Many of you may be familiar with the credit fraud alert. A fraud alert is a flag placed in consumer credit reports to warn businesses about the possibility of an identity fraud in case of a new credit request or account update. Any one can place an initial fraud alert by contacting any of the 3 major credit reporting agencies which is good for 90 days after which it must be renewed every 3 months. The initial fraud alert is usually placed on credit reports when consumers become suspicious about the possibility of their identity theft. On the other hand, identity theft victims may place extended fraud alerts which require an actual police report following a case of identity theft. There are primarily two major concerns with fraud alerts; first, they don’t really work due to ineffective laws, and second, consumers either don’t know about them or fail to place one.
To be effective, fraud alerts must be taken seriously by businesses. What good does a fraud alert do if businesses fail to either notice the alert or fail to follow up with the consumer to validate the credit transaction? But unfortunately, a combination of both failures on the part of the businesses leads to the ineffectiveness of the fraud alerts. One of the major reasons why business fail to notice or follow-up with fraud alerts is that the laws don’t force businesses to take fraud alerts seriously through monitoring and/or penalties. As such, a credit fraud alert will remain ineffective until businesses are forced to comply or recognize the benefits of a fraud alert to their business bottom line.
Also, as placing consumer fraud alerts has become a business which encourages every one to place one on their credit reports, the fraud alerts lose their effectiveness. Why would businesses take fraud alerts seriously if every one places one regardless of their identity protection situation? The best thing to do would be to eliminate the initial fraud alerts and require businesses to validate each and every credit transaction for authorization which would benefit both consumers and businesses. On the other hand, I think that an extended fraud alert is still a very good idea and should remain in effect because a) an actual identity fraud has occurred, and b) businesses will be more diligent when processing a credit transaction.
Last but not least, most people still don’t know about fraud alerts in terms of their benefits and the process for placing one. Consumers who know about fraud alerts find placing and renewing initial fraud alerts a time consuming process. Fortunately, there are companies like LifeLock that automate the initial fraud alert placement and renewal for a nominal fee.
In conclusion, there must be a difference between initial and extended fraud alerts to effectively detect credit frauds, otherwise, businesses will treat them both the same way, ignore the credit fraud alerts, and consider them as a routine process. Identity protection laws should not be viewed as routine and bureaucratic which not only will lead to their ineffectiveness but also unnecessarily cost companies and credit bureaus millions for little or no return for the society.