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Gartner: Nearly 8 Percent Of U.S. Adults Lost Money To Financial Fraud In '08

Data breaches were major cause of consumer losses, followed by physical theft and phishing attacks
A new report released today by Gartner sheds light on the financial impact of fraud on consumers: Last year, 7.5 percent of U.S. adults lost money to financial fraud -- most of them due to data breaches.

Gartner's report comes during National Consumer Protection Week, which is aimed at raising awareness about fraud and abuse, as well as on the heels of the Federal Trade Commission's annual consumer complaint report, which found identity theft remains the No. 1 type of fraud affecting consumers. Identity theft rose 20 percent from 2007 to 2008, according to the FTC.

Gartner, which surveyed 5,000 adults in the U.S. for its report, says it's no surprise that data breaches were the top cause of financial fraud last year. All told, 657 breaches were recorded in 2008 -- an increase of 47 percent from 2007, according to the Identity Theft Resource Center. Nearly 20 percent of the respondents in Gartner's survey attributed their financial losses to data breaches, 16 percent to theft of purses or wallets, 13 percent to phishing attacks, 9 percent to Internet auction fraud, 8 percent to someone they knew having access to their information, and 7 percent to theft of personal mail or papers. More than 20 percent weren't sure how their data was stolen.

On average, victims lost the most money per incident from fraud associated with new financial accounts ($1,097), credit cards ($929), and brokerages ($900).

Those who were hit by brokerage, credit card, and debit/ATM card fraud were more likely to recover their lost money: Brokerage fraud victims recovered all of their losses, while credit card victims recovered 86 percent of their losses, and debit/ATM victims, 77 percent of their losses.

New-account fraud, check forgery, and checking/savings account transfer fraud victims, however, didn't fare so well. New-account fraud victims got only 42 percent of their money back; check forgery victims, 48 percent; and victims of fraudulent transfers, about 54 percent of their money.

Why the disparity in recovery? Gartner points out that payment card transactions come with more consumer protections, such as the Fair Credit Reporting Act and Regulation E. But the main reason new-account and check-forgery victims didn't get their money back was because most didn't bother trying.

"The leading reason consumers did not recover funds in the case of credit and debit card fraud is that they fell for a scam and believed there was no one from which to recover the stolen credit or funds. In most cases, card-issuing banks will still give consumers their money back and will charge the fraud to the acquiring (merchant) bank," the Gartner report says.

The FTC's annual report, meanwhile, showed that credit card fraud complaints went down, from 25 percent in 2006 to 20 percent last year, and new-account fraud -- where a criminal uses stolen personal information to open a new credit card account -- had dropped 13 percent, says Stuart K. Pratt, president and CEO of the Consumer Data Industry Association. "If there is any good news in the Federal Trade Commission's annual report, it's that credit card fraud complaints are down for the sixth consecutive year. This is the category of identity theft most closely associated with the crime," Pratt says.

New-account fraud often has long-term consequences, however: According to Gartner, the credit ratings of 35 percent of new-account victims were hurt by the fraud, and only a little more than half of them were able to remedy that. It took 20 percent of them more than a year to restore their good credit, and three to five years for 9 percent of them.

Victims don't often report their financial fraud, either. Less than one-third reported their cases to law enforcement, and 5 percent did so with the FTC. But people hit by financial fraud were more likely to change ecommerce, payment, and shopping habits, and those hit by electronic banking fraud were five times more likely to change banks than other consumers -- all due to security concerns.

Overall, victims of fraud were twice as likely to change their consumer behaviors for security reasons. Nearly 40 percent of all consumers (victims or not) had altered their buying behaviors due to security concerns, and 71 percent of fraud victims had, according to the report.

And nearly 30 percent of victims of online checking/savings account transfer fraud changed banks afterward.

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