up and to keep their customers because consumers realize credit-report monitoring is not all that effective,” says Avivah Litan, a vice president and security analyst at technology-research firm Gartner (IT).

But it is also adding to privacy advocates’ concerns over the growing prevalence of personal-information dossiers: huge databases of consumers’ personal information that can be used by lenders, marketers or any other service provider willing to pay the 50 cents to $2 charge per transaction to have it scored for the likelihood of fraud.

Already, most lenders engage in such real-time monitoring of consumers’ personal identity information by calculating identity scores that rate the likelihood that a specific credit transaction or application is fraudulent. (If you’ve ever had to answer seemingly random identity-verification questions – such as the house number where you lived 10 years ago or the issuer of the mortgage on your first home – chances are your credit application was flagged as a potential fraud.)