Judge's ruling against LifeLock both good and bad for consumers

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A recent federal judge's ruling says that LifeLock is breaking California law when it puts credit alerts on consumer files at credit reporting agencies.

The lawsuit was brought last year by credit reporting agency Experian, which alleged that LifeLock was abusing the fraud alert system to make money off its customers.

Fraud alerts came on the scene in 2003, when a new law allowed consumers to put alerts on their credit files if they believe they have been a victim of identity theft or are at serious risk of becoming a victim of identity theft. The fraud alert means that creditors are supposed to contact you directly before opening a new line of credit in your name.

In reality, that doesn't always happen. Creditors may see a fraud alert on your report, but not take any steps to verify that it's really you trying to obtain credit. The law says they should try to phone you at the telephone number on your credit file, but beyond that, there's no guidance and apparently little recourse if the creditor doesn't follow through. For this reason, I caution consumers against putting much faith in the fraud alerts to begin with.

Privacy experts say this judge's ruling will harm consumers, who should have the right to pay a company in order to manage their profiles at credit reporting agencies if they want to. I agree in theory that it shouldn't be wrong for consumers to pay someone else to handle the fraud alerts. However, if this ruling stops more consumers from giving money to LifeLock, that's a wonderful side effect.

Why? Because I think LifeLock sucks. The company lures in consumers with false promises like their worthless "$1 million guarantee." This "guarantee" is promoted as LifeLock's promise to do whatever it takes to restore your good name if you're a victim of identity theft. Unfortunately, the fine print says that LifeLock is only going to do that if your identity theft is a result of a "defect" in their service.

If someone steals your wallet, is that a "defect" in LifeLock's service? No. If someone steals your credit card number at a restaurant, is that a "defect" in LifeLock's service? No. Can you think of any situation in which the theft of your identity would be LifeLock's fault? Probably not. So the company will never have to make good on this gutless guarantee.

And LifeLock couldn't prevent its own president, Todd Davis, from having his identity stolen, even when LifeLock commercials deceptively suggest he's so protected that it's safe for him to give out his Social Security number to everyone. The truth is that there has been at least one successful scammer who has fraudulently used Davis's identity. But don't expect LifeLock to tell you about that incident. .

The truth is that the services being sold by LifeLock have very little substance. The services simply aren't worth the price for most people, even if it is only $10 a month. Such a small price makes it easy to lure new customers, but you'd be better off using that money to actually lock your credit file with each credit reporting agency.

Tracy L. Coenen, CPA, MBA, CFE is a fraud examiner and forensic accountant who investigates corporate fraud and consumers scams, and is the author of Essentials of Corporate Fraud and Expert Fraud Investigation: A Step-by-Step Guide.
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