Working Paper


Abstract: SUPERCEDES 14-28. This paper examines how a negative shock to the security of personal finances due to severe identity theft changes consumer credit behavior. Using a unique data set of linked consumer credit data and alerts indicating identity theft, we show that the immediate effects of fraud on consumers are typically negative, small, and transitory. After those immediate effects fade, identity theft victims experience persistent, positive changes in credit characteristics, including improved risk scores (indicating lower default risk). We argue that these changes are consistent with increased salience of credit file information to the consumer at the time of severe identity theft.

Keywords: inattention; salience; identity theft; extended fraud alert; risk score; consumer protection; credit reports; Fair and Accurate Credit Transactions Act (FACTA);

JEL Classification: D14; D18; G02;

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Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2016-10-24

Number: 16-27

Pages: 49 pages