Fraud Complaints Rise Due to ID Theft: FTC

Nearly one third of the fraud complaints to the Federal Trade Commission in 2007 involved identity theft and the use of credit card or other personal information to commit the crimes, according to a recent FTC report.

The number of total fraud complaints grew 20 percent from 2006 to 810,000 cases, according to the FTC, which based its report on data it collected and information from 125 other organizations, including such law enforcement agencies as the FBI, and private groups such as the Better Business Bureau. The FTC said the increase in complaints this year comes "primarily (from) the Better Business Bureaus."

Among the FTC's identity theft complaints, credit card fraud was the most common, accounting for 23 percent of reports, followed by utilities fraud at 18 percent and employment fraud at 14 percent.

“ID theft continues to be the biggest concern with consumer fraud,” said Dimitri Michaud, consumer finance analyst with Kaulkin Ginsberg. “Accounts receivable management firms need to remain wary about [fraud]. That’s why there’s such a big push for PCI compliance.”

PCI, or the Payment Card Industry Data Security Standard, was developed in 2006 by American Express Co., Discover Financial Services Inc., JCB International Credit Card, MasterCard Worldwide, and Visa Inc. through a group organization dubbed the Payments Industry Security Standards Council. The PCI standard was designed to provide improved security for payment card transactions.

Many merchants, especially those that conduct less than 1 million card transactions annually, have fought against the imposition of PCI standards. The National Retail Federation has argued that PCI rules put too much of the security onus and expense on retailers. The trade organization has opposed the PCI requirement that a merchant must store such transaction information as cardholder numbers, a database that the card companies use to allow “chargebacks,” typically for return of merchandise.

Michaud notes that failure to maintain security standards exposes a firm to risk of fraud, and that includes both financial loss and a scarred reputation following the negative publicity from any security breach.