Identity theft is a growing industry and so is the identity theft protection industry. The identity theft industry basically sells two services: (i) identity theft insurance which reimburse the expenses a victim of identity theft may incur (typically legal bills, phone bills, lost wages and whatever is covered under the policy); and (ii) identity theft protection services which alert the consumer of any changes to their credit report.

In ever an ironic twist, the problem has become that some members of the identity theft protection industry claim to be protecting the public while preying on consumers by aggressive sales tactics and deceptive claims as to their services.

In December, 2010, the Attorney General of Minnesota commenced a lawsuit claiming that Discover Financial Services engaged in “aggressive, misleading and deceptive” marketing calls about its identity theft services. The allegations include consumers being charged for services without authorization or approval based on seemingly innocent statements made to service representative on the phone. None of the allegations have been proven.

The lawsuit follows in the wake of Lifelong , Inc., an identity theft protection service provider, settling charges with the Federal Trade Commission and 35 State Attorney Generals over false advertising claims, lack of security over the consumer information it protected and the adverse impact their service would have on the consumer’s credit reports.  Lifelong does not seem to be an exception as the Wall Street Journal reports many identity theft protection and/or alert companies are subject to complaints to the Better Business Bureau.

The issue for the consumer is two-fold. The industry is growing  so a lot of new players are entering into the industry; some with little scruples when it comes to sales tactics. Identity theft insurance may be regulated under insurance regulations but identity theft protection services are generally unregulated so it is still the wild wild west when it comes to acceptable and regulated behavior.

The second issue is how much protection does identity theft protection (whether the identity theft insurance or protection services) actually provide?  As the Wall Street Journal sets out, a do it yourself identity theft protection program is easy to set up.  Ordering a credit report and checking for errors is a good first step in identity theft prevention.

Identity theft is, indeed, a problem and there may be a time and place for identity theft products but the products are not going away anytime soon. Accordingly, any type of aggressive sale tactics should be viewed skeptically and sober second thought undertaken.

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