As large-scale data breaches become more common, the credit bureaus peddling pricey credit monitoring services could see a pop in sales, according to new research from the Federal Reserve.
Researchers at the Federal Reserve Bank of Philadelphia analyzed how consumers in South Carolina reacted after residents had their Social Security and payment card details swept up in a statewide data breach. Not surprisingly, the researchers found that many residents become far more interested in protecting their identities and became significantly more likely to take advantage of security protections that they previously ignored.
“We find that victims of the 2012 South Carolina Department of Revenue Breach acquired much more fraud protection services immediately after the breach relative to consumers in other states,” write Veyacheslav Mikhed and Michael Vogan in the report.
Consumers whose information was compromised in the data breach suddenly became 55 times more likely to sign up with a credit monitoring service than consumers who weren’t affected, the study found. They were also six times more likely to place a fraud alert on their reports and 29 times more likely to freeze them. In addition, consumers affected by the data breach were three times more likely to opt out of receiving credit offers.
Victims of the South Carolina breach didn’t have to pay for their new credit monitoring services. Like many organizations affected by a data breach, the state of South Carolina offered affected residents free credit monitoring services for a year. But even consumers who weren’t affected by the data breach but lived in areas where the theft was covered heavily in the news became somewhat more likely to sign up for fraud protection.
“The breach generated a large increase in the amount of news about fraud and identity theft, disproportionately so for newspapers headquartered in South Carolina,” write Mikhed and Vogan. “Local newspaper coverage of this topic seemed to increase slightly the takeup of fraud protection in South Carolina as well as in North Carolina and Georgia. However, the effect of increased news coverage is much smaller than the effect of being a South Carolina resident at the time of the breach.”
A 2014 report from the Identity Theft Resource Center also found that consumers became more interested in their credit after being affected by a data breach. For example, nearly 35 percent of survey respondents who were informed that their personal details might have been compromised in an attack enrolled in free credit or identity monitoring, while more than 14 percent purchased the service at their own expense. Meanwhile, more than 41 percent of survey respondents whose personal details might have been compromised requested their credit reports so they could monitor their accounts.
But is credit monitoring worth it?
The uptick in data breaches has provided credit monitoring services with a lot of free publicity. But according to some consumer advocates, consumers may be better off monitoring their credit themselves.
Credit monitoring services are not only expensive to maintain, with some services charging as much $19.95 a month, they may also give consumers a false sense of security.
For example, in an October 2015 advisory, the consumer advocacy group PIRG warned consumers that credit monitoring services won’t protect them from identity theft. Instead, they will only notify you that your details have been compromised after the theft has taken place.
Rather than sign up for credit monitoring, you may be better off freezing your credit reports until you’re ready to apply for new credit, says PIRG. That way, a potential fraudster can’t open an account in your name. You can also monitor your credit yourself by requesting your free annual credit reports from AnnualCreditReport.com and monitoring the listed accounts.
“A credit monitoring service might detect theft faster than you might on your own, depending on when the theft occurs and when you check your reports,” said PIRG’s Mike Litt in a news release. “But is it worth the $10-$20 or more in monthly fees to find out about theft after someone has already attempted to or successfully opened a new account in your name when you can monitor your own accounts and prevent such activity with less costly security freezes?”
“Only the security freeze can prevent someone from opening a new credit account in your name,” he says.