Consumer Use of Fraud Alerts and Credit Freezes: An Empirical Analysis

40 Pages Posted: 24 Sep 2014

See all articles by Julia S. Cheney

Julia S. Cheney

Federal Reserve Bank of Philadelphia

Robert M. Hunt

Consumer Finance Institute, Federal Reserve Bank of Philadelphia

Vyacheslav Mikhed

Federal Reserve Bank of Philadelphia

Dubravka Ritter

Federal Reserve Bank of Philadelphia

Michael Vogan

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Date Written: September 1, 2014

Abstract

Fraud alerts — initial fraud alerts, extended fraud alerts, and credit freezes — help protect consumers from the consequences of identity theft. At the same time, they may impose costs on lenders, credit bureaus, and, in some instances, consumers. We analyze a unique data set of anonymized credit bureau files to understand how consumers use these alerts. We document the frequency and persistence of fraud alerts and credit freezes. Using the experience of the data breach at the South Carolina Department of Revenue, we show that consumers who file initial fraud alerts or credit freezes likely do so out of precaution. Consumers who file extended alerts are more likely to be actual victims of identity theft. We find that consumers are heterogeneous in their choice of alerts and that their choices are correlated with important characteristics found in their credit bureau files. These facts are useful for interpreting consumer responses to data breaches and for policymakers.

Keywords: Data breach, identity theft, fraud alert, credit freeze, credit report, Fair and Accurate Credit Transactions Act (FACTA)

JEL Classification: D14, D18, G21

Suggested Citation

Cheney, Julia S. and Hunt, Robert M. and Mikhed, Vyacheslav and Ritter, Dubravka and Vogan, Michael, Consumer Use of Fraud Alerts and Credit Freezes: An Empirical Analysis (September 1, 2014). FRB of Philadelphia - Payment Cards Center Discussion Paper No. 14-4, Available at SSRN: https://ssrn.com/abstract=2500229 or http://dx.doi.org/10.2139/ssrn.2500229

Julia S. Cheney (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Robert M. Hunt

Consumer Finance Institute, Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-3806 (Phone)
215-574-7101 (Fax)

Vyacheslav Mikhed

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Dubravka Ritter

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Michael Vogan

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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