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Lifelock Sales Surge Despite Critics

'Concierge' system charges top dollar for service consumers could get for free

By Joseph S. Enoch
ConsumerAffairs.com

May 1, 2008

LifeLock's co-founder and chief executive officer, Todd Davis, is so confident in the product that he shares his own Social Security number in the company's many TV, radio and print ads.

But consumer advocates and two class action lawsuits claim that LifeLock actually provides very little protection. LifeLock, based in Tempe, Arizona, works by renewing an individual's fraud alert with one of the nation's three large credit bureaus, a service which federal laws mandate any individual can do for free, usually within a few minutes over the phone or Internet.

“What the fraud alert does is it basically puts a red flag on your credit report and it tells any potential creditor that if they receive an application for credit, they should take additional measures to determine that the person is the person that they're claiming to be. Typically that would be a phone call,” said Paul Stephens, director of public policy at the Privacy Rights Clearinghouse, a nonprofit consumer advocacy organization.

Fraud alerts last 90 days and then must be renewed. LifeLock charges $10 a month to make sure its customers' fraud alerts never expire – a service most consumer advocates are baffled anyone would pay money for.

“No one needs to pay a third party firm to assert their federal rights,” Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, a nonprofit consumer advocacy organization, wrote in an e-mail. “And for one hundred bucks plus each year, it is certainly not cheap to do so.”

Concierge service?

“I like to think of LifeLock as being a concierge service,” Stephens said “Are you the kind of person who would pay somebody, for example, to do your shopping for you?”

“I would point out that to do the sorts of things that LifeLock does for you, you don't even need to leave your house,” Stephens continued. “You can get on the phone or get on your computer and do it in a couple of minutes. So I don't really see that they bring a lot of value to the consumer.”

Davis didn't argue the concierge analogy in a phone interview with ConsumerAffairs.com, but said the company offers much more than the renewal service.

“There are certainly steps beyond just convenience that we're doing, but one of the things that people love are those convenient steps: us renewing the fraud alerts, us being there if you have a question in a retail store when you're applying for credit, us being available 24/7, us being there in case you lose your wallet; (we will) assist canceling and renewing credit cards and helping to get a new driver's license,” Davis said.

“We're also doing other things like scouring the (Internet) looking for your personal information being bought or sold on the black market,” Davis said. “We're authenticating when someone puts in a change of address to confirm it's you.”

In advertisements, the company also promises to stop junk mail, including pre-approved credit offers and provide a credit report – services that again, a consumer can do for free over the phone or Internet.

$1 million 'guarantee'

The most controversial aspect of LifeLock is its $1 million guarantee.

“LifeLock's $1 million guarantee is our intent to go support any member of LifeLock who might become a victim of identity theft while subscribed to our service so we that can go out and (fill) our intent to do everything the law allows us to do to help that person recover their good name,” Davis said. “So whether that's hiring third person personnel, whether that's covering any losses or expenses, whether it's getting accounts closed and getting new ones issued, that's what we'll do.”

But two pending class action lawsuits claim that the company's $1 million guarantee is not a guarantee at all, but just a “promise” that the company is not actually obligated to fulfill.

“There is no $1 million guarantee,” said Leonard Aragon, one of the attorneys who filed a class action lawsuit against the company. “If you look at the terms of the contract it very clearly says 'we won't pay consequential damages. We won't pay you directly' so there's really no way to get up into the million dollars.”

“Our understanding is that it basically covers any defect in their product,” said Aragon of Hagens Berman Sobol Shapiro in Seattle. “What that means is the failure to place the fraud alert or maybe they accidentally spell your name wrong.”

Davis said the reason LifeLock does not make any actual guarantees is because he doesn't want it to become an insurance company.

“Insurance by design is not built to mitigate risk.” Davis said. “They spread actuarial risk over a group of people. LifeLock is so dramatically more than that. We want to be the most comprehensive solution out there to actually prevent this crime to mitigate the risk on the front end. We don't want to limit what we can do for consumers. We don't want to limit where they can acquire this protection by only going through licensed insurance agents. We want you to be able to go get this at Office Depot or CVS Pharmacy or through AAA.”

85 claims

Of LifeLock's 940,000 customers 85 have filed claims against the company's $1 million guarantee and all have been pleased with the results, Davis said.

“Those are some of our greatest advocates,” he said.

But Aragon warned that although the company is fulfilling its promise now, if there is ever a serious data breach and many of its customers are defrauded, the company may not fulfill its promise. He compared it to the insurance companies who failed to honor their flood clause for consumers whose homes were destroyed in New Orleans from a breached levy rather than flood waters.

“When everyone's all happy and it really isn't that big of a deal and there really aren't that many claims, well insurance companies say 'sure, we'll pay that. We don't want to cause trouble because we want people to come to our insurance company. But when it hits the fan and there are a lot of claims well that's when we start going into the contracts,'” Aragon said.

“You can't promise one thing and have your contract say one thing because eventually that's going to come around and it's going to be bad news for the consumers who thought they were buying protection when in actuality they weren't buying anything,” Aragon said. “They were buying some good customer service. Big deal.”

Davis said no matter what, the company will honor its promise and that its terms are only written that way to avoid becoming an insurance company, and thus subject to regulation in each state where it does business.

“If we didn't (honor our guarantee), it would be catastrophic for the company,” Davis said. “It wouldn't behoove us in the business we're in when our sole purpose is protecting consumers and taking care of consumers if we elected to say we choose not to keep our promises then it's going to be catastrophic to the company.”

Despite the language of the $1 million guarantee, Aragon and consumer advocates say LifeLock is no guarantee to ward off fraud or identity theft.

“They're telling everyone this is LifeLock so we're going lock your credit and we're going to protect you from identity theft when the reality is all they do is put a fraud alert and all that does is protect you from having instant credit taken out under your Social Security number,” Aragon said.

“Let's say you get your wallet stolen and your checkbook stolen and someone goes to a checks cashed store. It does nothing to protect against that. Aragon continued. “It also does nothing to protect against your credit card (being) stolen.”

“Fraud alerts do not stop the issuance of credit,” Mierzwinski wrote. “They do condition the issuance of credit by making the creditor liable if the consumer can prove damages, but they don’t stop it.”

Davis said if a LifeLock customer is defrauded in any way, even outside the limited protection of a fraud alert, the customer can invoke the $1 million guarantee and the company will honor it.

Experian suit

The third case against the company was filed by Experian, one of the credit bureaus LifeLock uses to issue its customers' fraud alerts.

Experian contends that under the Fair Credit Reporting Act, only an individual consumer or an individual acting on behalf of the consumer can place fraud alerts.

Davis disagreed.

“The spirit of the laws are very clear to us to be there to protect consumers and we feel very strongly that we're doing exactly in the spirit of the laws' intent which is helping consumers take advantage of those protections offered by those laws,” Davis said.

If Experian wins its case it could be the end of LifeLock and its many clones. But Davis said he believes the company will continue to protect consumers if that happens.

“If all of a sudden they took away those protections from those consumers, we're still going to have the most comprehensive (service),” He said. “We're still going to do things to mitigate the risk.”

Mierzwinski agreed that a precedent could be bad for consumers.

“I don’t recommend Lifelock, but I don’t want Experian winning case law that makes it harder for consumers to use third parties to help assert their rights, which I guess could be a result if Experian prevails,” Mierzwinski wrote.

Glowing 'reviews'

Despite the company's recent legal troubles, LifeLock has continued to expand its customer base and part of that could be the result of a questionable affiliate reseller program.

A search for “LifeLock” on any search engine yields thousands of results, many of which are supposed independent review, blog or news Web sites that unanimously give glowing reviews of LifeLock in juxtaposition with its competitors. Almost every page of these websites are followed by enthusiastic “user comments” from consumers who can't wait to buy LifeLock and links to purchase it.

One website, CredibleReviews.Com, retells the identity theft story of one of LifeLock's paid endorsers followed by links on where to purchase LifeLock.

While none of the sites ConsumerAffairs.com queried returned our phone calls or e-mails, Davis said he doesn't believe they are owned by LifeLock and assumed they are the result of an affiliate program in which anyone can resell LifeLock and make a 30 percent commission.

Although his picture is on the LifeLock affiliate website, Davis said he knows little about the program and said he thinks there may be some disclaimer to try and prevent that sort of misleading sales behavior.

Despite its critics, consumers seem to be pleased with Lifelock's product. ConsumerAffairs.com has received only one complaint and the Better Business Bureau has processed 25 in the past 36 months.

What to do

Consumers who wish to sign up for the 90-day fraud alert or a credit report, can do so for free at any of the three major credit bureaus' websites or by calling them. Once one of the credit bureaus has been notified of the fraud alert, it will immediately notify the other two.

• TransUnion: (800) 680-7289
• Equifax: (800) 525-6285
• Experian: (888) 397-3742

Consumers who wish to opt out of credit offers can do so by calling the Consumer Credit Reporting Industry at (888) 567-8688 or by visiting its website.

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