I can remember it was December and my credit card company called me. “Did you make two large purchases in the Florida area about an hour ago?” they asked. “No”, I said. “I live in Michigan and I haven’t used my credit card all day.”
“Okay”, the credit card company replied, “We suspect this may be a fraudulent transaction and we are going to walk you through the next steps”.
There it was – my first brush with identity theft. Somehow, this person either had my credit card information or had made a physical copy of my card and was using it to make purchases illegally. Honestly, I was in shock!
Identity theft is something you hear about a lot lately on the news and online. But you never really think it’s going to be you whose information they get next. And unfortunately with all of the massive data center breaches we’ve had over the past decade, the odds are that your information may unfortunately already be out there.
In fact, according to the Insurance Information Institute, there were 4.8 million cases of identity theft and fraud reports received by the FTC in 2020. That’s up 45 percent from 3.3 million just a year ago in 2019.
All in all, that works out to nearly 1 in every 20 Americans being impacted in some shape or form by identity theft. This makes you wonder: Is there anything you can do to ensure that your information remains protected and out of the hands of fraudsters?
The answer is: Yes! In this post, we’ll talk about what to do if you believe you’ve become the victim of identity theft and the next steps you can take. We’ll also discuss some ways you can prevent becoming scammed in the future.
Understanding the Types of Identity Theft
Identity theft has taken on many different forms over the past few decades. As technology continues to evolve, thieves are finding new, deceptive ways to trick people out of their private information and ultimately their money.
Here are some of the most common types of identity theft for you to become familiar with:
- Unauthorized credit card use. Just like in my story, this is when someone makes a purchase using your credit card info or a copy of your credit card. Sometimes the purchases are large, but another new trend is to make relatively smaller purchases so that they will go undetected. This also applies to debit cards too.
- Applying for loans or opening new accounts. Sometimes when thieves get your information, they might try to open an entirely new credit card or even apply for a loan with no intention of ever paying it back. I’ve heard on many occasions of this happening to 18-year-olds who go to apply for their first credit card only to find out they’ve been denied because they have a fraudulent, delinquent loan in their name.
- Account takeover. In this scenario, the thieves use your information to gain access to your savings or investment accounts. They then use it to make purchases or drain it of all its assets.
- Government benefits or tax fraud. Fraudsters will also use your identity to gain access to government-issued benefits like tax refunds, social security, unemployment, etc. For instance, as soon as the Federal government started issuing COVID stimulus payments, scammers used every trick in the book to steal them from people by sending bogus emails, making phony phone calls, and even fake websites.
What to Do If You Suspect You’ve Become a Victim of Identity Theft
If you’ve recently noticed credit card purchases or bank transactions you didn’t make, then first things first: Don’t panic! Take a deep breath, remain calm, and follow these next steps:
1. Call Your Financial Institution and Report the Situation
Contact your bank or credit card company and immediately let them know you believe you’ve been the victim of fraud. Indicate which specific transactions were not made by you, and answer any questions they might have as part of their identity theft reporting procedure.
2. Consider Freezing Your Accounts
I know when the credit card company called me, my first reaction was to cancel all my credit cards so that I could stop the scammers dead in their tracks. However, that kind of extreme reaction isn’t really necessary.
To block any further transactions from taking place, you can call the credit card companies and temporarily request to freeze your accounts. This will give you time to regain your footing and decide what steps you’d like to take next.
3. Check Your Credit Report
Sometimes when you spot something fishy with your finances, it’s possible that it could just be the tip of the iceberg.
To make sure the situation isn’t bigger than you may realize, download a free copy of your credit report from one of the three major credit bureaus and start looking it over for any inconsistencies. If you do end up finding an account that you don’t recognize, immediately report it.
Even if you don’t find anything, you should still place a fraud alert so that the credit bureaus are aware of the situation.
4. File a Claim with the FTC
All instances of identity theft should be reported to the FTC through IdentityTheft.gov. The FTC is tasked with documenting all cases and looking for patterns.
If certain situations start to affect enough people, then they may launch an investigation or even take legal action against the scammers. At a minimum, the FTC can help victims by providing them resources to dispute charges and get items removed from their credit report.
5. Report the Case to the Local Authorities
Depending on the situation or size of the scam, you may wish to report it to the police. Sometimes the police will have resources or can involve other branches of the law to help investigate these crimes. At the very least, having a police report on file can also be useful if you need this documentation later on to prove your innocence or take legal action.
Am I Liable for Fraudulent Purchases and Losses?
So now the million-dollar question: If you’re the victim of identity theft, who pays for all those illegal transactions? Or if someone stole from your bank, are you out all of that money forever?
That was my big fear when the credit card company called me. I was imagining some nightmare situation where I’d now have to prove my innocence and fight them about who would pay for those bogus purchases.
Thankfully, however, that never happened. Because identity theft has become such a common topic over the past few decades, the good news is that there are now laws and protection policies in place to protect you the consumer.
Here are a few of the ones that will be helpful to have in your back pocket:
Credit Card Purchases
According to the Fair Credit Billing Act, consumers are limited to a maximum liability of $50. In my case, the credit card company had an awesome zero-liability policy. So that meant I was in no way responsible for those charges and would not have to pay for them whatsoever. I’ve noticed this is becoming a more commonly used practice with other credit cards now too.
Debit Card Purchases
According to the FTC, if someone uses your bank or credit union debit card number to make unauthorized debits, you’re not responsible as long as you report the problem within 60 days.
Stolen Bank Funds
According to the Electronic Fund Transfer Act, if you report suspicious activity within:
- 0-2 days from when it took place, then you are liable for $50 of the unauthorized charges.
- 3-60 days from when it took place, then you are liable for $500 of the unauthorized charges.
- 61 days or more from when it took place, then you are liable for all of the unauthorized charges.
Once the claim is made, the bank then has 10 days to investigate the claim and refund your money if they determine the activity was indeed fraudulent.
You might think that the FDIC would cover the money that was stolen from your bank account as a result of identity theft. However, as it turns out, they won’t.
Instead, most banks either have their own insurance or some kind of customer protection plan in place to limit the liability and help recover lost funds or those used to make fraudulent purchases.
Even though the bank may issue you a refund within 10 days, their investigation may take up to 45 to 90 days depending on the situation. If they determine that the activity was not fraudulent, then you would have to give the money back to the bank – even if you’ve already spent it.
If someone takes out a personal loan in your name, you don’t have to be worried. In nearly every state across the U.S., you’re not responsible for debts incurred by fake accounts that were opened without your permission.
Identity Theft Insurance
While there are laws and policies in place to help reduce your liability with identity theft, sometimes the situation can be more complex than that. For instance, if you notice suspicious bank activity that took place 3 months ago, then by law that would mean you’d be 100% liable for those transactions since it is beyond the 60 day threshold.
In these types of cases, there’s a lot more to do than just make one or two phone calls. There might be a lot of back and forth between you and the financial institution, documentation to be collected, and even legal action. In addition to these expenses, you might have to take time off work which would then result in lost wages.
This is where identity theft insurance might be helpful. This is a type of insurance policy that covers all of these extra costs associated while dealing with the problem.
The only thing to keep in mind is that identity theft insurance will only cover post-event costs. They won’t, unfortunately, reimburse you for any of the direct losses from the fraudulent transactions.
Identity Theft Restoration Service
In addition to the costs of trying to deal with identity theft, there’s also the process itself. Unless you know what you’re doing and have the energy to do it, it’s going to cost you a ton in legal fees.
This is why some people turn to an identity theft restoration service instead. These are agencies that essentially do the heavy lifting to resolve the damage done by scammers. Not only do handle all of the paperwork and phone calls, but they also get involved with the legal aspects of disputing any fraudulent claims.
Though this service could set you back $20-$30 per month, it may be worth it. In addition to not having to take the time to deal with the mess yourself, they might also be more efficient and expedient with resolving situations than you could on your own.
How to Avoid Identity Theft in the Future
Ever since I found out how easy it was for my credit card information to get hacked just as easily as anyone else’s, I’ve become much more vigilant about protecting my information. Here are a few simple rules I follow to stay out of harm’s way and keep my finances safe.
- Monitor your accounts often. Regularly be on the lookout for transactions and even entire accounts that you don’t recognize.
- Use stronger passwords. If your password is the name of your pet or your birthdate, then you’re just asking for trouble. A good password should have at least 12 characters containing combinations of letters, numbers, capitals, and special characters.
- Change your passwords frequently. Not only should the passwords to your online accounts be complex, but they should also be changed regularly. Every 3 to 6 months is recommended.
- Turn on two-factor authentication. In addition to a strong password, you can add an extra layer of protection by having a special code sent to your phone or email before you’re able to log into your account. This works really well for not just bank accounts but also online vendors like Amazon (we’ve had issues with unauthorized transactions there too).
- Never give out your Social Security number. Unless you’re applying for a credit card, starting a new job, or filing your taxes, there’s no need for anyone to have or ask for your Social Security number. Protect it like a dark family secret.
- Avoid public Wi-Fi networks. When you’re on public Wi-Fi, hackers can basically see everything you transmit. For that reason, wait until you’re back on a private connection if you need to do something sensitive like log in to your email, make a purchase, or access your bank account.
- Don’t buy from sketchy websites. There’s a reason why sites like Amazon and eBay are some of the most widely used online retailers – they’re also the most trustworthy. Anytime I see an ad on Facebook or a website selling something at a price that’s too good to be true, it more than likely is. Pass it up because it’s more than likely just a bogus website designed to steal your information.
- Tear up pre-approved offers. If you receive a pre-approved offer in your snail mail for a credit card or loan that you don’t want, then rip it up before throwing it away. Though it’s a little old school, thieves have still been known to sift through trash looking for exactly these kinds of documents that might reveal your private information.
- Don’t fall for email phishing scams. Every day, I get emails from people claiming to be Amazon, Netflix, Apple, … even the IRS. Whatever you do, never click on any links in these emails. These are nothing more than scams intended to trick you into giving them your information. Or, worse, they will discretely download malware and ransomware onto your computer to steal your personal data and render your computer hostage. Just delete the email.
The Bottom Line
Identity theft can happen to anyone, anytime. It might be in the form of a fraudulent transaction or withdrawal, a loan you didn’t apply for, or even someone applying for your government benefits.
If you believe you’ve become the victim of identity theft, stay calm. Call your financial institution and let them walk you through the steps. You can also take additional steps to report it to the credit bureaus, FTC, and local authorities.
The good news about identity theft is that you’re usually not on the hook for most purchases.
Most credit card companies and banks will dismiss the charges and may have policies in place to help you recover your lost funds. However, it may still be a good idea to also consider identity theft insurance and identity theft restoration service as a precaution.
Above all, be conscious of how you use your private information by doing things like monitoring your accounts, practicing good password habits, and avoiding sketchy Wi-Fi or websites.
It’s your money, and the more you do to stay vigilant, the better protected it will be.
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