Are identity theft protection services a waste of money?

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With the constant headlines about data breaches and nightmarish stories about identity theft, it's easy for consumers to fall for the pitches made by identity theft protection and credit monitoring services.

But is there a value in paying the monthly fees for these services? For most folks, the short answer is no. Most of these companies offer services that consumers can do on their own for free or at a significantly lower cost. So consumers end up paying a premium -- typically $100 a year or more -- for the convenience of having someone else take care of things for them, even when they don't need them.

Identity theft protection is a big business thanks, in part, to the big money the industry spends on advertising and marketing materials aimed at getting you to sign up. LifeLock, which is perhaps the biggest player in the field, paid $12 million earlier this year to settle a complaint lodged by the Federal Trade Commission and 35 states about an advertising campaign in which the company posted its CEO's Social Security number on the side of a truck claiming it could prevent any attempts at identity theft that ensued.

"While LifeLock promised consumers complete protection against all types of identity theft, in truth, the protection it actually provided left enough holes that you could drive a truck through it," FTC Chairman Jon Leibowitz said in a written statement at the time.




To settle the charges, LifeLock had to agree to stop claiming that it could prevent identity theft, monitor all of its customers' activity and make their personal information useless to identity thieves. To throw salt on that open wound, LifeLock also had to promise to actually monitor its customers' credit.

The Privacy Rights Clearinghouse, a non-profit consumer advocacy group, points out that simply by placing a free fraud alert on your credit with the three major reporting agencies-- they have to be renewed after three months -- you can gain considerable protection. You can also save plenty of money by doing it yourself and not paying a service to do it for you.

For about $10 in most states, you can also freeze your credit thereby restricting access to your credit report. The only way a lender or creditor can access your information is by you temporarily lifting the freeze. This can be a hassle for someone who regularly applies for credit, but it's also a good safety feature -- particularly for seniors who are often targets of identity theft and are less likely to be going around applying for credit.

You can also obtain your credit report free once a year from each of the three major credit reporting services by visit annualcreditreport.com.

Of course, identity theft protection isn't a waste of money for everyone. Consumer who think they are in imminent danger of having their credit imperiled, such as people going through a nasty divorce or having a run-in with someone who has threatened them, may find such a service an excellent line of defense. Our own Lynette Khalfani-Cox would argue that an even broader audience would benefit from these services.

With a little legwork on your part, however, you could replicate most of the services offered by these companies and save plenty of money by doing so.
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