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Publications | February 19, 2005
5 minute read

What Businesses Should Know About — Identity Theft

Consider being confronted with the following situations. You are notified by a bank that your account is overdrawn, but you have never opened an account with that bank. An employee of your company is arrested for misusing your customers' personal financial information to fraudulently obtain credit cards. A past customer complains that an order with your company was made without his knowledge by an unknown criminal who received delivery of the order. Chances are, you have just been introduced to the growing problem of identity theft.

What Is Identity Theft?

Identity theft is a crime that occurs when someone wrongfully obtains and uses another person's financial or personal information in order to commit theft or fraud. An identity thief may use a person's name, Social Security number, bank account number, credit card number, telephone calling card number or other valuable identifying data to commit an unlawful scheme where the thief profits at the victim's expense. The victim of identity theft suffers economic losses as well as a damaged reputation and credit rating.

How Do Identity Thieves Work?

Identity theft begins with the thief obtaining personal financial information from a potential victim without the victim's knowledge. The thief may record account numbers when they are disclosed in public places (e.g., when the victim recites his credit card number from a public pay phone). The thief may take identifying information about his employer's customers from the workplace. Some identity thieves contact the victim by telephone or e-mail and request identifying data under fraudulent pretexts, such as by pretending to be a representative of the victim's financial institution. The thief may even find important information about the victim by sorting through the victim's garbage or a communal dumpster.

Once an identity thief has obtained another person's financial information, the information may be misused in a variety of ways. The following scenarios are common examples of identity theft:

  • The thief opens a new credit card account in the name of the victim, using the victim's personal financial information. After making charges on the account, the thief does not pay the bills as they become due. Alternately, the thief opens a new bank account in the victim's name and writes bad checks on the account
  • The thief calls the victim's credit card issuer or bank, impersonates the victim, and changes the mailing address for an existing credit card or bank account. The thief then makes unauthorized charges on the credit card account or writes unauthorized checks on the bank account.
  • The thief applies for and obtains a loan in the victim's name, and then defaults on the loan by failing to make payments.

In each case, the delinquent account would be reported on the victim's credit report.

Minimizing Your Risk

You can reduce the risk of becoming a victim of identity theft by taking certain precautionary steps.

  1. Be stingy about giving out your personal financial data or other identifying information to others, unless you have a reason to trust the recipient. Disclose your Social Security number only when absolutely necessary. Minimize the amount of personal identifying information (e.g., Social Security number, driver's license number) that is printed on your personal bank checks.
  2. Pay attention to your billing and bank statement cycles. Follow up with creditors and banks if bills or statements do not arrive on time. Review bills and statements carefully to confirm that they only include authorized transactions.
  3. Order a copy of your credit report from the three major credit reporting agencies every year: Equifax (1-800-685-1111); Experian (1-888-397-3742); and Trans Union (1-800-916-8800). Confirm that your credit report does not include any unauthorized transactions.
  4. Shred or destroy items with personal financial information before throwing them away. Be especially sure to destroy applications for preapproved credit cards before discarding them; otherwise, an identity thief may retrieve the application and try to activate the card without your knowledge.

Responding to Identity Theft

If you have reason to believe that you've been victimized by identity theft, you should take the following actions immediately:

  1. Identity theft is a crime in Michigan and most other states. Report the crime to local police or the police in the location where the theft took place. Keep a copy of the report in case proof of the crime is required by the financial institution involved.
  2. Identity theft is also a crime under federal law. Report the crime to the Federal Trade Commission, which is the federal clearinghouse for complaints by victims of identity theft. You can file a complaint with the FTC by phone (1-877-438-4338) or online (
  3. Contact the fraud departments of each of the three major credit reporting agencies and report that your identity has been stolen. Ask that a "fraud alert" be placed on your file and that no new credit be granted without your approval.
  4. Contact all creditors and financial institutions with whom your name or identifying information has been fraudulently used. Cancel accounts opened or accessed by the identity thief. Use different passwords and personal identification numbers on all new accounts.

Special Considerations for Businesses

An employer's database of personal information about customers or employees can be a goldmine for the identity thief. Like individuals, businesses should take precautions to reduce the risk of unauthorized access to and use of confidential identifying information. Personal information – whether kept in hard copy or computer files – should be secured at all times. Businesses should develop a process to screen employees who will have access to personal identifying information. Employees should not have access to confidential personal information unless it is necessary to their job duties. Documents containing personal information should be disposed of securely, such as by using a shredder. Finally, businesses should consider whether they are gathering unnecessary personal information from customers that might be misused by an identity thief.

If you have any questions about identity theft, contact David Skidmore at 616.752.2491.