Identity Theft Protection Company LifeLock To Face Suit Over Payout Guarantee

May 29, 2008 11:50 a.m. EST

Boston, MA (AHN) - A lawsuit was filed by lawyer Rob Carey at the U.S. District Court of Arizona against a company that provides identity theft protection. Carey said the $1 million payout guarantee of LifeLock was fraudulent because it had loopholes that would result to much lesser payments in case of failure to provide the service it promised.

Carey pointed out the same loopholes were found in the $2 million maximum guarantee of LifeLock's rival, IdentityTruth. The company charges its clients $10 a month to protect them against unauthorized use of their personal data.

To perform this service, IdentityTruth searches the Internet and other databases for evidence that another person had used their client's identity. It then warns banks and other businesses about people suspected to being identity thieves. But if the bank ignores the warning and the IdentityTruth client gets victimized, the company is not liable because it was the bank that refused to act on the tip. Nevertheless, the client would not be paid despite being an identity theft victim.

James Van Dyke, president of Javelin Strategy, cautions consumers from signing up with identity protection agencies since often they could do the jobs themselves by asking credit reporting services for free fraud alerts and not disposing bills with personal data in the trash, which could be picked by identity thieves.

According to surveys, while the number of identity theft victims has been going down the past years, the amount of money involved has gone up to $6,383 in 2006 from $5,249 in 2003. Total value of money acquired through identity theft had tipped $56.6 billion in 2006.