Monday, February 21, 2005

As Roger Daltry said, "Who are you?"

Identity theft has been in the news today because of ChoicePoint's recent release of sensitive data to scammers. The biggest threat posed by identity theft seems to be that someone can obtain a credit card with your name and social security number. When the bills go unpaid, collection agencies come knocking on your door. Often that's the first you learn that your identity has been stolen.

The problem that gets addressed in public discussions is how to better protect your personal information, or how to improve automated identification procedures. This misses what seems to me an obvious solution. The problem is instant credit.

Instant credit allows you to call or write to a credit card company and immediately be approved for a new card. Is this really necessary? You still have to wait for the card to be mailed to you, so it's not really instant. For an extra day or two of waiting, we can virtually eliminate instant-credit related identity theft.

The solution is really very simple. In order to initiate any financial relationship, your identity has to be verified in person by a responsible party. Any notary public can serve this purpose, and banks might perform this function for existing clients. The procedure is straight-forward:

  1. Obtain an application form for the account you wish to create.
  2. Hand the (filled-out) application to your identity verifier, along with photo ID or other positive identification.
  3. The verifier fills out the remainder of the form, including an authorizing mark, and sends it to the institution holding the new account.

This establishes a chain of identity through a trusted verifier, so that the financial institution has good reason to believe the presented identity.

There's an obvious benefit to banks in this scheme: identity verification fees. There's a greater reason why this is unlikely to be adopted, in fact there are two. The first is that instant credit benefits financial institutions, since it encourages people to open new accounts, often incurring sizeable interest payments. The second is liability, in that affixing your institution's mark that an identity is valid can lead to civil or criminal penalties if that identity proves false.

If we credit financial institutions enough to believe that their desire for profits is tempered by their desire to protect their clients and society in general, the liability problem remains. This can be ameliorated by covering institutions as long as they have practiced due diligence. Because eliminating instant credit and establishing formal identity verification would require new legislation, this due-diligence protection could easily be included in the same bill.

Instant credit is, ultimately, a product of our society's desire for instant gratification in general. People need to become aware, however, that where their personal finances are concerned they should be more patient. With a minimal decrease in convenience, we can achieve a great increase in security, and identity theft can be made considerably more difficult.

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