March 09, 2010, 3:42 PM — LifeLock, an Arizona company promising customers protection from identity theft, has agreed to pay US$12 million to settle charges that the company overstated its benefits and used "scare tactics" to gain subscribers.
Since 2006, LifeLock has promised in television and newspaper advertisements that it would protect customers from ID theft, but a complaint from the U.S. Federal Trade Commission and 35 state attorneys general said the company over-promised what benefits it could provide.
The company's $10-a-month subscription service provided some benefits, but "this was a fairly egregious case of deceptive advertising," said Jon Leibowitz, the FTC's chairman. "They promised protection, and they didn't deliver."
LifeLock's service, focused on fraud alerts for new accounts set up in a customer's name, could not protect customers from several types of ID theft, including misuse of existing credit accounts, Leibowitz said.
The company also told customers it encrypted their personal data and shared it between employees only on a "need-to-know" basis. However, LifeLock did not use encryption for personal data, the FTC said. The company's system was vulnerable to attacks, the FTC alleged.
LifeLock is pleased with the settlement, which sets advertising guidelines in the ID theft protection industry, the company said. "We welcome federal and state efforts to regulate our industry, because doing so helps to protect consumers from the risks of identity theft," said LifeLock Chairman and CEO Todd Davis in a statement.
More than 75 percent of LifeLock customers who enrolled in the first 18 months that the service was offered are still customers, Davis added. The company has prevented more than 5,000 fraudulent credit applications since it rolled out a new generation of its service in October, the company said.
"Because of LifeLock's marketing efforts over the years, many more Americans now know of the risks of identity theft," he said. "More than one and a half million consumers rely on us 24 hours a day to help protect their identities."