Identity Theft as a Teachable Moment

Abstract

This paper examines how instances of identity theft that are sufficiently severe to induce consumers to place an extended fraud alert in their credit reports affect their risk scores, delinquencies, and other credit bureau variables on impact and thereafter. We show that for many consumers these effects are relatively small and transitory. However, for a significant number of consumers, especially those with lower risk scores prior to the event, there are more persistent and generally positive effects on credit bureau variables, including risk scores. We argue that these positive changes for subprime consumers are consistent with the effect of increased salience of credit file information to the consumer at the time of the identity theft.

Keywords: Inattention, Identity theft, Fraud alert, Consumer protection, Credit report, Fair and Accurate Credit Transactions Act (FACTA), Propensity score matching

JEL Classification: D14, D18, G02