Pros and cons of ID theft protection

Almost 50 million people subscribed to some form of identity-theft protection in 2010. Those services, which cost about $120 to $300 a year, promise to protect your ID by monitoring your credit reports 24/7, scouring "black-market chat rooms" for your personal information, removing your name from marketing lists, and filing fraud alerts. Some throw in up to $1 million in insurance.

More of these pitches are coming from banks, which account for more than half of the $3.5 billion a year spent on ID-theft protection subscriptions.  They are offering ID Theft protection for between $10 and $30 a month.

But our partners at Consumer Reports Magazine say these protection plans provide questionable value. And some promoters of these services have been slapped by the Federal Trade Commission for misleading sales practices and false claims. We dug into the latest products sold by more than two dozen banks, credit-reporting bureaus, and independent companies. Here's what we found:

The claim. Some ID protectors scare up business with inflated claims about crime . "There were 1.2 million more victims in 2009 than 2008," Chase warned on its website. "And with a growing 11 million victims each year, one of those identities could be yours."

The facts.

That promo, which ran in November 2011, was based on statistics that were out of date, according to Consumer Reports. The latest available data show that in 2010 identity fraud fell 27 percent, to 8.1 million victims. As of last fall, Experian Protect MyID was also still claiming that ID theft is "one of the fastest-growing crimes."

More significant, identity fraud is down because financial institutions are doing a better job preventing it. And consumers have become more eagle-eyed about their own accounts, without the need for a paid subscription service.

What you should do.

Take the threat seriously, but don't panic. Even the statistic of 8 million victims overstates the danger.

More than 80 percent of what's been called identity theft involves fraudulent charges on existing accounts, according to the U.S. Department of Justice, but in most cases a cardholder's liability is limited to $50 for a lost or stolen credit card.

For debit cards, liability for an unauthorized transaction is limited to $50 if it's reported within two business days of the date a cardholder learns of it. After two days, liability can climb to $500 or more, but many banks provide additional voluntary protections.

What's relatively rare is "new account" and "personal information" ID theft, in which someone uses your name, birth date, and Social Security number to open new credit accounts, tap your health insurance, earn taxable income, or commit crimes in your name. Only 765,000 households were victims of this form of ID theft in 2010, according to the Bureau of Justice statistics, which means the chance of it happening to you is less than 1 percent a year.

What you should do.

Consumer Reports says you can do it yourself for less. Sign up for online access to your bank and credit accounts and monitor them frequently. Periodically check your credit reports. You can get 3 free credit reports each year at annualcreditreport.com.

Consumer Reports also suggests putting a security freeze on your credit reports.  It costs about $10 at each of the big 3 credit bureaus, Experian, Equifax, and TransUnion.

Use security software on all your computers and smart phones, and respond aggressively to any hint of an unathorized or suspicious charge.

And don't waste your money.

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This content was provided by and is copyrighted by Consumer Reports Magazine, a partner of ABC Action News.

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