Familiar fraud: When family and friends steal your identity

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When identity fraud victims know their imposters, it can tear through both  relationships and financial well-being.

"Familiar fraud" occurs when a friend, extended family member or even a parent uses a close relationship for their own financial gain. The thief takes advantage of bonds of trust, making the crime hard to measure -- and emotionally devastating.

Axton Betz-Hamilton battled a case of identity theft for 16 years, working to remove fraudulent credit accounts and collection agency demands from her record. In February 2013, she finally learned who the thief was: her mother, who had just passed away.

Betz-Hamilton and her father discovered that her mother opened fraudulent accounts in her name, her father's and grandfather's, racking up debt and unpaid taxes, and draining savings.

"We were unaware of so much because she handled all the family finances," said Betz-Hamilton, an assistant professor of consumer studies at Eastern Illinois University. "She had my name and Social Security number and that's all she needed."

Measuring the problem
According to Javelin Research and Strategy's 2014 Identity Fraud Report , familiar fraud victims made up 0.35 percent of adult consumers in the U.S. in 2013. If projected across the population, that figure would mean 847,000 American victims of identity theft knew their thief. Experts say that projection is likely too low.

"Based on my experience, it's pretty regular and it's pretty underreported," said Jennifer Peters, a certified credit counselor with Consumer Credit Counseling Service of West Georgia/East Alabama. "Very often [victims] know and aren't going to do anything about it."

Knowing your perpetrator often makes it difficult for victims to seek legal prosecution, said Eva Velasquez, Identity Theft Resource Center CEO."This is often a crime of opportunity, and the fact is your information is simply exposed more often to those close to you rather than to complete strangers," she said.

Many cases of familiar fraud go undetected for years. For example, when parents use the financial identities of their children, the fraud often goes undiscovered until the children attempt to build their own credit. Betz-Hamilton discovered her mother's thievery in college, when utilities companies red-flagged her credit, prompting her to check her record. Her 10-page-long credit report contained fraudulent credit entries and collection agency notifications dating back to 1993. But it wasn't until Betz-Hamilton's father sorted through her mother's papers after her death that they discovered her mother had opened (and defaulted on) numerous fraudulent credit accounts, including those in Betz-Hamilton's name. 

If many familiar fraud cases go unreported or are reported long after they happened, yearly statistics become unreliable. But according to Experian's Director of Public Education Rod Griffin, the effects of familiar fraud are more important than the numbers.  

Battling the emotional components
When an identity theft victim discovers he or she knows the perpetrator, the emotional impact increases dramatically, making the effects of fraud theft last even longer, according to the Identity Theft Resource Center .

It was the shock of the deception by a trusted family member that made the deception so difficult for familiar fraud victim and certified credit counselor Thomas Nitzsche. Nitzsche hired a cousin to remodel his bathroom in 2007. Just before the job ended, Nitzsche reviewed the statements of the credit card they used to purchase project materials and found some unusual charges.  

After asking a few questions, Nitzsche learned that in addition to construction materials, his cousin used the credit card to purchase gift cards he then sold on the street for extra cash.

He caught the fraud early, but Nitzsche still describes the situation as an awful ordeal for the whole family.  He had worked with other victims of familiar fraud before, but never expected to deal with it himself. 

"It makes you feel pretty violated," he said. "If he was capable of that, what else would he have done if I hadn't caught it?"

Identity theft by a trusted close family member or friend triggers different feelings than theft by a stranger, experts say. Victims may identify with, or even feel responsible for protecting the thief.

In addition to internal emotional turmoil, familiar fraud victims face concerns about what may happen to their family and friends, fearing retaliation and damaged relationships, if they make the situation known.

"A lot of people give me grief for standing up and telling my story," said Betz-Hamilton. "'What a horrible thing to say about your mother who died,' and that sort of thing. Something I've found throughout this whole process is that many people are not going to support you." As hard as it may be, victims should focus on repairing the financial damage. It's too easy to get caught up in the emotions and freeze, according to Peters.

"I just remind people, not to be ugly, but obviously this person didn't care about you if they did this," she said. "Good credit is so important and anything negative will stay on your record for seven years, so you have to be proactive. You have to look out for yourself."

Resolving familiar theft crimes comes down to two options: Keep it personal, or prosecute. Making the right choice will depend on the victims' evaluation of their financial situations and their perpetrators. Victims can start by carefully reviewing credit reports from each of the three major credit bureaus.

Resolution option No. 1: Keep it personal
Settling the situation without going to the police or lawyers may work if you caught it early and not much was taken. This option would involve working with the creditors of any fraudulent accounts and the thief to determine an effective repayment plan.

A keep-it-personal settlement requires two key ingredients: the cooperation and trust of all parties. In an already delicate situation that might not be easy or work for everyone, according to Nitzsche.

"I wouldn't hand over the bill and say, 'Take care of this,' because it likely won't be taken care of. You have to have a close relationship to feel comfortable bending over backward like this," he said.

If a family wants to independently handle the matter, or a victim has decided that he doesn't want his relationship with the thief complicated any more, this resolution option may be very appealing, but it won't necessarily be as effective. Betz-Hamilton started clearing her credit history without the help of a police report around 2001, but doesn't think that method would work now.

"No one really knew what ID theft was back then," she said. "It wasn't nearly as pervasive as it is now. Now you need proof for everything."

Resolution option No. 2: Go to the authorities
Experts advise victims of familiar fraud to approach their situation just as they would if they didn't know their perpetrator by placing a 90-day fraud alert on their credit, filing a police report and disputing all fraudulent accounts and charges.  

Victims "need to file a police report for us to be able to proactively remove information" from a credit report," said Experian's Griffin. "The same thing will likely happen with lenders. We need to somehow verify that it is in fact fraud, especially if it is a case within a family. The police report does that."

Filing a police report also gives victims easy access to additional long-term fraud protection. "If you are willing to file a police report, you can also file for an extended fraud statement that will last for seven years from each of the bureaus," Griffin said. "And if your situation is extreme, you would also have the option of requesting a credit freeze from each of the credit bureaus at no cost if you have a police report."

The police report may play key role in clearing up a victim's credit, but the decision whether to file a police report is often a difficult one, according to Velasquez."They might fear retaliation because the relationship is a toxic one; other times it could be that the individual thought they had a good relationship with the thief and are so devastated when this turns out to be untrue, they simply cannot admit that identity theft is actually occurring," she said. Victims will look for any reason for this to be a mistake. "By filing a police report, they are admitting that it's real, and that they have been betrayed."

Nitzsche confronted his cousin about using his credit card illegally, then decided to take the case to authorities because he couldn't rely on his cousin to help resolve the situation another way.

"If it's not taken care of, you have to be willing to press charges," Nitzsche explained. "I did and it resulted in my cousin actually going to jail for a period of time. You don't want to be accountable for their irresponsible actions."

Regardless of the path to resolution, a victim should not give up. "Part of this process involves digging your heels in," Betz-Hamilton said. "I never let it go. If you want to know the answers, keep digging. If you need to, find a different angle to get the results you are looking for. The truth shall prevail."

A long road to recovery
Recovering after identity theft can be a slow process, and especially so when dealing with a case of familiar fraud.

In Betz-Hamilton's case, the damage is much more extensive than they could have imagined. "My credit report didn't clear of fraudulent entries until 2009," she said. "My credit report was damaged for 16 years and as a result of that, my first credit card interest was set at 29.8 percent. I've had to pay higher auto insurance rates and made pre-deposits for electric accounts and such, too. It's affected everything."

Her mother's deception also took a toll on her father. "My dad is nearing retirement and the financial security that he thought he had is not there," she said. "He thought things were taken care of and they aren't. So for him, he has to sit down and think and kind of re-plan his golden years because it's not going to be the vision he had."

In addition to making annual credit report checks, pay close attention to account statements to routinely check for irregularities, regardless of your fraud history. "A lot people come to us and don't want to see the amount that they owe, so they don't even open it," Nitzsche said. "If you aren't even opening your bills, you aren't going to catch on to fraud until it's a serious issue. If I wouldn't have taken a closer look at my credit card statement, I wouldn't have caught on to what my cousin was doing right away. "

Because familiar fraud is often a crime of opportunity, the more securely individuals can hold onto their personal information, the better. For example, if you need to lend money to a friend or family member, give them cash instead of letting them borrow your credit card.

"You can't trust anybody," Nitzsche said. "Not even your own cousin. That's unfortunately the lesson I've learned from all of this."

See related: Take these steps when a minor's identity is stolen Stolen: True tales of identity theft


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Credit and Debt

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