Business Law Bulletin: Experian v. LifeLock heats up |

Business Law Bulletin: Experian v. LifeLock heats up

You have probably seen television commercials in which Todd Davis, the CEO of a company called Lifelock, reveals his Social Security number, seemingly daring any criminal to try to steal his identity. Mr. Davis then explains that Lifelock can protect its customers from identity theft for a low monthly fee, and offers a $1 million guarantee to back up its services.

The audacity of Davis’s claim certainly makes an impression; we all know that identity theft is a huge nationwide problem, and that one of the principal ways in which thieves steal someone’s identity is to obtain and use Social Security numbers. If you haven’t been the target of identity theft, it is likely that you know someone who has been victimized. In fact, the Federal Trade Commission estimates that as many as 9 million Americans have their identities stolen each year.

The FTC defines identity theft as the use of personal identifying information Ð such as one’s name, Social Security number or credit card number Ð without permission, to commit fraud or other crimes. Identity thieves may use the stolen information to obtain credit cards in another person’s name, rent property, or establish a utility account. Once this is done, it may be difficult and costly to repair the damage done to one’s good name.

Identity thieves may rummage through trash, looking for pieces of paper containing personal information; they may send “phishing” email messages, pretending to be banks or other companies and ask you to reply with personal information; or they may file a change of address request in your name with the post office, hoping that all your mail (including bank statements and credit card bills) will go to the new address. There are many other imaginative Ð and often sophisticated Ð ways in which identity thieves do their work. Sometimes, a relatively crude method of identity theft can cause problems: A thief makes up a Social Security number and creates (and sells) a fake Social Security card. The problem is that the made-up number may well belong to someone, and transactions by the holder of the bogus card may show up on the records of the person to whom the number really belongs.

Given the scope of the identity theft problem in the United States, a company like Lifelock, offering to protect consumers against identity theft, presents an attractive option. For $10 a month, Lifelock says, customers can sleep well, in the knowledge that they are better protected against identity theft.

But Lifelock has at least one major detractor. Credit reporting agency Experian has filed a lawsuit in the U.S. District Court in Los Angeles, accusing Lifelock of fraud, unfair business practices and violations of federal law.

According to Experian’s court filing, the way Lifelock operates is to place continuous “fraud alerts” on its customers’ credit files. A fraud alert requires any creditor relying on a credit report to take steps to verify a customer’s identity before issuing credit, arranging loans or setting up utility services. Lifelock renews the fraud alert every 90 days, and also provides a free credit report to its customers every 12 months.

Experian alleges that these services can be obtained for free by any consumer, and that Lifelock misleads its customers by implying that one must pay for them. Experian also questions whether LifeLock even has the legal right to request the fraud alerts, which Experian maintains are meant to be placed only by individuals who have a reasonable suspicion that fraudulent activity has occurred on their accounts. Experian also complains that the hundreds of thousands of fraud alerts which Lifelock has placed on behalf of customers have caused enormous damage by requiring Experian to send mandatory written communications to each and every one of those customers.

According to Experian’s lawsuit, at least one Lifelock ad claims that the company’s services make it virtually impossible for identity thieves to strike, but that fraud alerts are only effective against those particular types of fraud that require accessing a credit report. In other words, says Experian, Lifelock cannot protect against such forms of identity theft as an undocumented worker using someone’s Social Security number to obtain a job; or against unauthorized use of a credit card.

Lifelock does offer a $1 million guarantee that if a customer’s identity is compromised, Lifelock will help restore the customer’s credit standing and pay the cost of doing so. However, Lifelock’s web site states that the guarantee comes into effect when a customer’s identity is compromised “due to a failure or defect in our Service”, a phrase that seems open to more than one interpretation. (If the service offers protection against only certain types of identity theft, does the guarantee only cover those specific types?)

Experian’s lawsuit was filed on February 13, and Lifelock’s formal answer is due to be filed in U.S. District Court by April 3. For its part, Lifelock contends that Experian did not even contact it before filing suit, and that the real motive for the suit is the fact that Experian is a business competitor of Lifelock; i.e., that Experian profits by selling the very kind of credit information that a Lifelock “fraud alert” blocks it from providing.

Experian contends that fraud alerts are intended to benefit individual consumers who have reason to believe their identities may be compromised, and were never intended to involve hundreds of thousands of mass alerts filed by a single entity such as Lifelock. Experian is blocked from selling most credit information when there is a “fraud alert” unless it first obtains the consumer’s permission.

However, according to, Mr. Davis takes the position that federal law expressly allows third parties to help consumers who fear they are in imminent danger of having their identities stolen. Davis told “Who doesn’t think, in this day and age, that they might be a victim of identity theft?” He defends Lifelock as providing a valuable public service in an age when the service is desperately needed. On its web site, Lifelock points to its business relationships with banks, Ident-a-Kid, at least one airline, AAA branches in many states, and other businesses to demonstrate how it is fulfilling a need in the face of a rampant problem. Davis also has been quoted as saying that there have only been some 51 guarantee claims made, out of some 700,000 customers.

The Experian-Lifelock court battle is just beginning, and it will be interesting to follow the litigation. Meanwhile, one thing is clear: Identity theft is an ongoing threat to everyone with a Social Security number or a credit card Ð which makes us all potential targets.

* * * * *

Peter C. Bronson, of Nevada County, is a partner in the Sacramento offices of Kelly Lytton & Vann LLP. His law practice emphasizes creditors’ rights, insolvency, commercial litigation and mediation. Write him at This column is not intended as legal advice in any specific business situation or dispute; specific strategic decisions always depend upon the specific facts.

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