The Problem of "Identity Theft"

We have all heard horror stories about people whose credit ratings have been damaged by unscrupulous individuals who obtain credit using a person's Social Security Number. There is a cottage industry around providing services that allow people to monitor their credit report and get a jump on those scumbags who would ruin their good name. The sad part is that there are so many ways to prevent this type of fraud that it is not even funny. The problem is that nobody seems to want to do anything about it, because it is cheaper for the financial industry to just ignore the problem.

First, it seems outdated to rely so heavily on a Social Security Number. For whatever reason, a SSN is the golden ticket that allows you to identify yourself to creditors. However, there doesn't seem to be any check on whether the person providing the SSN is who they say they are. Banks are happy to loan you money as long as you provide a SSN of someone with a good credit rating, even if you are not that person. Now if I were a business person and someone came to me asking for a loan based solely upon them providing me with a nine-digit number, I would be foolish to trust them, wouldn't I? However, banks don't seem to care. If somebody de-frauds them, they just write off the loss, saying that it's part of the cost of doing business. They forget that the reputation of whoever is being impersonated is forever tarnished, because those losses are erroneously attributed to him or her. Tha bank just reports the person to the credit agency irregardless of the fact that the person was being impersonated. That, to me, is akin to somebody spreading nasty, false rumors about a person.

If I were to go around saying that person X is a deadbeat dad - repeating that rumor despite evidence to the contrary - then person X would most likely be very upset (and rightly so). In legal terms, I would be guilty of slander, which is "an untruthful oral statement about a person that harms the person's reputation or standing in the community". This is essentially what banks are doing when they wrongly report to the credit agency that you are a deadbeat. They are making an untrue statement about your character that harms your ability to find credit.

So what should banks do? For one, they should not just accept that nine-digit number as proof of your identity. There are a myriad of ways to further validate one's identity: digital signatures, RSA tokens, fingerprints, retinal scans, etc. The problem is that all of these solutions are expensive, so banks just write off the fraud and leave the consumer holding the bag. However, if banks were forced to endure some type of additional monetary loss for improperly identifying a person, then they might feel moved to change their lending practices. Not only should they be fully on the hook for any monetary losses, but they should bear the cost of making sure that the person's reputation with the credit reporting agencies is restored, AND they should pay a fine every time they wrongly put a black mark on someone's credit. By giving banks an additional incentive to check, double-check, and check again everyone's identity, you will see the crime of identity theft become obsolete.