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Even after it was toned down, the false promise of effective protection against identity theft remains integral to LifeLock's advertising.
LifeLock's modus operandi appears based on one of Sun Tzu's maxims in The Art of War: Deception is everything.
When LifeLock began in 2005, its founders pushed for all the free publicity they could get in the news media. Maynard and Davis misrepresented the facts about the founder's jail stint, implying that the same thing could happen to people who don't try to protect themselves. And they lied about the level of prevention the company could offer.
"We prevent ID theft from ever occurring," Davis told the Phoenix Business Journal in 2005.
Then they hit upon a unique idea for a major advertising campaign in early 2006. Davis, Maynard, and Mike Prusinski, the company's spokesman and vice president of communications, began giving out their Social Security numbers to the press.
Wisely, Prusinski and Maynard quit the practice early on. But Davis put his nine-digit number on a flatbed truck, using the image in ads nationwide while claiming that LifeLock made his personal data "useless to criminals."
Ads emphasized the "guarantee," claiming that LifeLock would "cover all losses and expenses up to $1 million."
The claims were bogus. Savvy folks could see right through them.
In the terms of the guarantee, if potential customers bothered to read them, the company doesn't promise to pay anyone a dime. That's if it covers a theft at all, because the guarantee is full of exceptions. For instance, LifeLock won't cover phishing scams or other popular ways to steal identities that involve duping someone into releasing personal data.
The company agreement says if you become a victim "because of a failure or defect in the Services, LifeLock will retain and pay for those third party professional services that are reasonably necessary in LifeLock's judgment to assist you in restoring losses or recovering your lost out-of-pocket expenses caused by such fraud."
Consider the phrase "reasonably necessary in LifeLock's judgment," for instance.
Customers and non-customers complained. In May 2008, lawyers in New Jersey filed the first class-action lawsuit against LifeLock. Not only was the service a useless waste of money, the suit alleged, but the constant setting of fraud alerts harmed customers' credit scores.
Credit bureau Experian beat the class to court. In a lawsuit filed in February 2008, Experian ripped LifeLock for its misleading marketing campaign but aimed primarily to kill LifeLock's fraud-alert feature.
As mentioned, LifeLock's main service until last August was to set fraud alerts on consumers' credit files. The alerts are like red flags in the computer files of the Big Three credit bureaus: Experian, TransUnion, and Equifax.
If a thief tries to open a line of credit, the company offering the new account will stumble on the alert when it runs a credit report. That, in turn, should mean the thief's attempt to open the new account gets thwarted.
LifeLock's main service used to be placing such a red flag on credit files for each of its customers, every 90 days. As its customer base grew by tens, then hundreds of thousands in 2006 and 2007, LifeLock became a burden and a competitor to Experian.
Not that the credit bureaus deserve much sympathy, but Experian ended up stuck with a sizable unfunded mandate because of the way LifeLock exploited the law.
When a person requests a fraud alert with one of the bureaus, the Fair and Accurate Credit Transactions Act requires the bureau to not only place the alert on file, but to notify the other two bureaus about it.
The law allows only individuals, not companies, to call for the alerts. But LifeLock and one of its competitors, Texas-based Debix, put the law to the test.
LifeLock called Experian's fraud hotline up to 15,000 times a day to request fraud alerts, the credit bureau's suit alleged. LifeLock apparently used Experian's system the most because it was more convenient, and every time the company called Experian's toll-free number, Experian was charged about 60 cents, its lawyers claimed.
The wily LifeLock began by calling thousands of times a day from a Canadian phone number. When the credit bureau struck back, blocking calls from the number, LifeLock began using numbers in Pennsylvania to make the bulk calls. Every time the credit bureau tried to stem LifeLock's calls, the company switched its outgoing phone banks.
Experian's chief competitors, TransUnion and Equifax, weren't anti-LifeLock; they even helped LifeLock "launder" some of the fraud alerts that Experian had to deal with, the suit stated.
No doubt, much of Experian's problem with LifeLock had to do with Experian's running its own identity-theft protection racket.
In 2005, Experian was slapped with a $950,000 penalty by the FTC for its misnamed www.freecreditreport.com Web site, which duped people into buying an expensive credit-monitoring service and lured away consumers from the government's real free credit report Web site, www.annualcreditreport.com.
At one point during the antitrust trial, held in Santa Ana, California, Experian lawyer Thomas Malcolm admitted that Experian's "sister company," CIC (a.k.a. freecreditreport.com), even issued hundreds of fraud alerts for its customers between August 2007 and February 2008 — until Experian's legal department got wind of the program and shut it down.