wildercb/PrivacyTextBooks1.2 · Datasets at Hugging Face

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Professor Chris Hoofnagle illustrates that the same phenomenon is
happening with identity theft. Companies grant credit carelessly because it
is cheap to do so. Much of the losses are sloughed off on victims because
the companies aren’t forced to internalize them.42
Identity theft often happens because companies let it happen. It is an
economic decision. Companies want to make it quick and easy for people to
obtain credit.
For example, you might be standing in the check-out line of a store with
some expensive merchandise. The checkout clerk says: “Do you want to
apply for our store credit card and receive 10 percent off?”
You are in a hurry. “How long will this take?” you ask. “I don’t have a
lot of time.”
“It’s super-fast and easy,” the clerk says. “Just fill out this short
application, and we can have your account created in less than a minute.
And you’ll get 10 percent off.” Because the application process is so quick,
you say “Sure.”
But what if the application process took a lot longer? You might not
have time to wait around. You might not want to fill out a long form and
answer many questions.
This is a calculated business risk decision by companies. They know that
their quick and easy process can be exploited by fraudsters. Fraud will cost
them, but they will reap far more rewards by getting more people to sign up
for the card.
But there’s a cost that credit issuers aren’t taking into account—the cost
to victims of identity theft. The victims are often not their customers. These
victims are the people whose identities are stolen to create fake accounts.
Hoofnagle provides data from the credit applications of six identity theft
victims to show how obvious incorrect data often isn’t flagged.
Applications had the wrong address, wrong phone number, or wrong date of
birth. Some contained multiple mistakes. One even had the victim’s name
misspelled. These red flags in the credit applications could readily have
been identified and investigated to discover the fraud. But they were
ignored.
Identity theft is a product of deliberate carelessness. The reason so much
identity theft occurs is because it is cheaper to expose people to the risk of
identity theft than to exercise more care in vetting credit applications.
Courts and legislatures are also to blame because they fail to adequately
recognize the harm of identity theft (or data breaches) and will not make
companies internalize the full costs. The companies do their cost–benefit
analysis and conclude that they can expose people to the risk of identity
theft because many costs are external.
In one of the most egregious cases, Huggins v. Citibank, several banks
negligently issued credit cards in Kenneth Huggins’ name to an identity
thief without investigating the accuracy of the credit card application. The
thief racked up hefty charges, which were falsely attributed to Huggins.
Huggins was “hounded by collection agencies” and spent much time trying
to repair the damage. He was only partially able to clean up the mess.43
Huggins sued the banks. The banks didn’t argue that they acted carefully
and properly. Instead, they claimed the case should be dismissed because
Huggins wasn’t their customer. The court began by noting that it was
“greatly concerned about the rampant growth of identity theft and financial
fraud in this country.” The court further noted that “we are certain that some
identity theft could be prevented if credit card issuers carefully scrutinized
credit card applications.” However, the court then concluded that it would
“decline to recognize a legal duty of care between credit card issuers and
those individuals whose identities may be stolen. The relationship, if any,
between credit card issuers and potential victims of identity theft is far too
attenuated to rise to the level of a duty between them. Even though it is
foreseeable that injury may arise by the negligent issuance of a credit card,
foreseeability alone does not give rise to a duty.” In sum, the court
concluded that “there is no duty on the part of credit card issuers to protect
potential victims of identity.”
To translate the legalese, this case means that companies can make a ton
of money by being very careless in issuing credit cards, and they don’t have
to do anything to protect people who might be harmed by their carelessness.
If courts and legislatures were to better recognize harm and force
companies to internalize it, then we would see an end to the sloppy
practices that allow so much identity theft to occur. Until that time,
companies can be just like Ford with the Pinto.
Other courts have taken differing views.44 But as a general matter, far
too often courts aren’t holding companies responsible. Because of this,
identity thieves can readily open fraudulent accounts in people’s names by
supplying just a few pieces of information, which they can readily obtain
from a data breach.
TAKING THE STING OUT OF DATA BREACHES
Data breaches cause far too much needless harm. The law can lessen or stop
much of this harm. As we discussed earlier, we can’t stop all data breaches.
Not only is this an unrealistic goal, but it is undesirable. The obsession with
stopping all breaches has worsened the problem. We can reduce the number
of breaches, but we are going to have to live with some of them.
There’s another way to help the problem, though. We can take much of
the sting out of data breaches. They need not be so harmful to individuals or
so costly to organizations. If SSNs weren’t used as passwords, for example,
then the SSN would just be a number and nothing more. A data breach of
SSNs wouldn’t cause harm.
The law should ban the use of SSNs to authenticate identity. Congress
could pass such a law, but it hasn’t done so, despite one of us proposing the
idea at a Congressional hearing back in 2005.
However, no new law needs to be passed for change to occur. The law
currently has ample tools to stop the use of SSNs as passwords. The FTC
could use its enforcement power under several laws to halt the misuse of
SSNs for authentication purposes. The general standard for data security for
FTC enforcement is “reasonable” security. This standard is used in the
Gramm-Leach-Bliley Act (GLBA) of 1999, a law that regulates financial
institutions. The FTC’s broadest authority to enforce for reasonable data
security is under Section 5 of the FTC Act. For the past 25 years, the FTC
has enforced against unreasonable data security as a violation of the FTC
Act’s prohibition of “unfair or deceptive acts or practices in or affecting
commerce.”45
The misuse of SSNs as passwords is unreasonable. No security expert

Professor Chris Hoofnagle illustrates that the same phenomenon is

happening with identity theft. Companies grant credit carelessly because it

is cheap to do so. Much of the losses are sloughed off on victims because

the companies aren’t forced to internalize them.42

Identity theft often happens because companies let it happen. It is an

economic decision. Companies want to make it quick and easy for people to

obtain credit.

For example, you might be standing in the check-out line of a store with

some expensive merchandise. The checkout clerk says: “Do you want to

apply for our store credit card and receive 10 percent off?”

You are in a hurry. “How long will this take?” you ask. “I don’t have a

lot of time.”

“It’s super-fast and easy,” the clerk says. “Just fill out this short

application, and we can have your account created in less than a minute.

And you’ll get 10 percent off.” Because the application process is so quick,

you say “Sure.”

But what if the application process took a lot longer? You might not

have time to wait around. You might not want to fill out a long form and

answer many questions.

This is a calculated business risk decision by companies. They know that

their quick and easy process can be exploited by fraudsters. Fraud will cost

them, but they will reap far more rewards by getting more people to sign up

for the card.

But there’s a cost that credit issuers aren’t taking into account—the cost

to victims of identity theft. The victims are often not their customers. These

victims are the people whose identities are stolen to create fake accounts.

Hoofnagle provides data from the credit applications of six identity theft

victims to show how obvious incorrect data often isn’t flagged.

Applications had the wrong address, wrong phone number, or wrong date of

birth. Some contained multiple mistakes. One even had the victim’s name

misspelled. These red flags in the credit applications could readily have

been identified and investigated to discover the fraud. But they were

ignored.

Identity theft is a product of deliberate carelessness. The reason so much

identity theft occurs is because it is cheaper to expose people to the risk of

identity theft than to exercise more care in vetting credit applications.

Courts and legislatures are also to blame because they fail to adequately

recognize the harm of identity theft (or data breaches) and will not make

companies internalize the full costs. The companies do their cost–benefit

analysis and conclude that they can expose people to the risk of identity

theft because many costs are external.

In one of the most egregious cases, Huggins v. Citibank, several banks

negligently issued credit cards in Kenneth Huggins’ name to an identity

thief without investigating the accuracy of the credit card application. The

thief racked up hefty charges, which were falsely attributed to Huggins.

Huggins was “hounded by collection agencies” and spent much time trying

to repair the damage. He was only partially able to clean up the mess.43

Huggins sued the banks. The banks didn’t argue that they acted carefully

and properly. Instead, they claimed the case should be dismissed because

Huggins wasn’t their customer. The court began by noting that it was

“greatly concerned about the rampant growth of identity theft and financial

fraud in this country.” The court further noted that “we are certain that some

identity theft could be prevented if credit card issuers carefully scrutinized

credit card applications.” However, the court then concluded that it would

“decline to recognize a legal duty of care between credit card issuers and

those individuals whose identities may be stolen. The relationship, if any,

between credit card issuers and potential victims of identity theft is far too

attenuated to rise to the level of a duty between them. Even though it is

foreseeable that injury may arise by the negligent issuance of a credit card,

foreseeability alone does not give rise to a duty.” In sum, the court

concluded that “there is no duty on the part of credit card issuers to protect

potential victims of identity.”

To translate the legalese, this case means that companies can make a ton

of money by being very careless in issuing credit cards, and they don’t have

to do anything to protect people who might be harmed by their carelessness.

If courts and legislatures were to better recognize harm and force

companies to internalize it, then we would see an end to the sloppy

practices that allow so much identity theft to occur. Until that time,

companies can be just like Ford with the Pinto.

Other courts have taken differing views.44 But as a general matter, far

too often courts aren’t holding companies responsible. Because of this,

identity thieves can readily open fraudulent accounts in people’s names by

supplying just a few pieces of information, which they can readily obtain

from a data breach.

TAKING THE STING OUT OF DATA BREACHES

Data breaches cause far too much needless harm. The law can lessen or stop

much of this harm. As we discussed earlier, we can’t stop all data breaches.

Not only is this an unrealistic goal, but it is undesirable. The obsession with

stopping all breaches has worsened the problem. We can reduce the number

of breaches, but we are going to have to live with some of them.

There’s another way to help the problem, though. We can take much of

the sting out of data breaches. They need not be so harmful to individuals or

so costly to organizations. If SSNs weren’t used as passwords, for example,

then the SSN would just be a number and nothing more. A data breach of

SSNs wouldn’t cause harm.

The law should ban the use of SSNs to authenticate identity. Congress

could pass such a law, but it hasn’t done so, despite one of us proposing the

idea at a Congressional hearing back in 2005.

However, no new law needs to be passed for change to occur. The law

currently has ample tools to stop the use of SSNs as passwords. The FTC

could use its enforcement power under several laws to halt the misuse of

SSNs for authentication purposes. The general standard for data security for

FTC enforcement is “reasonable” security. This standard is used in the

Gramm-Leach-Bliley Act (GLBA) of 1999, a law that regulates financial

institutions. The FTC’s broadest authority to enforce for reasonable data

security is under Section 5 of the FTC Act. For the past 25 years, the FTC

has enforced against unreasonable data security as a violation of the FTC

Act’s prohibition of “unfair or deceptive acts or practices in or affecting

commerce.”45

The misuse of SSNs as passwords is unreasonable. No security expert