What Is Identity Theft? Definition, Laws, and Prevention

social security cards

 Douglas Sacha / Getty Images

Identity theft is the illegal use of someone’s personal information for individual gain. Also known as identity fraud, this type of theft can cost a victim time and money. Identity thieves target information like names, dates of birth, drivers licenses, social security cards, insurance cards, credit cards, and bank information. They use the stolen information to gain access to existing accounts and open new accounts.

Identity theft is on the rise. The Federal Trade Commission received over 440,000 reports of identity theft in 2018, 70,000 more than in 2017. A study conducted by an independent advisory firm found that 16.7 million people in the U.S. were victims of identity theft in 2017, an 8% increase from the previous year. The financial losses totaled over $16.8 billion.

Key Takeaways: Identity Theft

  • Identity theft, also known as identity fraud, is when someone steals personal information to use for their own benefit, typically financial gain.
  • Identity theft covers multiple types of fraud including bank fraud, medical fraud, credit card fraud, and utility fraud.
  • If someone has been the victim of identity theft, they should report it immediately to the Federal Trade Commission, local law enforcement, and the companies where the fraud occurred.
  • Protections against identity theft include strong passwords, shredders, frequent credit reports, and "suspicious activity" alerts.

Identity Theft Definition

Identity theft covers a range of fraudulent acts. Some common types of identity theft include credit card fraud, phone and utility fraud, insurance fraud, bank fraud, government benefits fraud, and medical fraud. An identity thief might open an account in someone’s name, file taxes on their behalf to receive the refund, or use their credit card number to make online purchases.

Stolen bank account information might be used to pay utilities or phone bills. In addition, an identity thief could use stolen insurance information to access medical care. In very rare and serious circumstances, an identity thief might use someone else’s name in a criminal proceeding.

Identity Theft and Assumption Deterrence Act and Legal Implications

Before the Identity Theft and Assumption Deterrence Act of 1998, identity thieves were prosecuted for specific crimes like stealing mail or producing fake replicas of government documents. The Act made identity theft a separate federal crime and gave it a broad definition.

According to the act, an identity thief "knowingly transfers or uses, without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable State or local law."

Outside of defining identity theft, the Act also gave the Federal Trade Commission the ability to monitor complaints and offer resources to victims of identity theft. In federal courts, identity theft is punishable by up to 15 years in prison or $250,000 in fines.

Financial Consequences for the Victim

Identity theft can have financial consequences for the victim. The cost to the victim depends on when the crime is reported and how it occurred. States generally do not hold a victim responsible for charges made to a new account opened in their name without their knowledge. States also limit the amount of money someone can lose if fraudulent checks are issued on their behalf.

The federal government protects victims of credit card theft by limiting the cost of unauthorized use to $50. If someone notices their credit card has been stolen but no charges have been made, reporting it to the proper authorities will waive the cost of any future unauthorized charges.

Debit cards have different standards that depend on timing. If someone notices their debit card is missing and notifies their bank immediately, before any charges are made, they are not liable for future fraudulent charges on that card. If they report unauthorized use within two days, their maximum loss is $50. If they wait more than two days but no longer than 60 days after receiving their bank statement, they are responsible for up to $500 in charges. Waiting for more than 60 days can result in unlimited liability.

How to Report Identity Theft

There are multiple ways to take action if you suspect private information related to your identity has been compromised.

  • Document the theft. This means keeping track of when and where you last used your debit or credit card. Document fraudulent charges. If you receive a bill for a medical service or a credit card you don’t own, do not discard it.
  • Contact your bank for financial fraud. Freeze your accounts as soon as you believe they have been compromised. A bank may place an alert on your account and send you a new card if yours has been stolen.
  • Contact offices related to accounts opened illegally in your name. Let the office know that your name has been used to open an unauthorized account and follow the designated procedure.
  • Notify credit reporting companies. Every victim is entitled to an initial 90-day fraud alert that requires companies using your credit report to take extra precautions verifying anyone applying for new credit with your information. There are three national credit bureaus: Experian, Equifax, and Transunion. You can notify any individual bureau and they will notify others.
  • Create an identity theft report. You will need to fill out a complaint, affidavit, and report for local law enforcement. The FTC has an identity theft website devoted to walking victims through these steps.

    Other reporting tactics include seven-year extended fraud alerts, requesting copies of your credit report, and blocking fraudulent information from appearing on your credit report.

    Identity Theft Protection

    There are many ways for identity thieves to get hold of personal information, but certain safeguards may help keep your personal information safe. 

    • Keep your cards in a secure location.
    • Use strong passwords and two-factor identification when possible while using online accounts.
    • Don’t use the same password for every account.
    • Check your credit score and credit reports frequently.
    • Don’t enter your bank information or credit card number on sites that you do not recognize.
    • Use shredders to destroy personal documents.
    • Set up “suspicious activity” alerts on your bank accounts.

    Sources

    • "Statement of Rights for Identity Theft Victims", The Federal Trade Commission. www.ovc.gov/pdftxt/IDTrightsbooklet.pdf
    • “Identity Theft and Assumption Deterrence Act.” Federal Trade Commission, 12 Aug. 2013, www.ftc.gov/node/119459#003.
    • “Identity Fraud Hits All Time High With 16.7 Million U.S. Victims in 2017, According to New Javelin Strategy & Research Study.” Javelin Strategy & Research, www.javelinstrategy.com/press-release/identity-fraud-hits-all-time-high-167-million-us-victims-2017-according-new-javelin.
    • “Consumer Sentinel Network Data Book 2018.” Federal Trade Commission, 11 Mar. 2019, www.ftc.gov/reports/consumer-sentinel-network-data-book-2018.
    • “Identity Theft.” The United States Department of Justice, 7 Feb. 2017, www.justice.gov/criminal-fraud/identity-theft/identity-theft-and-identity-fraud.
    • O'Connell, Brian. “How to Protect Yourself from Identity Theft.” Experian, 18 June 2018, www.experian.com/blogs/ask-experian/how-to-protect-yourself-from-identity-theft/.