After the bypassword

Making passwords more secure won't prevent identity theft. The important question is, how do you deal with identity theft?

The second issue is the ease with which a criminal can use personal data to commit fraud. It doesn't take much personal information to apply for a credit card in someone else's name. It doesn't take much to submit fraudulent bank transactions in someone else's name. It's surprisingly easy to get an identification card in someone else's name. Our current culture, where identity is verified simply and sloppily, makes it easier for a criminal to impersonate his victim. <snip>

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Fraudulent transactions have nothing to do with the legitimate account holders. Criminals impersonate legitimate users to financial intuitions. That means that any solution can't involve the account holders. That leaves only one reasonable answer: financial intuitions need to be liable for fraudulent transactions. They need to be liable for sending erroneous information to credit bureaus based on fraudulent transactions.

Basically, since it's so easy for a criminal to get enough information to spoof someone's identity, you can't reasonably expect to put the responsibility on the victim. The victim need not be in the loop at all, and therefore might not have had any opportunity to prevent the crime.

If you think this won't work, look at credit cards. Credit card companies are liable for all but the first $50 of fraudulent transactions. They're not hurting for business; and they're not drowning in fraud, either. They've developed and fielded an array of security technologies designed to detect and prevent fraudulent transactions. They've pushed most of the actual costs onto the merchants. And almost no security centers around trying to authenticate the cardholder. That's an important lesson. Identity theft solutions focus much too much on authenticating the person. Whether it's two-factor authentication, ID cards, biometrics, or whatever, there's a widespread myth that authenticating the person is the way to prevent these crimes. But once you understand that the problem is fraudulent transactions, you quickly realize that authenticating the person isn't the way to proceed. Again, think about credit cards. Store clerks barely verify signatures when people use cards. People can use credit cards to buy things by mail, phone, or Internet, where no one verifies the signature or even that you have possession of the card. Even worse, no credit card company mandates secure storage requirements for credit cards. They don't demand that cardholders secure their wallets in any particular way. Credit card companies simply don't worry about verifying the cardholder or putting requirements on what he does. They concentrate on verifying the transaction.