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LifeLock, Inc., the company that GUARANTEED it would prevent customers’ identities from being stolen (for $10 per month) has agreed to pay fines totaling $12 million because the claims it made to promote its protection services were false, according to the U.S. Federal Trade Commission.

The company will pay $11 million to the FTC and $1 million to the attorneys general of 35 states. It is one of the largest FTC-state coordinated settlements, the commission said. The FTC will use the $11 million from the settlement and make refunds to consumers.

The FTC said in its release:

“The FTC’s complaint charged that the fraud alerts that LifeLock placed on customers’ credit files protected only against certain forms of identity theft and gave them no protection against the misuse of existing accounts, the most common type of identity theft. It also allegedly provided no protection against medical identity theft or employment identity theft, in which thieves use personal information to get medical care or apply for jobs. And even for types of identity theft for which fraud alerts are most effective, they do not provide absolute protection. They alert creditors opening new accounts to take reasonable measures to verify that the individual applying for credit actually is who he or she claims to be, but in some instances, identity thieves can thwart even reasonable precautions.

“New account fraud, the type of identity theft for which fraud alerts are most effective, comprised only 17 percent of identity theft incidents, according to an FTC survey released in 2007.”

The FTC also said the LifeLock told customers that their personal data that it held was stored securely and encrypted, but it wasn’t.

FTC release here.

A federal judge ruled against LifeLock in a court action in California last year after credit reporting agency Experian sued them. Credit customers can place a free 90-day credit alert on their accounts through credit agencies. LifeLock was charging their customers $10 per month to place the alerts – which cost Experian huge amounts of money.

Story here.

Tom Kelchner