LifeLock Settles with Federal Trade Commission and 35 State Attorneys General for $12 million

"Scare tactics," "over-promised benefits," "deceptive advertising," "didn't deliver," "vulnerable to attacks," "false claims..." These are the terms used by the Federal Trade Commission to describe LifeLock's marketing campaigns and its service. And in an article published by IDG News Service, Lisa Madigan, Illinois' Attorney General, cautions consumers, "Don't be scared into spending your hard-earned money... This is the typical tactic of a scam artist." As a result, LifeLock will be paying $12 million to settle a lawsuit brought by the FTC and the attorneys general of 35 states.


Settlements such as this generally are agreed to when the defendant (a) doesn’t believe it can win in court and/or (b) wants to control its downside financial risk and avoid spending potentially millions more defending a major lawsuit while being distracted from normal business operations. Still, according to Jean Noonan, a partner with Hudson Cook, LLP and former FTC senior executive, "$12 million is a lot to settle a deceptive advertising case."  This means that LifeLock and its co-defendants, company founder Robert J. Maynard, Jr., and CEO Todd Davis, could have spent more if they chose to defend the lawsuit, go to trial, and possibly lose at trial.



Some of the issues the FTC had with LifeLock were the scare tactics used in its marketing to attract new customers and the use of a guarantee provided by the company in its advertising. The FTC seems especially sensitive (thankfully) to guarantees, as this is the second significant enforcement action that was caused, in part, to over-guaranteeing service results. In 2008, the FTC shut down over 30 credit repair agencies for overstating the potential results for using their services.  



Additionally Todd Davis, famous for parading his Social Security Number on the side of a truck through the streets, has himself been a victim of identity theft, after the disclosure of his Social Security Number. The fact that you have an identity means you are a target and, while you can mitigate your risk of becoming a victim, there's nothing you can do to guarantee that you will not become a victim. Protecting your personal information, destroying sensitive documents, and being diligent with your credit reports and credit card and bank statements is generally considered a better way to minimize your risk. The judgment therefore severely restricts the kinds of representations LifeLock can make in the marketing and sale of its products and services. It also requires LifeLock to implement a comprehensive information security program to properly safeguard information about its customers both in its own possession and in the possession of its service providers.



This isn't LifeLock's first high-profile settlement. Experian, one of the credit reporting agencies, sued LifeLock in 2008 for violating the Fair Credit Reporting Act (FCRA) and California law by impermissibly placing fraud alerts on credit files on behalf of consumers. That case was settled in late 2009. Many consumer advocates believe that LifeLock, by placing tens of thousands of fraud alerts on credit files where there was no fraudulent activity, would water down the value of fraud alerts placed by consumers who were actually victims of fraud.



According to Adam Levin, Chairman of Arizona-based Identify Theft 911, an identity management and identity theft remediation and resolution service provider, "This settlement sends a message that is loud, clear, and completely appropriate. Further, with a crime as dangerous and life-changing as identity theft, there is no room for spin." In this case the "spin" was awfully expensive.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.