Friday 25 February 2011

The banks that cash in on your ID fraud fears by selling costly identity theft insurance


Banks are cashing in on people's fear of fraud by selling costly identity theft insurance when customers activate credit cards.

Customers who think they are calling their bank are being put through to insurance salesmen.
They then describe how fraud is on the increase and encourage the customer to buy a policy for around £70 per year.


Rip off: Critics say the insurance is overpriced and totally unnecessary
Despite what most customers believe, many of these policies won't cover you for fraud losses. Instead, Card Protection Plan (CPP), the largest insurer, will just pay out up to £60,000 to cover any 'legal and communication costs' incurred after becoming a victim.
Critics say the insurance is overpriced and unnecessary, and point out that all banks must reimburse fraudulent transactions.

'Consumers do not need insurance to get protection from identity fraud,' says Michelle Whiteman, from the UK Cards Association. 'As long as you have not been negligent with your card or Pin, your bank will reimburse you for any losses.'

NatWest, RBS, Barclays, Barclaycard-Santander, Tesco, Yorkshire and Clydesdale banks all use CPP to sell fraud insurance to their customers. CPP pays banks a kickback every time it persuades someone to sign up, though it refuses to say how much.
Just 0.5 pc of CPP customers claim on their identity theft policy  -  that is one in 200. This compares to one in six drivers who claim on car insurance. 
 

'When people ring up to activate their card, they rightly assume they are calling their bank, not a third party selling expensive insurance,' says James Daley, editor of Which? Money.
'Identity fraud is not as widespread as insurers make out. The risks are overstated and the insurance is far too expensive, given how few people make a claim.'

Identity fraud occurs when a fraudster obtains your bank details and uses this information to apply for credit in your name  -  for example, a loan or credit card.
In 2010, there were 102,500 cases of identity fraud recorded by CIFAS members, which include the main banks and building societies. While this was a small increase from 2009, it is a drop in the ocean given there are 137 million credit and debit cards.

Policies vary among banks  -  Barclaycard, for example, has Identity Protection Alert costing £69.99 a year. It is not designed to cover any losses from fraud, but to cover the costs associated with clearing your name' up to £60,000.

The insurance also provides online access to your credit report and email or text alerts when someone makes an application for credit in your name. It will also 'monitor where customers' data is visible online' in an effort to prevent fraud in the first place.
'We provide products that deliver peace of mind for consumers,' says a spokesman for CPP.
'Our resolution process with the support of a dedicated caseworker means any incidences of identity fraud are resolved quickly.

'In many cases, the customer does not have to claim on their insurance  -  however, it is there should the need arise.'

No comments:

Post a Comment