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What to do if your client experiences ID theft

There may come a day when you’re in your office minding your own business and a client walks in with an identity problem. They know exactly who they are and so does someone else. They’re victims of identity theft. And they’re worried about what to do next. You may be a little worried too. Here’s how to handle these cases like an expert ID theft lawyer. 

ID thieves typically will divert account statements from the rightful owner's mailbox. As a result, most victims of identity theft first learn of the crime when they are contacted by a debt collector about their "delinquent" accounts or denied credit because of negative information in their credit report.

And it's the information in this credit report that really causes the problems. 

Remember that classic question from philosophy class, "Does a tree falling in the forest make a sound if no one is there to hear it?" It's the same with identity theft. A victim of identity theft has little or no legal liability for the fraudulent accounts. Actually, the existence of these accounts would present few problems for the victims if they were not reported on the victim's credit record. 

But, unfortunately, when the ID Theft "tree" falls in the forest, the credit reporting agencies are there with amplifiers and parabolic microphones. It is the dissemination of this information that causes consumers the greatest difficulty. Consider this example case, taken from actual complaints made to the Federal Trade Commission:

Help! Someone has obtained credit cards in my name and charged over $20,000. The credit card companies have turned the accounts over to collection agencies. Neither the companies nor the agencies believe that I didn't authorize the accounts. I had no idea any of this was happening until I applied for a mortgage. Because these "bad" accounts showed up on my credit report, I didn't get the mortgage.

Desperately, 

Ben M. Personated

Santa Mira, CA

How do you help clients like Ben?

Here are some basic guidelines:

• Calm the client's fears. Many people in Ben's situation believe that they are liable for the fraudulent debts. Some are told this expressly by debt collectors. They may fear jail or insolvency. Reassure them that, in most cases, legal liability is small or nonexistent. There is, for example, no liability for new accounts opened fraudulently without the client's authorization. For the unauthorized use of existing credit accounts, the Federal Truth in Lending Act, 15 U.S.C. §§ 1601, et. seq., via the Fair Credit Billing Act found at §§ 1666-1666j, limits liability to $50 per card. For unauthorized use of debit or ATM cards, liability is also limited by the Electronic Funds Transfer Act to $50 unless the consumer fails to report the loss within two business days, 15 U.S.C. §§ 1693-1693r. Then, liability can be up to $500. 
• If the consumer waits more than 60 days, there is no limit on liability.
• Finally, in most circumstances, the consumer will not be liable for forged checks unless he fails to take reasonable care of his account or notify the bank in a timely manner. See S.C. Code Ann. §§ 36-3-406, 36-4-406 and 36-3-419.
• Have the client report the crime to law enforcement. While the ID Thief may never be caught, having a police report in hand is helpful in verifying to creditors, credit reporting agencies and debt collectors that the account was opened by fraud. The Identity Theft and Assumption Deterrence Act, enacted by Congress in October 1998 (and codified, in part, at 18 U.S.C. § 1028) is the federal criminal law directed at identity theft. Federal law enforcement agencies like the U.S. Secret Service, the FBI, the U.S. Postal Inspection Service and SSA's Office of the Inspector General investigate violations of the Act. Federal identity theft cases are prosecuted by the U.S. Department of Justice. South Carolina's relevant criminal law is the Financial Transaction Card Crime Act, S.C. Code Ann. § 16-14-10, et. seq.
• Contact creditors immediately and in writing. You should send a certified, return receipt letter to the creditor (and any fraud department maintained by the creditor) advising that the account was opened or used fraudulently and is disputed by the client.
• Get the debt collectors off the client's back. The Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et. seq., restricts debt collectors from using oppressive, unfair or deceptive practices in connection with the collection of consumer debt. The South Carolina Consumer Protection Code applies some of these restraints to the creditors themselves. See S.C. Code Ann. § 37-1-301(28). Debt collectors may not continue to contact consumers if advised in writing that the debt is disputed unless the collector sends written proof that the debt is owed.
• Contact the "big three" credit reporting agencies. This contact is critical for two reasons. First, it can prevent the client from being the victim of further fraud. Secondly, if not addressed, the false-negative information in a client's report can cause further credit denials. It may, for instance, cause the client to be unable to buy a house.
• Request, or have the client request, that a "Fraud Alert" be placed in his file. Also, request that a consumer statement be added to the credit file indicating that no credit should be issued unless the client is contacted and personally approves it.

All fraudulent accounts should be disputed. The Fair Credit Reporting Act, 15 U.S.C. § 1681-1681t, provides procedures for correcting mistakes in consumer credit files. Under the FCRA, both the credit reporting agencies and those who furnish information to them (such as banks or credit card providers) are responsible for correcting inaccurate information in the report, 15 U.S.C. §§ 1681s-2(a)(1)(b) and (a)(1)(c).

The dispute procedure is initiated by filling out a "Reinvestigation Request" form provided by the credit reporting agency with each report. Credit bureaus must investigate the challenged items within 30 days and must forward all relevant information about the dispute to the party that furnished it, 15 U.S.C. § 1681 i(a)(1). If the furnisher of the information cannot verify the account as correct, it must be deleted from the consumer's file.

When the investigation is complete, the credit reporting agency must provide the results in writing with a corrected report.

Making sure the identity thieves stay extinct

Years ago was an almost unbelievably bad made-in-Japan television show called Space Giants. The show featured the exploits of Goldar, a 50-foot robot, and his electronic space family. Among Goldar's manifold enemies were the Lugo-Men. Clad in black leotards, the Lugo-Men's main occupation was to launch brief, abortive attacks on Goldar's family. Their chief weapon was a style of kung-fu that would have gotten you beaten senseless on any decent playground.

Making matters worse, the Lugo-Men could not be killed, only melted into something that looked like blackberry jam. Inevitably, they would reconstitute and return to harass Goldar and company once again.

False items on a credit report are like the Lugo-Men. Things that are seemingly wiped out for good have a nasty habit of reappearing.

It is extremely important for ID theft clients to periodically order and examine their credit reports to ensure that these items do not come back to life.

In case of ID theft, your first priority is to provide warnings—to the credit reporting agencies, to the creditors and to the debt collectors.

When credit reporting agencies, debt collectors and creditors ignore these warnings, they may have significant civil liability to your client under the FCRA, FDCPA, Truth in Lending Act or whatever common law theories you are clever enough to allege.