Identity protection service faces scrutiny
Photo by Sara Cozolino
However, LifeLock also has come under fire from a number of directions. The company faces an investigation from the New York City Department of Consumer Affairs, a class-action lawsuit and a suit filed by Experian, one of the nation's three major credit bureaus. Both Experian and the class-action suit allege that LifeLock is engaging in false advertising and deceptive trade practices and that its million-dollar guarantee to members is misleading and filled with loopholes. Furthermore, these critics - along with several credit and identity theft experts - point out that LifeLock charges its members $10 a month for services that consumers can mostly do themselves for free. They also say that LifeLock only protects against new account theft - in other words, when someone uses your credit information to obtain a loan without your knowledge. Javelin Strategy and Research, which tracks financial trends, says this form of identity theft accounted forcomposed less than one-third of the 8.1 million identity theft cases in 2007.
Not the only one
LifeLock isn't the only company selling identity theft protection. Here are a few others:
• TrustedID.com: Fraud alerts, credit monitoring, credit freeze upon request, Internet surveillance
• Debix.com: Fraud alerts, documents all credit-related activity
• TrueCredit.com: Credit monitoring, e-mail alerts of new accounts and credit changes
• IdentityGuard.com: Credit monitoring, online security tools, identity theft insurance
Davis, who denies the allegations contained in the suits, and entrepreneur Robert Maynard co-founded LifeLock in Tempe, Ariz., in 2005. They recruited authorities such as Bank of America executive Luke Helms and Visa International executive Inder P. Singh to their executive and advisory boards and obtained venture capital funding from several partners, including Goldman Sachs.
Davis, who graduated from Baylor University in 1990 with a degree in entrepreneurship and marketing, showed a gift for salesmanship early on. He became a successful account executive at Dell Computer, pulling in $15 million in annual revenue for the company. Davis acknowledges that he filed personal bankruptcy in 2000, but doesn't feel it affects his ability to lead a major identity protection agency. "It's one of the lessons learned," he tells Angie's List Magazine. "I'm afraid there are a whole lot of us who have had successes and failures in our lifetimes."
Maynard, meanwhile, operated several ventures in the 1990s, such as the now defunct Internet America and the now defunct DotSafe. He was also an officer with the National Credit Foundation, a credit repair service the Federal Trade Commission accused of defrauding and stealing from customers. Maynard settled with the FTC in 1997, admitting no wrongdoing but agreeing to never again operate a credit repair organization.
Maynard also declared bankruptcy twice - the second time in April 2005, two days after incorporating LifeLock - and was arrested for theft in 2003 after failing to pay back a $16,000 casino loan. He and Davis frequently have told the media that an identity thief ran up the debt in Maynard's name, and that this incident spurred the creation of LifeLock. But a Clark County, Nev., prosecutor, Bernie Zadrowski, says Maynard made no such claim when he was arrested, and confirms that his office dropped the charges when Maynard paid back the money. In resigning from LifeLock in 2007, Maynard cited the distraction caused by such allegations, although Davis confirms his co-founder still owns a minority stake in the company.
Like some smaller identity protection services, LifeLock places fraud alerts on members' credit bureau files and renews them every 90 days. When a credit extender sees a fraud alert, it's supposed to call a phone number provided by the customer or take other reasonable steps to confirm the borrower's identity.
Experian's suit against LifeLock takes aim at this business model, claiming that the federal Fair Credit Reporting Act forbids a company to place a fraud alert on someone's behalf. "They're in direct violation of federal law," says Experian Executive Vice President Peg Smith. "Congress was very clear that this was a service to be provided for free and never meant to generate revenue for companies."
But Davis contends that the law allows third parties to place fraud alerts. And while he acknowledges that consumers can handle for free much of what LifeLock sells, he says that doesn't make his service illegal. "You can do your own taxes and mow your own lawn, but there's nothing wrong with paying someone else to do it for you," he says. "And [some of our] services provide additional layers of protection you can't do yourself."
The Experian suit also claims that fraud alerts are only meant to be used by people who believe they have been or are about to become a victim of fraud. Davis says the prevalence of identity theft makes all consumers a potential victim at any time.
LifeLock filed a counterclaim against Experian in August, alleging monopolistic practices and that the credit bureau is in direct competition with LifeLock. But Smith, however, says that isn't the case and that Experian's recently released ProtectMyID.com offers different components, such as continual credit monitoring, credit and debit card protection and an emphasis on resolution services after a crime's been committed. "We don't sell what LifeLock sells," Smith says, referring to the fraud alerts. "We provide those services for free."
LifeLock also opts members out of pre-screened credit offers and junk mail, scours the Internet black market through their eRecon program to see if members' identities are being sold, and tracks address changes to flag members if information changes. If the service fails, LifeLock backs it up with the $1 million guarantee. Davis says the guarantee is written to conform with state laws, but that he intends to honor their spirit. "There are accusations of what we could get away with, but you don't see us trying to find a way to get out of paying our guarantee," he says.
Davis says LifeLock has paid out about 200 claims in three years, and those are some of LifeLock's happiest customers. "If anything happens to you, we'll do anything the law allows to fix the problem," Davis says. "Reimbursing expenses, hiring lawyers, bail you out of jail. Whatever it takes, we're going to use our expertise to make it better."
Indeed, LifeLock points to members like Christina Hall,, of Davenport, Iowa. She joined LifeLock in 20077, and learned earlier this year that someone had used her information to acquire a driver's license in Michigan. "All I had to do was call LifeLock," Hall says. "It's really nice to know somebody's out there watching out for you."
But in at least one case, a member says he had to go public to get help. Sgt. Nathaniel Faulhaber, of Parsonsburg, Md., was stationed in Georgia in May when he learned someone had taken five credit cards out in his name without his knowledge, despite being a member of LifeLock for a year. He says he spent 100 hours of his own time following up on the problem and trying to fix his credit report. "Their ads said they could help people repair their credit after they'd been victimized by identity theft, which they obviously weren't doing in my situation," Faulhaber says. When he called LifeLock asking for reimbursement, Faulhaber says all he was offered was 90 days of free service.
Faulhaber outlined his concerns a few weeks later in a press release issued by New Jersey lawyer David Paris, who is representing six of the 11 class-action plaintiffs. Soon after, LifeLock contacted Faulhaber and said they'd get on it right away. They reimbursed him $5,000 for his time, gave him a lifetime membership and appointed a third-party representative to help get his credit fixed.
LifeLock Public Relations Director Laura Baumgartner says Faulhaber's case was held up by a partner who performed below LifeLock standards. "We admit that it's taken longer than it should, but Nathaniel [now] seems happy with the process," she says.
Former LifeLock member Theresa Rojas, of Panorama City, Calif., isn't happy. She joined LifeLock in March and soon after, she says, her identity was used to open a credit card without her knowledge. She contacted LifeLock immediately, but says she was told she would have to handle most of it herself: "LifeLock never really addressed the problem."
Rojas cancelled her LifeLock membership as a result. Some months later, she learned that her identity had also been used to open a checking account when the bank called her asking to pay back an overdraft. She called LifeLock again to see if they could help. "They kept telling me, unless you're a member, there's nothing we can do," she says. "I said, 'This happened while I was a member!' LifeLock never caused me anything but heartache, nervousness and anxiety."
Lifelock responds that they were never given the full information about the situation that led to her cancellation and offered to work with Rojas to resolve any remaining problems. Rojas says she isn't interested: "It's too little, too late. They had a chance to compromise a long time ago, and now they're trying to un-shatter the glass."
Another person displeased with LifeLock is Brenda, an identify theft victim in Milwaukee who does not want her last name used. Earlier this year, she learned that identity thieves used her debit card to set up a LifeLock account under a false name. She says after two calls to LifeLock, she was able to get the sign-up fee refunded, but she still doubts the service. "How can LifeLock, a company that's entirely about protecting identities, let this happen?" she asks. Baumgartner says a web advertiser affiliated with LifeLock used Brenda's information to create the account and that LifeLock has dismissed the affiliate from its program.
Davis himself fell victim last year to an identity thief, who used his well-advertised Social Security number to obtain $500 from a payday lender. When Davis started receiving calls from a collection agency, he reported the matter to Forth Worth, Texas, police, which launched an investigation. LifeLock, however, hired a private detective who tracked down Daniel Brown, the man who allegedly used Davis' identity for the $500 loan. LifeLock then sent a video crew to Brown's house to get him to confess on camera. "We didn't coerce him," Davis says. "But we want criminals to know, if you mess with any LifeLock member, there needs to be consequences."
Police view the matter differently. "They browbeat him into signing a confession that they wrote out for him," says Sgt. J.D. Moore of the Fort Worth Police Department Major Crimes Unit, explaining why his department dropped the investigation. "In the video, they told him they would call the police and he would go to jail if he didn't sign. It would have been wrong to prosecute that."