Friday, January 9, 2009

The Backside

Dear Madam or Sir:

I am writing this letter in regards to Identity Theft and the impact that it has not only on individuals but on our Nation's economy as a whole. I feel that although Identity Theft has been classified as an epidemic in this country, its full impact has been generally overlooked. If you examine any of the statistics regarding Identity Theft over the course of the past ten years you will immediately realize that the incidence of ID theft is increasing at an exponential rate. While I realize that there are many critical issues which currently face the United States, I do not feel that these issues excuse a complete disregard for what has become the most common form of criminal activity. You may ask yourself why, of all the problems our country faces, I feel it necessary to address the issue of Identity Theft. The reason for this is the most obvious one: I am a victim. I am a victim of what is considered to be the most crippling form of ID theft, Criminal Identity Theft. It is my intention to demonstrate in this letter why I believe that this is a form of crime which must be addressed with the greatest sense of urgency possible.

Everyone is aware of the most common form of ID theft which is Financial Identity Theft. The reason that ID theft has become a household phrase is due to the frequency with which it occurs. If you personally have not been a victim of Identity Theft, I guarantee that someone you know has. If you are in a public place I firmly believe that you could ask ten random individuals if they have been a victim of Identity Theft and that a minimum of five of those individuals will say that they have. This should not only alarm you, it should terrify you.

According to recent statistics from the Federal Trade Commission, at least forty percent of individuals who have credit card accounts have had fraudulent charges made to their accounts or have had new accounts fraudulently opened in their names. This statistic only accounts for the reported incidences with registered complaints. It is thought that the instance of unreported criminal activity is far higher than this. What is the cost to the economy? Add initial monetary loss to time spent repairing the damage, then multiply that by the resulting effect it has on the victims. Also, please bare in mind that the face value cost does not in any way reflect the backside impact to the economy.

I would like to give an example of what I mean by the last statement made in the previous paragraph:

Let's say your name is Bob. Bob has several unsecured (credit card) accounts. The available limits of these accounts totals somewhere in the neighborhood of one hundred thousand dollars. Bob is a responsible consumer who has excellent credit and has relatively low debt. Enter the Financial Identity Thief, let's call him Jon. Jon illegally obtains Bob's personal information (Full name, Date of Birth, Social Security Number). Once this information is obtained Jon opens new accounts and accrues fraudulent charges totaling fifty thousand dollars. This can happen because Bob is a responsible consumer and has a low Debt to Income ratio and a high credit score. Bob becomes aware of the problem, unfortunately at this point the damage is done.

In the above example the initial negative impact is the $50,000.00 in fraudulent charges. The backside cost for which there is no reliable data is potentially far higher.

Firstly, the $50,000.00 in fraudulent debt is considered by a great degree to be an asset for the companies the charges were made with. This is due to the fact that through the great miracle of Corporatism a company's debt can be considered an asset. Doesn't make any sense does it? If you are an individual who is informed when it comes to business or financial practices you already know that what I say is true, never mind the fact that it defies all common sense and logic.

So how does it work? Let us say you are Corporation X. You have 1 billion dollars in unsecured loans to borrowers. On the books this does not register as a billion dollars in unsecured debt. The reason for this is that you are operating under the assumption that these "loans" will be repaid with interest. These payments and interest are considered "income". So in buying stock, supplies, and services you are purchasing based on this "income" which is in actuality debt. If ten percent of your one billion dollars in loans is the result of fraudulent charges, that's one hundred million dollars. Assume that you receive a mean interest rate of twenty percent. If this is the case, Corporation X has been operating and possibly leveraging based on an expected income of twenty million dollars (profit generated from interest on debt) which simply does not exist. In addition to this twenty million dollar "loss", the one hundred million dollars can no longer be considered an asset. It has become what it actually is: a liability or Debt.

As you can see, the negative impact is much more far reaching than the initial loss resulting from the fraudulent charges. These "leveraging" principles are much the same as what is used by housing lenders. With housing lenders the debts are at least asset backed (the homes and property used to secure the loan). Much of the financial crisis we are currently facing stems from the housing sector. If you have a billion dollars in asset backed loans, that's great. However, if the assets (homes and property) have been severely overvalued, it's not so great. This is a completely different subject and I apologize for getting sidetracked.

So the negative impact of the $50,000.00 in fraudulent charges is much greater than the face value of the loss, hopefully at this point that much is obvious. Add to the problems it creates for the lenders the effect the crime has on the victim. If you are Bob, how comfortable are you going to be with having unsecured accounts in the future? Once the immediate financial repercussions have been rectified (if this is even possible), how anxious are you going to be to make purchases in the same manner you did prior to the theft? Factor in the amount of time it takes to remedy the false charges, the mental anguish it creates, and the loss in productivity that inevitably result. You are beginning to get the picture of what I mean when I say the backside. These things which I have discussed so far are all in relation to Financial Identity Theft which is the most common form of Identity Fraud. Now I'm going to discuss the most damaging type of Identity Fraud, Criminal Identity Theft.

Criminal Identity Theft is use of the Identity of someone else to establish a criminal record. In the simplest terms, someone gets arrested as you. There is absolutely no data involving the impact of Criminal Identity Theft on the economy. The reasons for this lack of information will become more evident as I discuss it further.

In 1997 someone was arrested as me. Upon being detained by law enforcement the criminal provided arresting officers with my Identity as his own. The perpetrator was detained, questioned, and then incarcerated as me. I had no prior criminal background and as a result had no identifying characteristics (photographs, fingerprints, or physical descriptors such as tattoos or birthmarks) to use as a comparison. The criminal was held and then released on bond. Upon not appearing in court for the offense a warrant was issued, for me. As far as law enforcement was concerned I had been arrested, detained, and then released. I will get to the financial impacts of Criminal Identity Theft in short order; I simply wished to provide a general understanding of how it happens.

From the date of the arrest until I became aware of the problem almost ten years later there was a warrant for my arrest. I had no knowledge of this simply because I have never been in trouble with law enforcement. I'm certain you can see the potential legal problems this could cause (i.e. false arrest and imprisonment) but are likely wondering how any of this could translate into financial burdens. It took me quite a bit of digging to determine this, allow me to explain the transition in the simplest terms possible.

1. Jon Doe is arrested as you.
2. Arresting agency passes false arrest information to State agency.
3. State agency passes false arrest information to Federal agency.
4. Federal agency sells false arrest information to background providers.
5. Background providers return false background results to perspective employers or creditors.

Step four is where the real problem begins. Once private background providers have the false information there is virtually no way to remove it completely. If you are fortunate enough (or unfortunate enough depending on your perspective) to learn of the Criminal Identity Theft committed against you, your courses of action are limited to say the least. First, you will have to prove your innocence to law enforcement. This in and of itself is problematic. You will have to submit yourself for fingerprinting several times and make repeated attempts with State and then Federal authorities to have the erroneous information corrected. Once you have obtained clearance from Federal authorities there is no guarantee you will be able to get the false charges removed from your actual criminal record. It took a Congressional representative fighting for me even after I had been cleared by the Department of Justice to get my local criminal record cleared. All of this addresses only the criminal repercussions of Criminal Identity Theft, it doesn't even graze the tip of the proverbial iceberg when it comes to all of the other areas this will impact your life.

Even if you are persistent enough to get the various law enforcement databases corrected, you will not be able to get the literally hundreds of background providing companies to amend their databases. This is because the companies that provide background screenings are not regulated or even monitored. Perhaps it's just me, but I feel that hundreds of companies which handle the most private and sensitive information of American citizens should constantly be under extreme scrutiny. I only learned of the Criminal Identity Theft after having been unemployed and desperately seeking work for over a year and a half. By law (the Fair Credit Reporting Act) you are supposed to be notified by a perspective employer or creditor if you are denied employment or credit due to the results of a background check. In my experience this law is largely disregarded. At least in regards to employment, all a perspective employer has to do is state that "The position has been filled." Or that "We have decided not to hire at this time." I have applied to literally hundreds of companies in the past ten years and have only been notified by one that they could not hire me due to the results of my background check.

So there you have it. What is the impact to a society and its economy when an individual who would normally be a productive and contributing member of that society cannot gain employment due to a false criminal background? The answer: The impact is immeasurable. I went from being a relatively well paid employee in a technical field who had nearly perfect credit to what I am today. Today finds me as a part time, minimum wage, soon to be homeless, mentally and emotionally destroyed worker with abysmal credit, massive debt and no foreseeable way of repaying it. I have been unable to gain even the most menial employment despite the fact that I have six years experience in a technical field in addition to four years experience in Retail Management. There are conceivably well in excess of a hundred thousand American Citizens who are victims of Criminal Identity Theft. Due to the nature of the crime and the reluctance of perspective employers and creditors to make the victims aware there is a problem, these victims will never know why they are in such a dire situation. They will likely believe as I did for almost a decade. They will think that they can't gain equitable employment and are starving due to a poor job market, failing economy, or just plain bad luck. The backside…If there were a way to measure the true cost of Identity Theft on our Society it is highly doubtful I would have ever needed to write this letter.

Respectfully Yours.

Cornered Citizen

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