Scholarly Literature on Identity Theft

To understand the ongoing policy problems of economic crime and identity theft, this article combines the fields of legal history and criminal justice with the approaches of emerging research in both identification and paperwork studies. The phrase “identity theft” is very recent, and most research on the subject is present minded. Most criminal justice research cites a 1989 Florida newspaper story as the first published use of the term “identity theft,” and studies these recent trends using victim surveys or interviews with inmates incarcerated for the crime.Footnote ¹⁰ This article, however, uses archival and legal sources to show the concept's previous existence in the nineteenth and early twentieth centuries in the forms of “imposition,” “impersonation,” and “impostors.” Other precursors of identity manipulation certainly exist in a long history full of aliases, assumed names, charlatans, code names, cross-dressing, hoaxing, noms de plume, masquerading, passing, pretending, poseurs, puffery, or quacks.

Historians have examined parallel topics, particularly in the field of identification studies, dovetailing with the rapidly unfolding debates about surveillance. Except for fingerprinting, this historical scholarship does not extensively examine criminal uses of manipulating identification. Instead, these studies ask how the modern nation-state organizes information about its residents in order to “read” them and assert its power: requiring last names, birth records, or standardized addresses. European research about identification is better developed than American scholarship, but all emphasize the distinction between identification and identity.Footnote ¹¹ Identification means the bureaucratic practice of labeling people through unique (and/or proprietary) logic and procedures, which can be conducted in religious, commercial, or state-building contexts. This is in contrast to identity, which can be individually self-defined.

Private economic interests preceded the state in developing identification methods in America in order to respond to the problem of fraud in an impersonal economy. Credit reporting and credit ratings agencies in America began in the nineteenth century and developed extensive networks of local informants (usually lawyers) vouching for or against an individual's identity and creditworthiness. The Mercantile Agency began in 1841 in New York, and exists currently as Dun and Bradstreet.Footnote ¹² Their written ledgers of financial identity attempted to impose some stability and manage the risk of impersonal, fragmented, and whirlwind market transactions. The link between American democracy and enterprise relied on access to credit and management of debt or bankruptcy. Although people acting as impostors appeared frequently in court cases and their actions drove the need for policies, actual attempts to catch and punish them were rare. Therefore, in understanding a history of the impostor rule, the identification or even the identities of impostors played less important roles than the negotiable instruments themselves. The pieces of paper, more so than the people who manipulated them, were the subjects of the court cases, and of this article.

As such, this research is a contribution to the new field of paperwork studies. This approach examines how modern institutions created systems of retrievable and mobile knowledge through the use of paper documents, for example through a history of the American passport or of filing cabinets or of credit reports.Footnote ¹³ These scholars examine how private-sector businesses or state bureaucracies encoded, sorted, or retrieved information on paper and were then, in turn, shaped by that information system. How information was recorded or transmitted was a “gesture of power,” and was as important as the content itself.Footnote ¹⁴ Beginning in the 1840s, the Mercantile Agency recorded financial identities and creditworthiness based on personal reputation in massive paper ledgers, and then sold that information to subscribers. One scholar explains this history as shifting “from rumor to written record.” Valuable, even intimate, financial information about an individual shifted from personal, one-on-one relationships into legible, transferable pieces of paper and coincided with the shift from a moral economy to impersonal markets and the need for legal assignability. This analytical approach is not simply a history of technology, business, or politics, but of how institutions are shaped by their systems of information. Paper, in addition to personal knowledge or firsthand experience, has its own power.Footnote ¹⁵

From this point of view, negotiable instruments as paper documents have a legacy that has outlasted and even undermined their original purpose. The old system of laws around paper negotiable instruments, designed before widespread fiat currency and stable banks, coexists along with a newer system of laws for electronic transactions that take place almost exclusively between banks.Footnote ¹⁶ Money today rarely moves as actual paper but it is still regulated as if it did. Ironically, in uncovering the link between identity theft and impersonation, this research shows how a paper system also created disorder (fraud) along with its new order (retrievable, transferable). The scattered sources—from English common law, law merchant, the Statute of Anne, American legal treatises, case law, law review articles, and internal debates over codes and statutes—tell the story of a legal system at the service of commerce and capital through the unimpeded transfer of paper payments. Together, they explain the lasting impact of the impostor rule, negotiable instrument law, and the origins of identity theft in America.

Negotiable Instruments as Part of Nation-Building and Capitalism in England and America

The NIL, a key transactional tool of modern capitalism, has a long history and is inextricably rooted in the origins of the modern state and capitalism in Europe and America. Also originally known as commercial paper, negotiable instruments emerged out of three centuries of disputed exchange transactions and bills of exchange in English mercantile courts and seventeenth century common law courts. An “instrument” must be written, and embodies an obligation or promise and ability for payment of money. It differs from a contract, or agreement involving goods or services.Footnote ¹⁷ In other words, it is a limited kind of written contract from one person to another to pay money to a third person. It is also different from credit or a loan, instead representing the liquid balances that merchants wanted to move around among non-bank entities such as commission agents. What makes it “negotiable” is that it can be passed or transferred from person to person, and used even beyond the initial transaction. Examples of negotiable instruments are checks, traveler's checks, promissory notes, drafts, and certificates of deposit. Even now, the Uniform Law Commission, whose original members drafted the uniform NIL in 1896, argues that “Negotiable instruments make the economy go around…the economy needs negotiable instruments.”Footnote ¹⁸

Negotiable instruments have their origin in the lex mercatorio or law merchant, which came out of seasonal or travelling fairs and markets in medieval Europe where merchants did business, occasionally turning to nearby judges to solve the inevitable disputes. These decisions become the “laws” of merchants, a communally accepted traditional body of decisions or guidelines for agreements and exchanges, and shaped according to the needs of the merchants themselves. This traditional body of knowledge formed a topic within English common law, or the accumulation of precedent-setting decisions made by individual judges. It was one step in the creation of a state-enabled transaction system. Although historian James Scott argues that the modern state in Europe developed “tools of legibility” in attempts to make the daily life of its residents recordable and understandable to itself, and therefore taxable, commercial interests preceded and prodded these steps. Merchants, in turn, then captured both the law and the state to increase the likelihood of payments and to manage risk.Footnote ¹⁹ Payment for goods could not work over the long distances between centers of commerce (e.g., from Bruges or London to Venice) unless merchants had tools (instruments) to transcend a specific locality and the limited supply of paper currency, so private merchants created bills of exchange, written documents with signatures—a mobile legibility—to serve as payment mechanisms across geographical distance, in a time before a “specialized financial system” existed.Footnote ²⁰

Because the European nation-states intended to encourage and harness the trade between merchants, in the absence of widespread currency or a banking system, they embraced other ways to create liquidity. Negotiable instruments, then, were tied to commerce and not set up to prevent or respond to crime. This fact can be seen in the 1704 Statute of Anne, which said,

Equipped with a name and a signature, these easily transferable pieces of paper could substitute for scarce currency. Thus made official and brought to life with the signature of a literate and “highly esteemed person,” these paper instruments helped the English state and the law respond to private demands from merchants for ease of transactions.Footnote ²² They became integral parts of the emerging financial system, and the English Bills of Exchange Act of 1882 built on this foundation, combining it with the experience of actual transactions among merchants in the seventeenth, eighteenth, and early nineteenth centuries.

In contrast to limited opportunities for credit in Europe, the wide availability of credit in America shaped an economic whirlwind. Alexander Hamilton believed that credit was the “engine of enterprise,” that debt was the “price of liberty,” and that both were necessary for the United States to grow into his vision of a country of commerce. Rowena Olegario in Engine of Enterprise shows that this belief in the positive power of credit has existed since the very beginning of the American economy, and also represents merchant interests winning out over agriculture,Footnote ²³ but the flip side of credit is debt, and the combination resulted in a speculative, spinning economy.Footnote ²⁴ Because bankruptcies, either voluntary or involuntary, happened so often, people began to view them as byproducts of a risky market economy and the American culture of credit rather than of personal weakness. Rather than tie up money in protracted disputes, bankruptcy laws sought to assign or absolve debts in order to allow new economic energy. As Robert Mann explains in Republic of Debtors, bankruptcy politics was about both death and rebirth.Footnote ²⁵ An enduring national bankruptcy law did not pass until 1898, with previous ones from 1800, 1818, and 1841 repealed or defeated. Bankruptcy reforms sought to tame the credit system, but fears about national power led to their repeal. Just like the federal bankruptcy law of 1898, the federal identity theft law of 1998 came late to the commotion. Therefore, in this context of credit, bankruptcy, risk, market revolution, and speculation in the nineteenth century American economy, the economic interests of capital have captured the legal system. Impersonation would not have looked like a high-risk way to make money. Lenience toward bankruptcy is analogous to the impostor rule of the NIL: neither law wants to slow down the possible production of wealth or tie up capital in protracted disputes, and both normalize economic loss.

This coincidence of market capitalism and democracy in America created a high tolerance of economic risk and entrepreneurial unpredictability. Historian Jonathan Levy in Freaks of Fortune argues that a byproduct of this “commercial individualism” has been repeated financial panics that still continue. The panics of 1819, 1837, 1873, 1893, 1907, 1929, and 2008, in part, necessitated bankruptcy laws and the risk insurance sector.Footnote ²⁶ Navigating Failure by Edward Balleisen explains that in the process of risk management, “secondary markets re-organize[d] money so the link between debt and tangible property [was] almost unrecoverable.”Footnote ²⁷ Local community and local markets based on common good or relationships gave way to impersonal or anonymous transactions during the nineteenth century. According to John Larson, the market revolution stripped away the “non-economic variables (friendship, family, name, birthplace) in the conduct of transactions.” This market was so twisted and so impersonal that it even sanctioned selling people, Native Americans and Africans, and in the process created “heartless markets” and “heartless men.”Footnote ²⁸

Negotiable Instruments Come to America

By the end of the nineteenth century, American jurists had adapted the written instruments to emphasize negotiability or transfer. Their intent reflected the market revolution, and facilitated economic growth during the Gilded Age while rebuilding after the Civil War. Created in a time before stable banks and when more money moved between individuals, the law of bills and notes set up procedures for the long-distance transfer of money, but even as the availability of government currency increased the money supply and banks became widespread, American lawyers still clung to the concept of negotiability as if money was still limited and banks did not exist. For example, legal theorist James Rogers argues that the American financial system continues to operate in this anachronistic body of law, despite significant changes in the payment system during the twentieth century.Footnote ²⁹

Many lawyers compiled practical summaries or pocket dictionaries or pocket companions of relevant laws to make that knowledge widely available to businesses. One of the more prolific, John Daniel—a Virginia lawyer, opponent of Reconstruction, state politician, and United States senator—produced six editions between 1876 and 1919 of A Treatise on the Law of Negotiable Instruments. Each voluminous, 1000 page long tome laid out every type of negotiable instrument and every relevant court decision. Much like in England in the 1600s, negotiable instruments were defined in American commercial practices during the 1800s through the accumulation of case by case decisions before they became an official statute in the 1896 Uniform Law. Between the first and sixth edition of his treatise, Daniel's use of the word “law” changed in meaning from a colloquial one that described customary and common accepted practices, to an actual statutory law. Daniel explained that promissory notes and bills of exchange preceded negotiable instruments, laying out the English origins and subsequent development and uses of a variety of negotiable instruments in America. In 1884 Daniel wrote, “This is an age of rapid transit, of vast material development, and of ever-extending commerce. And Negotiable Instruments are the instruments of commerce, their forms and varieties taking shape to suit its usages and needs.”Footnote ³⁰ He also wrote that “the peculiarities which attach to negotiable paper are the growth of time, and were acceded for the benefit of trade.” As a kind of contract, they allowed the easy movement of payments over the vast geographical distance of the growing United States, while avoiding the greater dangers of loss or robbery of currency.

Into the twentieth century, lawyers actively touted the use of the negotiable instrument, helping ensure its place in business law. In 1922, in his own compendium of negotiable instrument cases, James Matlock Ogden—a member of the Indiana bar and future state attorney general—wrote, “it would be impossible to transact business of any magnitude today if cash payments were required. We see the truth of this when we consider that more than 90% of all commercial transactions are estimated to be carried on today by the medium of commercial paper or negotiable instruments…These instruments passing through said Clearing Houses…amount annually to about Four Hundred Billion Dollars ($400,000,000,000.00).”Footnote ³¹ Ogden was awed by the rapidly expanding financial sector, and considered negotiable instruments key to that growth.

Growing alongside negotiable instruments were the inevitable problems of forgery and fraud. One of the earliest editions of Daniel's Treatise from 1879 contained a four part chapter called “The Forgery of Bills and Notes,” of which one part was called, “Recovery of money paid upon forged instruments.”Footnote ³² By the 1919 edition, the chapter on fraud had ballooned to nine parts.Footnote ³³ Even so, the uniform NIL of 1896 addressed fraud in only a short subsection on forged signatures and in Article VI on Liability of Parties.Footnote ³⁴ It was not until 1952 that the UCC specifically addressed these problems in Article 3 on Commercial Paper in subsection 405: “impostor payees and fictitious payees, etc.”

American Court Decisions on Impostors

These increasingly important pieces of paper created problems of authenticity and verification in the courts themselves. The 1869 annotated law reporter The American Decisions: Cases of General Value included summaries citing a long list of cases relevant to “care required of the officers of a savings institution in the payment of money.” Each decision had some variation ranging from “holding bank liable for payment to an impostor presenting a deposit book, where a comparison of the handwriting of the impostor with the real owner would have prevented the imposition” to “holding bank excused from liability where impostor presented the deposit book when his signature was similar to that of the original depositor” to “holding bank not liable where deposit book was presented by a thief, they never having seen depositor's signature the deposit having been sent by another person.”Footnote ³⁵ In these cases, the deposit books served as the identification, and the debates were about whether the financial institutions took “reasonable care and diligence” to verify and maintain those records. These mixed decisions about liability for losses began in the nineteenth century, but sound very much like the back and forth in the opening vignette of State Security v. American General from 2007.

Nineteenth century cases of impostors abound, and the use of the term was common, especially as long-distance communication complicated verification. The Supreme Court of Alabama heard a case in 1878 between Western Union Telegraph and a Mr. Joseph Meyer to determine “liability for paying money to impostor,” in which Meyer was tricked into wiring $40 to an impostor claiming to be his nephew. The court found that, “the company and Meyer were both deceived,” asking “which must bear that loss?” The high court decided that, “By engaging in the business of transferring money by telegraph, between persons at a distance from each other, for which it charged large commissions, it took upon itself the responsibility of doing the service correctly, and … must make good the amount so lost.”Footnote ³⁶ A lower court had previously found that Meyer must bear the loss because he originated the transaction, but the higher court reversed that ruling, saying that unless the telegraph company verified the identity of people it paid, it would become known simply as “an instrument for committing frauds.”

In 1897, the Illinois Supreme Court in Pacific Express Co. v. Shearer cited many previous cases in its decision about a $4,000 telegraph order delivered to an impostor. The decision said, “it is the settled doctrine of England and this country that there must be an actual delivery to the proper person and in no other way can the carrier discharge his responsibility except by proving he has …been excused from performance, or been prevented by the act of God or a public enemy.” The court went on to say, “the business interests of the country…demand that the carrier should be held to a strict accountability…no circumstance of fraud, imposition, or mistake will excuse the common carrier from responsibility for a delivery to the wrong person.”Footnote ³⁷ The carrier in this case was a telegraph operator wiring money from Shearer & Co. to an impostor. According to the judge,

With an expanding economy and the proliferation of long-distance exchange, by 1897 this court had many cases to draw on for its decision. This case shows that payment system providers, not users, absorbed the losses, that impostors got away, and that the interests of “capital” prevailed.

History of Uniform Laws and the UCC

Over time, all of these court decisions about imposture and liability rolled together to serve as the basis and justification for an articulated part of the UCC known as the “impostor rule.” This was less a single, definable statute, and more a nickname for the process of determining the allocation of losses in a fraudulent transaction in which someone used negotiable instruments. Many tests played into this determination of liability: did the bank have signatures on file, did the impostor have the bank book, did the bank verify the signature, were there two different people with the same name, who was closest to the transaction, who was in best position to verify, did the imposition happen through the mail or in person? The judges and lawyers debated the particulars as new variations arose, but fundamentally, the decisions were about which business entity would ultimately take the loss rather than a real quest for any fraudulent users. Impostors were fleeting actors among the multitude of transactions, but the institutions were very real, and needed answers. A stable economy needs fixed relationships and standardization of business procedures, because insecurity can cause people to doubt the wisdom of engaging in an exchange.

As part of Progressive Era reforms and good government, the National Conference of Commissioners on the Uniform State Laws (NCCUSL, later also known as the Uniform Law Commission) was established in 1892. Its goal was to design model legislation for adoption by each state to promote legal coherence across the country. Whether they were practicing lawyers, judges, legislators, or professors, all commissioners were (and are) lawyers and members of the American Bar Association.Footnote ³⁸ Amid considerable debate, the first uniform legislation was the NIL, drafted in 1896 and adopted in all the states by 1924. Between 1906 and 1933, the commissioners wrote another six uniform acts devoted to financial transactions.Footnote ³⁹ Each of these pieces of model legislation was crafted through an extensive revision and consensus process among commissioners, and only took effect once enacted by state legislatures. Throughout the twentieth century, state legislatures adopted these acts as they each saw fit. Thus commercial law was well developed across the country, even if it was piecemeal.

A major force shaping and promoting these Acts was Karl Llewellyn, who taught at the University of Chicago Law School for most of his career before his death in 1962. His life's work was the uniform state laws, commercial law in particular, and negotiable instruments especially. A well-known scholar of legal realism, Llewellyn spent more than three decades working with bankers and other lawyers to design a legal system that supported business transactions. Reflecting on the original 1896 law, Llewellyn wrote in 1933 that a “sustained study of the original Negotiable Instruments Law has led to steadily increasing respect for the wisdom and craftsmanship of that act.”Footnote ⁴⁰ Although the later 1933 revision had no formal language actually referring to impostors, it did insert new language in sections on “liability of acceptor” and “warranty upon presentment,” which covered forgery and alteration. Still, the focus was not on stamping out fraud or protecting individual users, but rather on dealing with the inevitable fallout for bankers and effectively managing economic risk. The drafting committee explained, “the effort is to throw the loss from alteration where (a) it can be most easily avoided: (b) most easily spread; and, (c) to wind up the transaction as often as may be at the point of final apparent payment. These are the most cogent reasons underlying the ancient and solid rule of Price v. Neal.”Footnote ⁴¹

In 1940, Congress considered a federal sales act, but as a latecomer to regulations, had to contend with existing state statutes. To avoid conflicts between the existing Uniform Acts, the NCCUSL set up a committee to deal with the issue. In 1942 the NCCUSL formed a partnership with the American Law Institute, another group of lawyers who in 1923 set out to “improve the law and its administration,” and launched a massive and coordinated effort that ultimately resulted, after years of revisions, in the UCC in 1952.Footnote ⁴² The UCC is still very much a living body of laws constantly under review.Footnote ⁴³ It currently consists of eight “articles,” each focused on a different type of commercial transaction.

Llewellyn's own devotion to negotiable instruments, combined with his key role in the drafting process of the UCC, entrenched the seventeenth century common law practices into the twentieth century commercial code in Article 3, on negotiable instruments. Llewellyn was effusive in praising the durability of the original NIL, and the emphasis in the following text is all his own:

Considering Llewellyn's praise for this earlier version of the NIL, is it any wonder that its legacy of promoting the interests of capital persisted into the present without extensive adaptation?

Others in the banking sector also praised the law's necessity and its performance. One of the commissioners wrote in 1945, “The Negotiable Instruments Law has been the most successful of all the Uniform Acts. It is working well, and there has been no really serious trouble with it.”Footnote ⁴⁵ Edward Peterson, a vice president from the New York Trust Company, worked with drafters of the UCC on Article 3. He wrote in 1962, “I can only say that despite almost thirty years of banking experience, which includes about ten years…in charge of banking operations, I know of no real need for the complete revision of the our negotiable instruments law. During recent years I have had no unfavorable experience with the present law and my bank has not suffered any loss or hardship that I know of because of the inadequacy of the present law.”Footnote ⁴⁶ The source of these comments was important because, according to comments in the minutes of the drafting body, “the Negotiable Instruments Law was drawn in the East and under the influence of the New York banks.”Footnote ⁴⁷ Among the most powerful parties at the table, there was no support for updating the law.

The internal debates of the drafting process clearly show the deference to the needs of financial institutions. Here in 1947, Llewellyn lays out the conflicted mind-set of bankers and the legal constraints reining them in: “Now, bank officers, as a matter of fact, hate to be faced with the question of having to suspect, accuse, or ask many questions, but the real reason for that is not because they cannot do it, not because they do not know what is going on, in the main, when this type of transaction [depositing an unusual sum] is going into a personal account. The real reason is they are afraid the account will be taken across the street.” He went on to advocate a policy solution, but still one created to serve business by saying, “When you make a general rule applicable to all banks, there is no gain to the man in taking the account across the street because he is up against the same practice there…the great hesitance of banks to make inquiry no longer has the trouble in it.”Footnote ⁴⁸

One committee report in 1950 summarized the drafters' perception of the contemporary financial context of the UCC: “Commerce today is highly complex. Each day commerce and industry grow more mechanized—move more in the direction of mass production and mass techniques. Operations increase in volume and decrease in time available to process them.” In the face of such pressures, there was no time for a complicated system of checks and balances to protect all participants: “Where ‘speed’ is of the essence, it seems natural and desirable to attempt to state commercial rules in one comprehensive and reasonably concise set of rules … the Code has therefore approached bank collections on the basis of attempting to state the working rules under which this fast-moving commercial mechanism is now functioning and can function.”Footnote ⁴⁹ A quarter-millennium later, this explanation echoes the same rationale for the Statute of Anne in 1704. Business interests were still clamoring for the law to catch up and formally codify its practices, without adding unneeded complications to verify the identity of the parties to the transaction.

As they discussed the problem of forgery or “taking responsibility for the genuineness of that signature” and its prevalence, members of the drafting committee had an extended debate in 1950 about which entity absorbed the loss in the cases of forged checks, dismissing the importance of getting identification right:

Ultimately, the drafters dismissed the problem by saying, “it is so seldom it arises that it isn't worth it.” The concern about “clogging” the system with burdensome requirements of verification once again sounds similar to the circumstances in the opening case of State Security v. American General in 2007. This 1950 discussion shows how deliberate decisions at key points in the past always kept money moving and set up a system at the expense of future consumers. The impostor rule in practice essentially assumes that impostors will not be caught or made to pay back what they stole. It also assumes that it would be wrong to make unsuspecting victims pay; therefore, the Code sorts out the loss between financial institutions as a cost of doing business. In this system, individual consumers get lost in the larger business goals; this imbalance of power continues into the identity theft era.

At the time, drafters working on Article 4 marveled that “the tremendous increase in volume of the number of checks handled by banks…individual Federal Reserve banks process as many as 1,000,000 items a day; large metropolitan banks average 300,000 a day.” They went on to point out that “with items ‘flowing’ in great volume not only in and around metropolitan and smaller centers but also continuously across state lines…the ideal type situation exists for uniform rules that will state in modern concepts at least some of the rights of the parties and in addition aid this ‘flow’ and not interfere with its progress.”Footnote ⁵¹ The drafters' focus on maintaining the flow of commerce and their contribution to “extreme capitalism” could hardly be more clear.

On the other hand, concern for consumers or other members of the non-banking public hardly ever showed up in discussions among the drafters of the UCC. Soia Mentschikoff, the only woman actively involved in drafting the UCC, was among the very few who expressed some concern about consumers. Mentschikoff spent several years in Wall Street banking before becoming a law professor at the University of Chicago Law School. In a 1951 meeting of the drafting committee, she said, “in the last two years as amendments have been made to the Code,…the Code has consistently moved onto a special-interest type of legislation and away from a public-interest type of legislation…I don't think any of us…are fully aware of how many of the changes made in the Code in the last two years were special interest changes.” In an exchange illustrating the committee's lack of interest in this line of reasoning, one of her colleagues asked, “What do you mean?” She replied: “They favor a single economic segment of the community at the expense of the general public.” The exchange continued with her colleague stating, “It seems to me we are drawing an Act to regulate special interests, and the way they do business. And I don't think any of us entered into this Code project as a reform measure in any sense of the word.”Footnote ⁵² This minor attempt to consider consumers was quickly forgotten and helped set up the current stalemate between legitimate consumers and white collar criminals.

Despite transformative changes in the practices of moving money through the financial system, lawyers continued to encode the logic of bygone times. At the end of the nineteenth century, even as money in the American economy increasingly moved between banks rather than individuals and the need for the “negotiable” (or transfer) provisions of the NIL were not as pressing, the old system remained. The provisions were still incorporated into the uniform law in 1896, and then again in the UCC in 1952, and remained unchanged in the 1990 Revised Uniform Commercial Code. The late twentieth century shift to electronic transfer of funds made the old “instruments” (or paper) provisions even more outdated. A cascade of consumer-friendly congressional laws and their companion Federal Reserve regulations specifically reflected the reality of electronic (rather than paper) transactions: Truth in Lending Act, 1968 (Federal Reserve Regulation Z), Electronic Fund Transfer Act of 1978 (Federal Reserve Regulation E), Credit Card Fraud Act of 1984, Expedited Funds Availability Act of 1987 (Federal Reserve Regulation CC), and Check Clearing for the 21st Century Act (Check 21), 2003.Footnote ⁵³ The result is a hodgepodge of payment systems laws; some stubbornly persisting since the age of paper, some born in the digital age, and some repurposed over time.

Historical Problems of Identification and the Current Problem of Identity Theft

Apportioning liability among banks or payment systems providers has always been easier than identifying individual impostors. Although today they might be taken for granted, publicly useful mechanisms of paper identification such as birth certificates, driver's licenses, and passports had been quite limited until the mid-twentieth century. Birth certificates were not widely standard until the 1940s and even as late as 1942, approximately 40% of the American population still did not have a birth certificate. Passports did not become an identification document until World War I,Footnote ⁵⁴ but even though credit reports have existed since the 1840s and the USA PATRIOT Act of 2001 mandated banks to “know your customer” and imposed “enhance due diligence” and “verification of identification” requirements, identity theft has still risen.Footnote ⁵⁵ A speculative and entrepreneurial system supported by laws preoccupied with distributing losses and recovering from failure magnified the historical problem of good identification. In so doing, it created space for white collar criminals, impostors, and identity thieves.

The federal government has recently begun to address the problem of identity theft, although it has done so out of a typically convoluted mix of self-interest and public pressure. For example, the False Identification Crime Control Act of 1982 specifically addressed the production of fraudulent identity documents, but not the identifying information of actual people. The act prohibited making or possessing false identification documents or document-making equipment for the intent to defraud the United States. It also sought to protect the authority of state entities to issue identification documents and made business-issued documents include the disclaimer, “NOT A GOVERNMENT DOCUMENT.”Footnote ⁵⁶ Congress passed further legislation in 2004 called the Identity Theft Penalty Enhancement Act, which defined “aggravated” identity theft and linked it to terrorism. Still, these acts prioritized various government entities as victims.Footnote ⁵⁷

Pressure for legal reform built into the new century. During a legislative hearing in May 1998 before a Judiciary subcommittee, the United States Secret Service testified that, “law enforcement is currently frustrated that the unlawful use of personal information is not a crime since identity theft is often perpetrated by organized criminals who know these crimes can be committed with relative impunity.” The Financial Crimes Division of the United States Secret Service said that 94% of financial crimes arrests in 1996 and 1997 involved identity theft. Information from VISA, MasterCard, Trans Union Corporation (credit bureau), and United States Postal Inspectors all indicated a growing problem. The Federal Trade Commission (FTC) also testified that victims “suffer real harm” and “the law does not recognize these individuals as victims.” Therefore, the purpose of the Identity Theft and Assumption Deterrence Act of 1998 was twofold: to cover unlawful use of identity information in addition to documents, and to establish rights to restitution for individual victims.Footnote ⁵⁸ The act amended the Crimes and Criminal Procedure section of the United States Code and established the offense as anyone who “knowingly transfers or uses, without lawful authority, a means of identification of another person with the intent to commit, or aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable State or local law.”Footnote ⁵⁹

In a continuing nod to the persistent commercial context of impersonation, Congress situated the new wave of federal legislation within the jurisdiction of agencies devoted to commercial or financial oversight.Footnote ⁶⁰ The Fair and Accurate Credit Transactions Act of 2003 defined identity theft as “a fraud committed using the identifying information of another person.”Footnote ⁶¹ Although this act has mitigated some of the post-theft burden on victims, individuals are still largely the bit players caught in the scramble for easy money.Footnote ⁶² The Identity Theft Act of 1998 required the FTC to serve as a complaint clearinghouse in addition to its consumer education and assistance work. The FTC works to protect American consumers by stopping fraud in the marketplace. It tracks identity theft complaints in addition to bank, lottery and sweepstakes, and shop-at-home scams. Between 2000 and 2014, the number of complaints of identity theft rose from 31,140 to 332,646. Based on consumer complaints, identity theft was the single largest complaint category (13%) for 2014 followed by debt collection and impostor scams (11%). Military personnel are particularly victims of identity theft, and Florida has the highest rate of reported identity theft complaints.Footnote ⁶³ Although these numbers are based on unverified self-reports, the trend is troubling and the problem persists. Increases in tax return fraud in 2015—ironically including attempts to impersonate several state tax commissioners—have galvanized states and the Internal Revenue Service to revamp their policies and security.Footnote ⁶⁴

Even if identity thieves do not know that the impostor rule protects them or draw their inspiration from the convoluted legal history of payment systems or the freewheeling availability of credit, they know the odds are (usually) in their favor. Interviews with federal inmates convicted of identity theft show that they perceived a low risk of being caught and believed white collar criminals received lenient punishments. They also did not think of their victims as individuals, but rather faceless organizations.Footnote ⁶⁵ Their motives echo the “heartless markets” and “heartless men,” and take advantage of how the impostor rule separates the link between the paper negotiable instrument and a real person, and renders money unrecoverable. Criminologists specializing in the study of white collar crime have shown the steep costs to American consumers.Footnote ⁶⁶ By its own design, late-stage capitalism has reached a legal and economic stalemate: user against provider, impostors/fraudsters against consumers. So many new users have been pulled into this system and affected by the “costs of doing business,” but the best that anyone can do is “check your accounts regularly.”