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The Identity Theft Problem (or How Financial
Institutions Ended Up at the Bottom of the Food
Chain!)
Presented By Lynn Manzelmann SVP, Director of
Implementation and Training
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In This Session

• What is identity theft, really?
• Impact of Identity Theft
• Financial
• Compliance
• Fighting the Effects of Identity Theft
• The Impact You Can Have

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What is identity theft?

• a fraud committed or
• attempted using the
• identifying information of
• another person without
• authority.
• Under FTCs regulation, the creation of a
  fictitious identity using any single piece of
  information belonging to a real person

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How Does It Happen?

• Not just financial only 35 total
• FTC recognizes 38 different types of identity
  theft
• Employment Related Fraud 15
• Govt Documents and Benefits 15
• Utilities Fraud 13.5

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How Does It Happen?

• ITRC reported 47 increase in breaches from 2007
  to 2008
• As of August, 2009 ITRC reports
• 333 Breaches, over 13 million data records
• 5 categories
• Banking 12.9
• Business 42
• Educational 13.5
• Govt/Military 19.2
• Medical 12.3

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Whats the Big Deal?

• FTC estimates that 9 million Americans are
  victims if identity theft each year.
• Cost to consumers businesses is over 50
  billion/year

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Financial Impact

• Direct losses to reimburse members who have been
  victimized
• Direct expense to reissue cards that have been
  compromised
• Increased bond insurance deductibles
• Increased cost for additional security,
  monitoring of accounts

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Compliance Impact

• Regulations to implement, manage
• FCRA
• GLBA
• FACTA
• Lets take a closer look

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History

• The Granddaddy of consumer
• credit laws FCRA Fair Credit Reporting Act
  of 1996
• Requirements for providing
• credit bureau information to subscribers
• Rules for consumers to dispute
• GLBA Gramm-Leach-Bliley Act 1999
• Financial Privacy Rule the privacy notices
• Safeguards Rule protecting information
• Pretexting Protection social engineering

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History

• FACTA Fair and Accurate Credit Transactions
  Act, 2003
• Amended FCRA
• More control by consumers of
• their credit files fraud alerts
• Victim rights defined
• Truncation of card numbers
• And Section 114, AKA The Red Flag Rules

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Red Flag Rules

• Federal banking agencies, NCUA and the FTC
  jointly created regulations effective January 1,
  2008
• Final Compliance Deadline WAS November 1, 2008
• State CUs and Creditors enforcement was delayed
  3 times currently set for November 1, 2009

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Requirement of Section 114

• Develop and implement a written Identity Theft
  Prevention Program to
• DETECT
• PREVENT and
• MITIGATE
• Identity Theft in connection with the opening of
  certain new and certain existing accounts

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Its much more!

• More than GLBA
• Not just a fence around your data
• More than USA PATRIOT Act
• Not just about finding terrorists
• More than a OFAC/AML check
• About keeping the wolf in sheeps clothing out
  side the fence, or recognizing him when he gets
  in!

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What is really required?

• Detection how are you doing that?
• Observation, Verification (Is this a valid
  identity), Authentication (Does this person
  belong to this identity)
• Monitoring Some Activity of Existing Accounts
• Resolving Address Discrepancies
• More than a written plan an active one!

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The Spirit of the Law

• Be proactive in identifying possible identity
  theft
• Prevent identity theft with an appropriate
  response to Red Flags detected
• Monitoring, Changing passwords, Closing an
  Account
• Duty to Inform the Member of what you discovered
• Mitigation might include Professional Services
  for Recovery
• Build goodwill
• Protect against consumer damages

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The Bad News

• FACTA placed oversight of the state CUs and
  other entities with the Federal Trade Commission
• State CU Dept. will audit CUs but FTC does not
  actively audit or examine these other creditors
  

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The Bad News

• The problem will continue for a while, until some
  are caught, penalized
• Today there is no insurance to help bond
  premiums, deductibles are high because risk is
  not quantifiable
• There is more regulation on the way US S1490 to
  provide notice of security breaches, and to
  enhance criminal penalties, law enforcement
  assistance, and other protections against
  security breaches, fraudulent access, and misuse
  of personally identifiable information.

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The Good News

• FACTA began the process
• of spreading accountability
• for detection and prevention of identity theft
  among many other entities
• FIs are no longer the only businesses
  responsible for identity theft issues
• There are things you can do to improve the
  situation

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Fight the Effects

• Take the spirit of FACTA seriously be very
  proactive
• Knowing the identity of your members is not to be
  taken lightly
• A drivers license is not enough

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This is not being serious!
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Fight the Effects

• Get fired up about detection and prevention
• Educate your staff and members
• Hold staff accountable for detection/prevention
• Have an answer to what happens next? when a red
  flag is discovered
• Dont leave a member hanging
• Do something to resolve
• Consider including professional services

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Fight the Effects

• Be actively involved in your councils, PACs and
  state/national leagues
• Become knowledgeable about the issue and the
  possible solutions
• Write your legislators
• They dont know what is best for you tell them!
• Demand that responsibility for restitution and
  mitigation be borne by the entity where the
  damage occurred

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Impact of the Fight

• Reducing the incidence of identity theft is good
  for your members and good for your business
• Accountability by all will cause all to take an
  active part in prevention
• Restitution by others will reduce the expense to
  you
• Quantifying the risk increases the chance of an
  insurance product to help defer cost

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• Thank You
• For more information contact
• Lynn Manzelmann
• SVP, Director of Implementation and Training
• NXG Strategies, LLC
• 615-656-4290
• Lynn.manz_at_nxgstrategies.com