Identity theft complaints soar 14.7 percent in 2014

On Sept. 26, 2014, in Anchorage, Alaska, Maximo Amparo-Vazquez, a citizen of the Dominican Republic, was sentenced to 84 months in prison and ordered to pay $559,755 in restitution to the U.S. Internal Revenue Service. He had pleaded guilty to conspiring to defraud the government of $19 million. According to court documents, Amparo-Vazquez conspired with others to use stolen identities to file income tax returns to obtain fraudulent income tax refunds. The conspirators obtained personally identifiable information (PII) of more than 2,600 taxpayers, including names and Social Security numbers. (See the IRS document.)

Income tax refund fraud has taken the U.S. by storm in the past two years, accounting for losses of $6.5 billion in 2014 and projected to escalate to $21 billion in 2016, according to Tax-refund fraud to hit $21 billion, and there's little the IRS can do, by Matt Hunter of CNBC. [Also see the author's articles, "Identity theft tax refund fraud: A growing epidemic," parts 1 and 2 in the March/April 2014 and May/June 2014 issues of Fraud Magazine.]

Every year, law enforcement agencies and individual victims report thousands of identity theft fraud cases such as this to the U.S. Federal Trade Commission (FTC), which then lists them in its annual Consumer Sentinel Network (CSN) Data Book — a fixture since 1997.

According to the CSN, it received 42,547 more identity theft complaints in 2014 from 2013 (290,099 to 332,646) — a significant increase — which makes it the FTC's No. 1 complaint category again. Thus identity theft has soared and still continues to be a major problem for consumers and businesses.

CSN figures are understated

As I've said in previous years, the CSN figures actually are understated. Most identity theft victims still don't report their experiences to the FTC or any law enforcement agency. Also, many law enforcement agencies don't share their complaint data with the FTC. Therefore, the identity theft data reported in the CSN is significantly understated for any given year. In fact, the FTC estimates that identity theft claims more than 10 million victims annually.

However, assuming there's a consistent flow of consumers who report identity theft complaints each year and assuming that the law enforcement agencies that report identity theft do it consistently each year, we can conclude that the CSN identity theft complaint data reported in any given year is representative of the real levels of identity theft. The CSN identity theft data can be considered useful for determining trends not only for aggregate data but also for identity theft fraud subtypes. This enables law enforcement agencies to target their efforts to help control specific types of identity theft fraud.

Assault against military is escalating

The inclusion of complaint data from military consumers in the 2011 CSN report continued through 2014. The 2014 figures showed somewhat pessimistic results.

Military consumers reported 4,283 more identity theft complaints from 2013 (22,066 to 26,349) or about a 19 percent increase. The total represented 27 percent of their total complaints in 2014 compared to 30 percent in 2013 (compared to 13 percent and 13 percent for the general population, respectively).

Enlisted military identity theft complaints decreased significantly from 31 percent to 23 percent (6,667 to 5,127) of their total complaints. Similar percentages from officer military decreased slightly from 29 percent to 27 percent whereas their numbers increased slightly  (1,049 to 1,186). [Note, the total enlisted (5,127) and officer (1,186) identity theft complaints don't equal the total identity theft complaints from military (26,349) because many respondents didn't designate their military status. As a result, the significance of the changes in identity theft complaints from enlisted and officer military is difficult to determine.]

You can use the statistics in this article as "leading indicators" to help others understand the hot areas and how to protect themselves.

Deb Griffith, director of government affairs at LifeLock, during the panel discussion, "Identity Crimes: Your Money or Your Life?" at the University of Texas-sponsored ID360 Global Forum on Identity in Austin, Texas, May 5, said that victims should respond swiftly to identity theft attacks. "The longer the delay, the wider the door opens," said Griffith. To report a complaint, visit www.FTC.gov or call 1-877-ID THEFT (identity theft complaints) and 1-877-FTC-HELP (fraud and other complaints).

Check out the PDF of the 103-page 2014 CSN report.

The CSN Data Book includes annual unverified identity theft, fraud and other complaints that are:

1. Voluntarily reported by consumers using the FTC website or one of its toll-free telephone numbers.
2. Shared by multiple state and federal agencies.
3. Shared by non-governmental entities including the Council of Better Business Bureaus in North America, Catalog Choice (a free service to opt out of mailed catalogs, coupons, credit card offers, etc.) and the Center for Democracy and Technology, among others.

The CSN sorts the complaints into 30 categories including "identity theft" (332,646) complaints, 11 "other" categories and the following 18 "fraud" categories (with number of complaints):

• Advance payment for credit services (37,017 complaints).
• Business and job opportunities (20,550).
• Buyers' clubs (1,324).
• Charitable solicitations (2,620).
• Foreign money offers and counterfeit check scams (21,020).
• Grants (8,032).
• Health care (37,824).
• Imposter scams (276,622).
• Internet auction (19,671).
• Internet services (46,039).
• Investment-related complaints (10,135).
• Magazines and books (11,856).
• Mortgage foreclosure relief and debt management (12,747).
• Office supplies and services (12,324).
• Prizes, sweepstakes and lotteries (103,579).
• Shop-at-home and catalog sales (71,377).
• Telephone and mobile services (171,809).
• Travel, vacations and timeshare plans (25,751).

The "other" area, which the CSN started in 2008, includes complaints relating to deceptive practices pertaining to the following 11 categories:

• Auto-related (88,334 complaints).
• Banks and lenders (128,107).
• Computer equipment and software (12,702).
• Credit bureaus, information furnishers and report users (35,904).
• Credit cards (32,032).
• Debt collection (280,998).
• Education (5,628).
• Home repair improvement and products (8,327).
• Real estate (4,952).
• Tax preparer's (6,418).*
• Television and electronic media (48,640).

*New in 2014; replaced the clothing, jewelry and textiles category.

Let's dig a little deeper

There's a lot of information here, but it's important. Since 2010 and through 2014 the CSN contains more than 10 million "identity theft," "fraud" and "other" complaints. (Also, the CSN reported more than 15 million "Do-Not-Call Registry" complaints in this same call period.)

Figure 1: ¹Percentages are based on the total number of Consumer Sentinel Network complaints by calendar year.

In Figure 1 (above) and Figures 2 and 3 (below), we see that 2,582,851 complaints for the "identity theft," "other" and "fraud" categories were reported in 2014 compared to 2,174,563 in 2013 and 2,112,861 in 2012.

(Except for 2014, the data shown in Figures 1 and 2 represent adjusted data, which is more accurate for comparison purposes. When the complaint data is reported for any given year it doesn't include all the complaints for that year because some agencies report their data too late to be posted. The "late" data is used when that year's data is adjusted in the following year's report.)

Figure 1 above shows a shift from previous years in the percentage of complaints within each of the three main classifications in 2014 with "identity theft," "other" and "fraud" accounting for 13 percent, 27 percent and 60 percent respectively. Comparable percentages were 13 percent, 31 percent and 56 percent for 2013 and 17 percent, 30 percent and 53 percent for 2012.

A total of 87,269 military consumer complaints were reported in the total CSN data in 2014 compared to 72,964 in 2013 — a 19 percent increase. This included 26,349 (27 percent), 37,040 (52 percent) and 20,880 (18 percent) complaints for the "identity theft," "fraud" and "other" categories respectively in 2014 compared to 22,066 (30 percent), 37,941 (52 percent) and 13,133 (18 percent) in 2013.

Compared to the percentages for the three complaint categories for the total CNS complaint data for the general population, the military consumer complaint data differs dramatically and significantly. For example, the "identity theft" category complaint percentage for the military consumers was more than double (27 percent versus 13 percent) that of the total CNS-reported identity theft complaints. Similarly, the military consumer complaint percentages for the "other" category were significantly less (approximately 18 percent versus 27 percent) of the total CNS-reported "other" complaints whereas the percentage of complaints reported for the military for the "fraud" category was somewhat less (52 percent versus 56 percent) than the total CNS reported "fraud" complaints.

Figure 2: ¹Complaint counts CY-2001 to CY-2009 represent historic figures as per the Consumer Sentinel Network's five-year data retention policy. These complaint figures exclude National Do Not Call Registry complaints.

Figure 3 below shows a relatively dramatic increase in identity theft complaints for 2014 with 332,646 reported compared to 290,099 for 2013. This places the 2014 identity theft complaint data at the second highest — behind the record high of 369,143 complaints reported in 2012.

Figure 3: ¹Complaint counts CY-2001 to CY-2009 represent historic figures as per the Consumer Sentinel Network's five-year data retention policy. These complaint figures exclude National Do Not Call Registry complaints.

Common types of identity theft frauds

How do fraudsters use the PII of identity theft victims to commit fraud? The following analysis should help to answer this question.

The major types of identity theft-related frauds and their complaint percentages for 2014 and 2013, respectively, follow:

• Credit card fraud — 17.4 percent and 16.9 percent.
• Government documents or benefit fraud — 38.7 percent and 34 percent.
• Phone or utilities fraud — 12.5 percent and 9.7 percent.
• Employment-related fraud — 4.8 percent and 5.6 percent.
• Bank fraud — 8.2 percent and 7.7 percent.
• Loan fraud — 4.4 percent and 1.9 percent.
• Other identity theft fraud — 21.8 percent and 23.6 percent.
• Attempted identity theft — 4.8 percent and 7.2 percent.

(These percentages don't add up to 100 percent in either year because some of the complaints included more than one type of identity theft.)

To dig even deeper into the analysis, we need to look at the changes in the percentages noted above.

Credit card fraud

Joe Tremba had been living with his fiancée when he received a letter from a collection company about a past due credit card account. He was bewildered because he only had one credit card that he paid off every month and frustrated because the letter said he was past due on the account and owed $5,000.

He called the original creditor and the collection agency and explained that he didn't have the Visa card they were referring to in the letter. After thinking it over for a while, he concluded that someone had lifted a credit card application letter from the mailbox where he previously lived and stole his identity to get the credit card. This is referred to as "new credit card fraud," which is still quite common. (See Identity Theft Victim Story, Experian's "Protect My ID.com".)

The CSN report shows that the total number of credit card fraud complaints for the general population actually increased from 49,026 in 2013 to 57,880 in 2014 — a significant increase of 8,854 complaints — while the changes in their percentages of total identity theft complaints increased from 16.9 percent to 17.4 percent.

The differences are attributed to the changes in their related subtype categories. For example, the subtype category "new credit card accounts fraud" complaints increased significantly from 32,486 to 41,556 (from 11.2 percent to 12.5 percent of the total identity theft complaints) while the "existing credit card account fraud" complaints category decreased insignificantly from 16,536 to 16,300 (from 5.7 percent to 4.9 percent).

Identity theft related to credit card fraud was still a major problem in 2014; it accounted for 17.4 percent of the total reported CSN identity theft complaints.

"New credit card accounts fraud," which accounted for 12.5 percent or 41,556 of the total identity theft complaints, is intolerable; it's something that can be reduced dramatically.

Entities typically market new credit cards through the mail via "pre-approved" credit card offer applications, many of which are directly stolen from mailboxes and through careless disposal by consumers. Individuals can opt out of the "pre-approved" credit card offers sent through the mail by visiting www.optoutprescreen.com or by calling 888-567-8688. If more people used the service, identity theft related to "new credit card account fraud" and overall credit card fraud would decrease significantly.

CSN showed 4,383 "credit card fraud" complaints for military consumers in 2014, which was 16.7 percent of their total identity theft complaints, compared to 3,829 and 17.3 percent in 2013. This is similar to "credit card fraud" for the total complaint data for the general population, i.e. 16.9 percent compared to 13.5 percent.

The subtype category "new accounts credit card fraud" accounted for 11.6 percent or 3,048 of total complaints for military consumers in 2014 (compared to 11.2 percent or 2,471 in 2013), which is comparable to the 12.5 percent reported for total "new accounts credit card fraud" for the general population. "Existing accounts credit card fraud" for military consumers accounted for 5.1 percent or 1,335 of their total complaints for 2014 (compared to 1,350 or 6.1 percent in 2013) or slightly more than the 4.9 percent recorded for the general population's total "existing credit card fraud."

Military consumer credit card complaint numbers have increased again in 2014. The increase in the rate of occurrence in credit card fraud is worrisome once again for both groups and needs to be diminished with accelerated educational programs.

Bank fraud

In July 2014, thieves withdrew $35,000 from the bank accounts of four victims who were aboard the downed Malaysia Airlines Flight 370 that was lost in early 2014. They funneled the money from three of the passengers' bank accounts into a fourth account and then used the Internet to transfer the money into an account of one of the fraudsters, after they then drained the account via ATM withdrawals. This is an identity theft case called "bank fraud – existing accounts." (See Thieves Rip Off $35K From MH370 Passenger Accounts, by Arden Dier, Newser.)

"Bank fraud" identity theft complaint percentages for the general population increased slightly from 7.7 percent in 2013 to 8.2 percent in 2014, but the number of complaints increased significantly from 22,338 to 27,278. The subtype category "electric fund transfer fraud" increased slightly from 10,153 in 2013 to 10,977 in 2014 while their percentages decreased slightly from 3.7 percent to 3.3 percent.

The other two subtype categories, "new accounts fraud" (from 2.2 percent to 2.8 percent) and "existing accounts fraud" (from 1.8 to 1.5 percent), incurred insignificant changes.

For military consumers, "bank fraud" accounted for 10.2 percent of their total complaints in 2014 (versus 8.8 percent in 2013) compared to 8.2 percent for the general population. The subtype category "electronic fund transfer fraud" accounted for 4.7 percent of their total complaints in 2014 (versus 4.8 percent in 2013) compared to 3.3 percent for the general population. The subtype category "new accounts fraud" and "existing accounts fraud" reported percentages of 3.3 and 1.6 respectively in 2014 (versus 2.2 percent and 1.8 percent in 2013), compared to 2.8 and 1.5 percent for the general population in 2013.

As Adam Tyler, an executive at CSID, pointed out at the ID360 panel, the public needs to understand where threats come from. "Ten years ago, it was difficult to have the insight or ability to commit these acts," said Tyler. "These days, a 15- or 16-year-old can do it. We need to educate younger generations and make them understand that they can't continue."

In the September/October issue: Part 2 of 2 parts provides practical takeaways and continues the analysis of the major frauds related to identity theft and their impact on various age groups, cities and U.S. states.

Robert E. Holtfreter, Ph.D., CFE, CICA, CBA, is distinguished professor of accounting and research at Central Washington University and the author of "Taking Back the ID" column in Fraud Magazine. He's also a member of the ACFE Advisory Committee and the Editorial Advisory Committee.

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