Ad Fraud Claims Leveled at Identity-Theft Company

Battle Over How to Protect Consumers Spills Into Court

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COLUMBUS, Ohio ( -- Credit-reporting agency Experian has filed a lawsuit against identity-theft insurance company Lifelock, charging it with "misleading advertising and fraud."
A mobile billboard displays Lifelock CEO Todd Davis' Social Security number in an ad for the company.
A mobile billboard displays Lifelock CEO Todd Davis' Social Security number in an ad for the company.

In a statement outlining its suit, Experian claims Lifelock has illegally put fraud alerts on credit files managed by Experian that "have caused damage to both Experian and consumers and threaten to degrade the effectiveness of fraud alerts over time." Experian, a $3.8 billion company based in Costa Mesa, Calif., filed the suit in the U.S. District Court for the Central District of California this month.

More than 720,000 customers have signed up for Lifelock's service, which costs $110, and the company is currently running a $50 million campaign. Lifelock handles creative in-house but recently shifted TV-buying duties from A. Eicoff, Chicago, to Results Media Group.

$1 million guarantee
In a typical Lifelock spot, the company's CEO hands out fliers with his Social Security number to stunned passersby on the street. A mobile billboard also displays the number. He then shouts into a megaphone: "If anything happens while you are a client of Lifelock, we will cover all losses and all expenses up to $1 million."

Lifelock's system automatically puts fraud alerts on customers' credit reports every 90 days; Experian claims that's a violation the federal Fair and Accurate Credit Transactions Act, which prohibits corporations from adding fraud alerts to consumer-credit files. (A fraud alert requires lenders to call consumers before approving new credit lines. Consumers can request fraud alerts for free.) Lifelock's package of services also includes removal of customer names from pre-approved credit-card offers and junk-mail lists, something consumers can also do for free.

Lifelock CEO Todd Davis called the suit "frivolous." "This is about Experian not wanting to have competition," he said, noting that Experian sells personal data to marketing and research firms and maintains credit-monitoring services.

Integrity of the system
"We don't compete with Lifelock at all," said Experian spokesman Donald Girard. (Experian markets its own credit-monitoring service for $4.95 a month.) The suit, he said, "is about protecting the integrity of the fraud-alert system. They are intended to be used when [consumers] are fearful of becoming a victim of fraud, not as part of a service that puts your file in a perpetual state of alert. That's not the way fraud alerts were intended."

Mr. Girard did not know the average number of fraud alerts on Experian's accounts annually, but he estimated Lifelock is adding a "giant number" -- 2.5 million to 2.8 million a year. "They are flooding our system with millions of fraud alerts. This will result in a 'cry-wolf' system. The numbers will rise so quickly we are in danger of lenders not being able to distinguish between a real fraud alert and the bogus ones Lifelock puts on," he said.

"Telling consumers that fraud alerts will make them immune from identity fraud is not only incorrect, but misleading," he added.

Experian has had its own troubles marketing "free" services. In August 2005, it paid $950,000 to the FTC to settle charges it deceptively marketed "free credit reports" that drove consumers to websites that then automatically signed consumers up for credit-monitoring services for $79.95 if not canceled in 30 days.

Paid service, not insurance
Traditional insurers such as Nationwide and Allstate have long offered identity-theft insurance, but rarely, if ever advertised their policies nationally. Lifelock, though, is the first company to create a national brand solely focused on identity-theft protection as a "service," not as insurance.

The $1 million guarantee offered by Lifelock differs from the policies offered by insurers, whose plans, on average, cost between $25 and $50 for $15,000 to $25,000 worth of coverage, according to the New York-based Insurance Information Institute.

Lifelock has yet to pay out $1 million to settle identity-theft claims. Only 61 Lifelock customers have even filed claims. Mr. Davis declined to disclose the costs of recovering the "good name" of these customers. He also declined to disclose revenue of the privately held company, recommending instead "to do the math." At $110 per member, revenue could already top $79 million.

According to the Federal Trade Commission, identity was the top consumer-fraud complaint in 2007, garnering 32% of 800,000 total complaints.
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