According to the Federal Trade Commission, identity theft is on the rise. Identity theft can include someone impersonating you to benefit financially or stealing your financial information and using it to drain your bank account or rack up debt. With more financial transactions occurring over the telephone and Internet, it is easier than ever for thieves to steal your identity. The good news is that you, as a consumer, are protected by federal and state laws against losses from identity theft.
TL;DR (Too Long; Didn't Read)
A bank's liability for identity theft also extends to online banking identity theft. State and federal laws are in place to protect consumers with a protocol that banks as well as consumers must follow. Banks must perform due diligence when extending credit, and they typically cover all losses against identity theft, even though federal law mandates that consumers must shoulder up to $50 of credit card loss.
Protocol for Fraudulent Checks
If your checkbook is stolen or someone has ordered checks on your account without your knowledge, you are protected under most state laws for everything except a minor loss. It is the bank's responsibility to ensure that all checks bear your true signature. The bank is also responsible for verifying any address change that would allow a thief to order checks sent to a different address.
However, you are responsible for notifying the bank immediately if you have lost your checkbook or it has been stolen. You can check your state's laws by reviewing your state's consumer protection agency's website.
Unauthorized Bank Accounts
If someone opens a bank account at any financial institution in your name without your authorization, you may not know about it unless it appears on your credit report, which usually only happens if the thief writes fraudulent checks without the money in the account to cover it. This would show on your credit report as unpaid debt. This possibility emphasizes the importance of ordering a copy of your credit report at least annually and reviewing every item on it.
Your state's attorney general's office regulates fraudulent accounts. In most states, you incur no liability for accounts opened in your name.
Credit Card Usage
It's easier than ever for thieves to impersonate you and use your credit card. They don't even need to physically steal it anymore; they just need the card number to order things online. Federal law restricts your losses in credit card theft to $50 as long as you inform the bank or card company within 60 days of the issuance of the credit card statement.
Banks often take it a step further and guarantee that you will have no losses to cover; they do this to increase their customers' trust in using the cards. If your credit card is lost or stolen, let the card company know right away to prevent losses from occurring.
Applying for New Credit
Banks are responsible for ensuring that anyone applying for credit has proper ID that can be verified. Under most state laws, the bank is responsible for covering any losses from impersonation.
However, the losses you incur can sometimes be greater than direct losses. It can take a significant amount of time to remove the reports of fraudulently obtained credit from your credit bureau report. In the meantime, it may make obtaining new credit more difficult for you and cause trouble for weeks or even months.
Protecting Yourself Against Identity Theft
Although your financial liability for identity theft may be limited, the best course of action is to prevent it in the first place. Protect your financial information and only use it on trusted websites. Never respond to emails that appear to come from your bank or credit card company. Always go directly to the company's website rather than clicking on links in the emails. Most importantly, don't let your credit cards or checks out of your sight.
Angie Mohr is a syndicated finance columnist who has been writing professionally since 1987. She is the author of the bestselling "Numbers 101 for Small Business" books and "Piggy Banks to Paychecks: Helping Kids Understand the Value of a Dollar." She is a chartered accountant, certified management accountant and certified public accountant with a Bachelor of Arts in economics from Wilfrid Laurier University.