What Is Financial Identity Theft?

Definition & Examples of Financial Identity Theft

Woman Paying over the Phone with Credit Card
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 Peter M. Fisher / Getty Images

Financial identity theft refers to the theft of personal information for economic gain.

Get a detailed definition and examples of financial identity theft and how to report and avoid it.

What Is Financial Identity Theft?

Financial identity theft is a type of identity theft whereby a criminal steals personal or financial information from a victim without their knowledge in order to commit financial fraud or other crimes. Like other forms of identity theft, financial identity theft is a crime where there is more at risk than your money, such as your creditworthiness and your reputation with future lenders and employers.

Financial identity theft is one of many types of consumer fraud resulting in financial losses for victims. Other common types of fraud include advance-fee fraud such as debt-relief scams and investment fraud like Ponzi schemes and other affinity scams.

How Financial Identity Theft Works

Financial ID theft typically involves a criminal obtaining a credit or debit card number, bank account number, Social Security number, driver's license number, or other personal information through outright theft or deception. They then use the information they obtain in order to commit financial fraud or crimes. The outcome can be disastrous for victims, leaving them with substantial debt, empty financial accounts and low-balance fees, poor credit (and a resulting inability to get a loan or a job), or worst of all, potential liability for crimes they didn't commit.

For example, let's say that John is a college student and receives a phishing email from criminals posing as the local credit union that he recently joined. The email asks John to click a link and verify some information about his checking account, and as it bears the credit union's logo and otherwise looks like a legitimate email, John clicks it and is taken to a fraudulent website that looks like the real credit union's website. He supples his checking account number and debit card pin through a form on the website, but little does he know that his personal information is now in the hands of criminals. With his debit card number and pin, the thieves drain his checking account, and only when John checks his balance at an ATM and notices a zero balance does he find out that he has been a victim of financial identity theft.

Financial identity theft can extend beyond your credit card being compromised to more serious crimes committed in your name and for which you could be held criminally liable. It's important for everyone to take steps to avoid it because it can happen to you regardless of your income level or creditworthiness.

Types of Financial Identity Theft

Thieves may steal information about their victims through low- or high-tech methods, including:

  • Purse-snatching: The boldest of thieves may steal a wallet, purse, or backpack and then retrieve your credit card, passport, or driver's license to get their hands on sensitive information.
  • Dumpster-diving: Criminals pilfer through trash cans or dumpsters and obtain bills or other documents with personal information on it.
  • Impersonation: Thieves posing as legitimate financial institutions or businesses may call their victims or use phishing emails that mimic those of real institutions to extract personal information from them.
  • Eavesdropping: Thieves may "eavesdrop" on your communication via the Internet or smart devices to obtain personal information.
  • Spyware: Spyware within software or emails may get downloaded onto your computer or other devices when you visit unknown websites or download unknown email attachments. It acts as a spy in the sense that it monitors your activity and may transmit your data to thieves.

With that information in hand, criminals commonly carry out fraudulent transactions such as:

  • Unauthorized purchases or withdrawals: Thieves can make fraudulent credit or debit card purchases or write checks against your checking account.
  • New account creation: Criminals may establish new checking or savings accounts or other financial accounts or even take out a mortgage or other type of loan in your name.
  • Existing account takeover: This occurs when an identity thief uses an account over a longer period of time, potentially drawing down your account balance to zero.

How to Avoid Financial Identity Theft

Take these steps to keep thieves from profiting off of you:

  • Keep a watchful eye on purses and backpacks containing bank cards and avoid leaving them in your car.
  • Shred bills and other documents with personal information before you throw them in the trash.
  • Regularly review bank and credit card statements to ensure that the only transactions listed are yours.
  • Get copies of your credit reports annually from each of the three major credit bureaus and review them to ensure that you recognize all the listed accounts.
  • Don't give out personal information online; reputable financial institutions typically won't ask for them after you create your account.
  • Look for warning signs of identity theft, including calls from financial institutions about unusual transactions, unauthorized charges on bank and credit card statements, unfamiliar accounts listed on your credit reports, calls from collection agencies.

How to Report Financial Identity Theft

Whether you suspect that your personal information has simply been exposed or already used for financial fraud, the first step is to visit IdentityTheft.gov. Click "Get Started" and then fill out a short questionnaire about your situation to receive a detailed plan of action.

If you don't believe your information has been used fraudulently yet, you may be able to stave off fraud if you simply place a credit freeze and continue to monitor your credit, replace your credit card, change your bank account credentials, and file your taxes early (before scammers do and potentially claim your refund). However, you can also file a complaint with the Federal Trade Commission through the FTC Complaint Assistant website.

Although identity theft is a crime, the FTC doesn't have criminal oversight of identity theft. It does, however, offer resources that law enforcement can use to investigate and prosecute such cases.

If you believe you have been a victim of fraud, it's recommended that you call and notify the credit company or other company where the fraud happened, add a fraud alert to your credit reports and get copies of your reports, file a complaint with the FTC, and file a police report if desired. Bring your ID and FTC identity theft report, proof of address, and supporting evidence of the theft to the police department.

Key Takeaways

  • Financial identity theft is when thieves steal your personal information in order to use it for financial gain.
  • Such schemes typically involve thieves taking credit card and bank account numbers, Social Security numbers, and other information through impersonation and other tactics and using it to make unauthorized purchases, open new accounts, or take over existing ones over a prolonged period.
  • You can avoid financial identity theft by monitoring credit reports and card and bank statements and not readily giving out sensitive information.
  • If you suspect financial identity theft, get a custom plan of remedial action at IdentityTheft.gov, which may involve filing a formal complaint with the FTC.
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Article Sources

  1. Treasury.gov. "DVD Companion Learning Guide," Pages 7–13. Accessed Sept. 21, 2020.

  2. Federal Trade Commission. "Identity Theft." Accessed Sept. 21, 2020.

  3. IdentityTheft.gov. "What To Do Right Away." Accessed Sept. 21, 2020.