With the ink barely> dry on headlines about what could be the biggest security breach in history (identity thieves hacked into payment processor Heartland Payment Services, possibly gaining access to the credit-card information of millions of consumers) signing up for a credit-monitoring service may have jumped a few notches on your to-do list.
After all, paying $12 or so a month seems> like a small price to pay for the peace of mind that -- through regular alerts about activity on your credit reports and other monitoring services -- you'll be protected from identity theft. Right? Think again.
For most consumers, these services are a waste of money, says Paul Stephens, director of policy and advocacy at the Privacy Rights Clearinghouse, a nonprofit consumer information organization in San Diego. They don t do anything that consumers can t do themselves, are laden with loopholes and, in some cases, use questionable marketing methods to get consumers to sign on.
Nevertheless, the credit-monitoring business is booming. Last year, 33 million people, or 22% of the U.S. adult population, used such services, according to Javelin Strategy & Research, a financial-services research firm. And the firm expects the market to grow at double-digit rates over the next several years.
Consumers, however, need to understand what it is they're actually buying.
1. These services cost almost nothing to deliver
Credit monitoring has almost zero marginal cost to the bureaus, yet they sell it for $150 a year or more, says Ed Mierzwinski, consumer program director for the National Association of State Public Interest Research Groups. Credit reports are compiled automatically and accessed online, while alerts are sent via email -- hardly justifying that $7 to $15 monthly tab.
Experian spokeswoman Maxine Sweet says the company does not disclose the cost to provide its service. Steven Katz, a spokesman for TransUnion, said in a written statement that there are very real costs associated with delivering our services. Equifax did not return our request for comment.
2. They don't protect you from identity theft
They promise to guard your identity or even offer advanced identity theft protection," but the truth is, most credit-monitoring products cannot protect you against identity theft. Some services -- especially the cheaper ones -- only offer credit reports from just one of the three credit bureaus. If a lender pulls your report from one of the other two, you won t find out about it until the credit line is open. By the time you get the alert, the damage has been done, Stephens says. And even if you track all three credit reports, say through a service like Experian's Triple Advantage, you still have to be vigilant and call the creditor if there is any suspicious activity. The services won't do it for you.
In response, Sweet says Experian s credit-monitoring service provides peace of mind and should not be counted on to prevent identity theft alone. TransUnion's Katz says credit monitoring isn t just an identity theft protection tool. Critics who choose to view credit monitoring as primarily an identity theft deterrent are missing the point, Katz wrote in an email. It is first and foremost a tool that can empower consumers to proactively manage their overall credit health.
3. Victim of identity theft? You won't get all of your money back
Identity theft insurance is included in many credit-monitoring services or even sold by some firms as a standalone product. This insurance promises to reimburse monetary damages if a consumer falls prey to identity theft. However, in almost all cases, victims only get reimbursed for costs incurred while cleaning up their credit. There is absolutely no policy that exists today that says you ll get the money a thief took from your bank account back, says Frank Abagnale, the once con-man turned security expert whose story was told in the movie "Catch Me If You Can." What kind of money am I going to spend fixing my credit? A couple phone calls and $100 for FedEx? he asks. It s a scam. (Interestingly enough, Abagnale notes that in 1996 he helped develop Privacy Guard, a credit-monitoring service that also offers identity theft insurance.)
4. You may not even know you ve signed up
Many consumers unknowingly sign up for a credit-monitoring service while activating a credit card or after cashing what they believe is a rewards check from their credit-card issuer. Last July, Trilegiant Corporation, which owns Privacy Guard and Credit Alert, paid a $25 million settlement for a class-action lawsuit alleging the company collected unauthorized charges from consumers for services they never requested or agreed to receive, according to the Lakin Law Firm, which represented consumers in the lawsuit. Trilegiant did not return our calls seeking comment.
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