New Treasury Rules Ease Purchase of Annuity With 401(k)

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It is one of the biggest conundrums of an aging society: Americans have salted away $11 trillion in retirement plans, yet millions still risk running out of money in old age.

On Thursday the government said it had some new tools to deal with the problem. The Treasury issued several new regulations intended to make it easier, and maybe cheaper, for middle-class people in retirement to transfer the money they accumulated in their 401(k)s into an annuity that would guarantee monthly payments until they die.

“Having the ability to choose from expanded options will help retirees and their families achieve both greater value and security,” said Treasury Secretary Timothy F. Geithner.

The Labor Department also said it had completed rules to let workers learn about the fees various financial firms charge for helping to run 401(k) plans. Labor officials said they thought employers could negotiate better terms if the details were more easily available.

The risk of outliving one’s assets has moved front and center in recent years, as companies have frozen or ended their traditional, defined-benefit pension plans and replaced them with 401(k) plans. Traditional pension plans offer what is, in fact, an annuity, a stream of guaranteed payments from retirement to death. But fewer and fewer employers want to be running an annuity business on the side.

Insurance companies, on the other hand, are eager to wade into what they consider a big and attractive market of graying Americans with I.R.A. and 401(k) balances and little idea of what to do with them. But they have held back, in part, because of tax rules, which Treasury is easing.

One of the changes proposed Thursday would make it easier for employers to work with annuity providers, so that workers can learn about their annuity options at work, rather than having to go to a financial planner or broker.

“I’m trying not to jump up and down in my office, actually,” said Jody Strakosch, national director of annuities for MetLife, who was asked about the new rules while she was reading the 47-page tome from Treasury.

She said MetLife had had suitable annuity contracts available since 2004, but had been selling them mostly to the retail market and not to employers who offer retirement savings plans.

J. Mark Iwry, an official at the Treasury department, said the department hoped in particular to foster a workplace market for “longevity insurance,” something much discussed in policy circles but that employers rarely make available to workers when they retire.

Longevity insurance consists of an annuity whose stream of payments does not start until the retiree is well into retirement — say, 80 or 85 years old. That is the point where policy makers think many will need the money, because they will have exhausted their savings or developed costly health problems. The insurance would kick in and supplement Social Security. Like Social Security, the longevity insurance payments would keep coming every month until the retiree’s death. But because the policy would pay nothing in the first 15 to 20 years of a person’s retirement, it would cost much less than a conventional annuity.

A white paper by the Council of Economic Advisors estimated, for example, that a 65-year-old would have to pay $277,500 for a $20,000-a-year annuity that started immediately, but only $35,200 for one that started at age 85.

With a price so much lower than a conventional annuity, employees would be able to buy longevity insurance to cover their riskiest years with just a portion of their 401(k) account balance.

Most employers that offer annuities give retiring workers an either-or choice: the whole balance as a big check, or the whole thing to buy an annuity. Tax rules make it complicated to calculate the values if the amount is split, so those rules are being relaxed.

When the federal employees’ Thrift Savings Plan let people spend just part of their balance on longevity insurance, there was an increase in participation.

“They found a dramatic pickup in the number of people who were able to take a partial annuity,” said Ms. Strakosch. (MetLife provides the Thrift Savings Plan’s annuities.)

The Treasury also capped the maximum amount of retirement plan money that could be spent on longevity insurance at 25 percent of the account balance, up to $100,000. Mr. Iwry said that would keep high earners from improperly sheltering money, and minimize any effect of the changes on federal tax revenue.

Treasury is also changing the way of calculating required minimum distributions — the amounts that people over 70 are required to withdraw from their 401(k) plans every year. The new method would exclude any money that went to an insurance company to buy longevity insurance or an annuity.

Some of the rules take effect immediately; other changes are in the public comment period.

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Variable Annuities Offer Higher Income, at a Cost

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Rates on annuities — periodic payments for life by insurance companies to investors who have made regular or lump-sum contributions — are close to the lowest on record, just as bond and bank deposit rates are, financial planners point out.

At first glance, annuity rates do not seem so miserly. A woman, 65 and living in New York, for instance, can receive 7.1 percent a year, according to the Web site ImmediateAnnuities.com. That may sound like a decent amount, but the money used to finance an annuity is forfeited to the insurer, so much of the 7.1 percent amounts to a return of capital.

Investors looking for higher income, or at least the possibility of it, often turn to variable annuities, which invest in mutual funds and provide returns tied to those in financial markets. With stocks showing performance for the last decade that is modest or worse, and often volatile, variable annuities might have lost some appeal, planners say, so insurers have sold versions with enhancements like guaranteed minimum income rates or payments for nursing home stays.

Variable annuities, with or without these so-called riders, could meet the needs of some people in or near retirement, planners contend. They warn, however, that the vehicles tend to be complicated and expensive and may be best avoided.

Variable annuities “offer lots of good funds,” said Christopher Cordaro, chief investment officer of RegentAtlantic Capital in Chatham, N.J., “but they tend to be overloaded with fees and very opaque, so it’s difficult to pull them apart and figure out what you’re paying for.”

Much of the complexity and added cost stem from the riders. A typical income rider might offer the return on a stock index or a fixed percentage, typically 4 or 5 percent these days, whichever is greater — but with an asterisk.

When it comes time to draw income on some of these annuities, Mr. Cordaro cautioned, the amount that the investment would be worth under the guarantee cannot be cashed out or used to buy a fixed annuity at a market rate. It can only be converted to income at rates that would provide a total return, over the life of the annuity, below what would have been available through conventional annuities.

“You can get a stream of income, but not the pot of money they said this grew to be,” he said. “If you really do the math on these, the guarantees aren’t worth what you’re paying for them. Insurance companies tend to make a lot of money off these things.”

Not just on the fancy ones, either. The average bare-bones variable annuity has fees totaling 2.5 percentage points a year, according to Morningstar. (Payment rates quoted by insurance companies and specialist Web sites are net of fees and represent amounts paid to investors.)

John McCarthy at Morningstar says that, on average, 1.5 points of the fees are accounted for by the death benefit that the typical variable annuity calls for if death occurs in the period that contributions are being made. The other point covers the cost of managing the investment funds in the annuity.

Other features mean additional charges. Todd Pack, president of Financial Advisers of America, a firm in Carlsbad, Calif., said that income riders cost 0.6 percentage points and up a year.

There are also annual charges for the bonuses that are often included to persuade investors to transfer from one annuity to another, Mr. Pack noted. He generally considers these bonuses a bad value, and he is no fan of nursing home riders, either.

“They tend to be very restrictive,” he observed. They kick in only after the annuity has been owned for several years, he said, or after the holder has been in a nursing home for many months.

Roman Ciosek, a managing director of HighTower, a Chicago financial advice firm, treats variable annuities with great circumspection, as his peers do, but he considers the rates available in some income riders attractive.

“Because rates are so low” on fixed-rate alternatives, “these annuities are more attractive,” Mr. Ciosek said. He added that he expected insurers to begin lowering rates in income riders, so he advised anyone interested in such an annuity to think about buying it sooner rather than later.

He suggested, however, that investors who would not need their money for at least several years might park it in a retirement account and buy term life insurance. That is a way to obtain the main features of a variable annuity at lower cost and with little added risk, in his view.

Mr. Cordaro recommended keeping a balanced portfolio of stocks and bonds and selling enough stocks each year to buy a no-frills, fixed-rate annuity with 5 percent of total assets. Each one should be with a different insurer because annuities are not federally insured and state authorities provide only limited protection for policyholders, he explained.

This gradual approach will also help avoid investment of a disproportionate amount during periods of very low rates. Because this is one such period, Mr. Cordaro would not be in a hurry to carry out his strategy. “If I knew that interest rates were going up in two or three years, which is probably a good bet,” he said, “I might want to hold off doing it.”

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When the Wait for Social Security Checks Is Worth It

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This description oversimplifies things, of course. Social Security, as it’s currently constituted, is refreshingly straightforward but you do have to make one important choice, and many people could make their lives after retirement better if they chose differently.

As I discussed in a previous column, most economists and financial advisers say that in retirement, Americans would do well to increase the proportion of their wealth that pays a guaranteed income for life, much as Social Security does. The technical word for the financial instrument that accomplishes this feat is an annuity.

Traditional pensions are a form of annuity, and people who have them usually seem to love them. What’s odd is that people with retirement plans like 401(k)’s generally do not buy annuities, even though annuities would simplify and stabilize their financial lives. Economists call this state of affairs the annuity puzzle.

Several readers wrote to explain why they did not own (or recommend) annuities. Three major worries stood out:

¶Most annuities are not inflation protected, so what happens if high inflation returns?

¶How can a buyer be sure that the company selling the annuity will be able to make the payments 20 or 30 years from now?

¶Annuities can be complicated and are sometimes sold with large fees. How can buyers know whether they are getting a good deal?

All of these concerns are legitimate. I wish I had found a simple recipe to solve all of these problems, but they are tough ones. Still, the federal government could help matters. For example, it might create rules to encourage more employers to offer safe and fairly priced annuities within their 401(k) plans. There is interest in Washington in doing this, but the details are tricky. Employers would like a clear-cut rule absolving them from the responsibility of choosing an annuity provider, say, by granting a safe harbor if the insurance company has a satisfactory credit rating, but given the recent track record of rating agencies, this particular rule is unlikely to be adopted.

In light of these difficulties, let’s focus on the one source of annuities that is fully inflation protected, is fairly priced, and, because it is run by the government, is reasonably safe: Social Security benefits. Claiming that Social Security benefits are safe may sound naïve, but my view is actually quite cynical. I believe that as long as the elderly continue to vote in large numbers, no Congress will renege on promised payouts for those already eligible to receive benefits.

Of course, the system has to be tweaked to keep it self-sufficient, but economists of every stripe agree that this is a relatively easy fix, unlike, say, trimming the rising cost of Medicare. The fix might trim benefits in some way, perhaps through a less generous indexing formula, but I believe that anyone already eligible to claim benefits can safely count on getting them.

If you think this premise is preposterous, stop reading here, and complain to your representatives in Congress. (While you’re at it, you might also tell them to get the debt ceiling raised, or better yet, simply eliminate it, so we do not frighten people into thinking we would actually default on our debts, even to ourselves.)

So here is a bit of good news. There is a simple, easy way to convert a portion of your wealth into a fairly priced, inflation-adjusted annuity. Simply delay when you start receiving Social Security benefits.

Participants are first eligible to start claiming benefits at age 62. For those who wait, the monthly payments increase in an actuarially fair manner until age 70. The claiming formula is designed to make the economic value of the stream of benefits the same, regardless of when you start. The longer you wait, the greater your monthly benefits when you start getting checks, because you will not receive them for as long a period. If you wait from 62 to 66 to start, your payments go up by at least a third, and if you wait all the way until 70 to start claiming, your benefits go up by at least 75 percent. (I say “at least” because if you delay claiming and keep working it is possible that you can qualify for an even higher benefit level.)

With these rules, waiting is the cheapest way to buy more annuity coverage. However, few take advantage of this opportunity. Currently, about 46 percent of participants begin claiming at 62, the first year in which they are eligible, the government says. Less than 5 percent of participants delay past age 66. This is unfortunate. If you are in good health and you can afford to wait, my advice is that you should wait as long as possible. The greater is your guaranteed lifetime income, the easier it will be to organize your retirement budget, and the less you will worry about living “too long.”

The Social Security Administration could take some steps to encourage people to delay. First, change some confusing terminology. For historical reasons, Social Security labels an intermediate age between 62 and 70 as the “Full (normal) Retirement Age.” Yes, the parenthetical “normal” is part of the official language. The age had traditionally been 65, but it is slowly being raised to age 67. For anyone born between 1943 and 1954, for example, the age is set at 66.

Let’s get rid of this awkward and misleading term. Benefits at that age are not “full” and retiring at that age is not “normal.” Research shows that the designation of a full retirement age can serve as an anchor that influences people’s choices, and may help explain why so few people delay claiming past age 66.

THERE is a bolder step that could make additional Social Security benefits available for many people. Pamela Perun of the Aspen Institute suggests that participants be able to “top up” their Social Security benefits. Participants could buy up to $100,000 in additional annuity benefits by sending a check to the Social Security Administration. The $100,000 cap is arbitrary, but the idea behind having a cap is to leave the high-end market to the private sector. Payments would just be added to the usual Social Security check, so the administrative costs would be small.

These reforms will not solve everyone’s problems, but they would make household budgeting easier and less worrisome. With baby boomers starting to reach retirement age, now is a great time to take these steps.

Richard H. Thaler is a professor of economics and behavioral science at the Booth School of Business at the University of Chicago. He is also an academic adviser to the Allianz Global Investors Center for Behavioral Finance, a part of Allianz, which sells financial products including annuities. The company was not consulted for this column.

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Activist’s Undercover Videos on Rules for Voter IDs Lead to an Investigation

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The remote server returned an unexpected response: (417) Expectation failed.
The government should focus its deportation of immigrants on “violent offenders,” not struggling parents.

Poor cartography almost derailed George McClellan’s 1862 campaign.

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Mortgages - Paying on Time

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The remote server returned an unexpected response: (417) Expectation failed.
Being in such a predicament almost always proves costly for borrowers — both in terms of fees they will owe and the lower credit rating that will result.

Mortgage delinquencies are “about halfway back to long-term prerecession levels,” said Jay Brinkmann, the chief economist for the Mortgage Bankers Association, in its fourth-quarter delinquency report, which was released last month. Some 7.58 percent of all residential loans were delinquent at the end of 2011, down from a 10 percent high in 2010 but well above the 5 percent prerecession average. All together, 12.63 percent — one in eight homeowners — were in trouble or in foreclosure at the end of the year, the association reported.

Meanwhile a separate report last month, from the credit-reporting agency TransUnion, found that delinquency rates fell to 6.01 percent in the fourth quarter of 2011 from 6.4 percent the same period the year before, though they rose slightly from the third quarter. Delinquencies of 60 days or more are expected to rise again in the first quarter of 2012, then decline the rest of the year, said David Blumberg, a TransUnion spokesman.

With so many homeowners still pinched financially, it is crucial to understand and adhere to payment deadlines. In general, payments are due on the first of the month; many lenders, though, allow a 15-day grace period. That means “not written by, not posted by, but received by the servicer” on that day, said Michael McHugh, the president of Continental Home Loans in Melville, N.Y., and the president of the Empire State Mortgage Bankers Association. In scheduling automatic electronic payments, he advised, allow at least “five days’ leeway.”

If the payment arrives even a day past the grace period,  your lender will very likely charge a late fee of  2 to 5 percent of the monthly payment, Mr. McHugh said. The late fee and timing are spelled out in mortgage documents. Some late fees may be waived, especially if you have a history of on-time payment.

What is less often waived is the nick to the credit score. At 30 days tardy, a lender sends the credit bureaus a report, which is immediately transferred to your credit report, said Rod Griffin, the director of consumer and public education at Experian, another credit-reporting bureau. The black mark stays on the books seven years, he said, unless successfully challenged.

“That late payment on a mortgage is going to have a significant negative effect on your credit score,” Mr. Griffin said.

Research last year by FICO, the provider of one of the most popular credit scores used by lenders, showed a 60- to 110-point drop in scores for being 30 days late, with the biggest reduction to those with the highest starting score of 780. It could take nine months to three years for the FICO score to recover fully, the research indicated.

VantageScore, a rival to FICO, estimates that the initial hit would be 60 to 100 points at 30 days delinquent and another 10 to 20 points at 60 days.

The key, the experts say, is to pay up before you are 30 days behind — or, failing that, to keep the payments no more than 120 days delinquent to avoid foreclosure proceedings and many extra costs, they say. “If they can stay between 90 and 120 days’ delinquency,” said Carol Yopp, the manager of the foreclosure program at the Long Island Housing Partnership, “they typically don’t get referred for foreclosure.”

Ms. Yopp, who also has 16 years’ experience as a mortgage underwriter, notes that many lenders will not take partial payments on mortgages; they will hold them in a “suspend account” until the borrower has the full amount. Still, she suggested homeowners make a partial payment anyway, so they’re not tempted to use the earmarked funds elsewhere.

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Web Site Stole Job Seekers’ Data in Tax-Fraud Scheme, Manhattan Prosecutor Says

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The remote server returned an unexpected response: (417) Expectation failed.
The site, www.jobcentral2.net, listed nonexistent jobs and used applicants’ identities to file the bogus federal tax returns and collect tax refunds, said Cyrus R. Vance Jr., the Manhattan district attorney.

Petr Murmylyuk, 31, a Russian citizen living Brooklyn, preyed upon unemployed people because they were unlikely to have income and unlikely to file a tax return, reducing the chances that the fraudulent returns would draw attention, Mr. Vance said.

“His scheme hurt jobless individuals and society as a whole,” Mr. Vance said.

The ease with which a bogus company can look legitimate on the Internet has created a perfect scenario for fraudulently “phishing” for Social Security numbers and other personal information under various pretenses.

Filing fake tax returns, in particular, is a growing problem. In January, the Internal Revenue Service and the Justice Department announced that a law enforcement sweep through 23 states had revealed the potential theft of thousands of identities and taxpayer refunds.

The I.R.S. has devoted a Web page to listing enforcement actions involving identity thefts used to fraudulently claim tax refunds. In the most recent case, a woman from Monroeville, Ala., who had conspired with a tax return provider to file bogus returns was sentenced to 75 months in prison and ordered to pay more than $1.3 million to the federal government.

The most common form of identity theft complaint received by the Federal Trade Commission’s Consumer Sentinel Network relates to the filing of fraudulent government documents or benefits.

Mr. Murmylyuk’s site claimed that its job placement services were “sponsored by the government and intended for people with low income,” prosecutors said. He sent e-mails with links to his fake Web site through legitimate job search forums and college electronic mailing lists, they said.

He collected refunds in the names of 108 job seekers, an indictment against him said. The amount collected on each was about $3,500 to $6,500, which totaled more than $450,000. Mr. Vance’s office said that money was stolen from the federal government.

Mr. Murmylyuk recruited 11 students from Kazakhstan, who let him use their bank accounts to cash the tax refunds, according to court documents. Some of the students returned to Kazakhstan shortly after opening the accounts for Mr. Murmylyuk, and were indicted in absentia.

Mr. Murmylyuk, also known as Dmitry Tokar, was charged with money laundering, identity theft and other charges. He faces up to 15 years in prison if convicted on the top charge of grand larceny.

Federal prosecutors in New Jersey, meanwhile, charged Mr. Murmylyuk on Tuesday with working with a ring that stole $1 million by hacking into retail brokerage accounts at Scottrade, E*Trade, Fidelity, Schwab and other brokerage firms and executing sham trades.

He was charged with conspiracy to commit wire fraud, unauthorized access to computers and securities fraud. He faces a maximum of five years in prison and a $250,000 fine on the federal charges if convicted.

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ID Theft Firms Criticized on 'Free Trial' Policies

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The remote server returned an unexpected response: (417) Expectation failed.

A new report on identity-theft protection services says the most frequent complaint from customers concerns misleading trial offers.

Customers sometimes didn’t understand that they would have to pay once the trials ended, the report found, or had trouble reaching the companies to cancel the service.

The Consumer Federation of America, working with commercial providers of identity theft services, last year proposed voluntary “best practices” for the firms to follow in marketing their products. These companies offer a range of services, from credit report monitoring to correcting actual damage caused by an incident of identity theft.

The best practices state, in part, that companies shouldn’t misrepresent their ability to protect consumers from identity theft; that they should have clear, easily accessible privacy policies; and that they clearly explain how the service’s features may help consumers.

The federation recently completed a review of about 20 providers’ Web sites to see how firms were doing in meeting the guidelines a year later.  It found that most of the services’ Web sites did a “fair job” of complying with the guidelines, but there is still “need for improvement,” said Susan Grant, director of the federation’s consumer protection division and leader of the project, in a news release.

The full report looks at the sites and ranks their compliance with each of the voluntary guidelines. The researchers didn’t actually test the services; rather, they tried to gauge how well the companies were doing in providing straightforward information to prospective customers.

If the federation decided the company met the standard, it awarded a “thumbs up” symbol; if it needed some work, it got a hammer; and if it didn’t meet the standard, it got a “thumbs down.”

The report found that some of the sites’ marketing hype remains over the top, and may promise more than the company can deliver. “While these services may alert consumers about possible identity theft quicker than they would discover it themselves,” the report said, “they can’t prevent consumers’ personal information from being stolen or detect identity theft in all circumstances.”

But the most common complaint found during an online search had to with “free trial” offers, an area that wasn’t directly addressed in the original guidelines.

When the federation’s researchers searched online for complaints, looking at sites like ripoffreport.com, it didn’t find much concern about the quality of the identity theft services. (That isn’t surprising, the report said, since “the real test of these services is how well their alert systems and fraud assistance work when consumers become identity theft victims, and many will never experience that situation.”)

Rather, they found complaints about trial offers, in which companies offer their services free for a week or a month, after which customers are charged a fee. Customers often didn’t understand that they had to cancel the service to avoid being charged a fee. And some said they did try to cancel but couldn’t reach a company representative to do so. Still others said they never agreed to try the service in the first place.

The federation recommends that identity theft service providers give customers 48 hours’ notice that a free trial is ending, along with information about how to cancel if they wish and what the terms of the contract will be going forward, if they want to continue using it. And, the federation added, services should provide a quick, easy means of cancellation — “no endless busy signals, no multiple hoops to jump through.”

Have you encountered problems when trying to cancel an identity-theft protection service?

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The Cybercrime Wave That Wasn’t

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The remote server returned an unexpected response: (417) Expectation failed.
Yet in terms of economics, there’s something very wrong with this picture. Generally the demand for easy money outstrips supply. Is cybercrime an exception? If getting rich were as simple as downloading and running software, wouldn’t more people do it, and thus drive down returns?

We have examined cybercrime from an economics standpoint and found a story at odds with the conventional wisdom. A few criminals do well, but cybercrime is a relentless, low-profit struggle for the majority. Spamming, stealing passwords or pillaging bank accounts might appear a perfect business. Cybercriminals can be thousands of miles from the scene of the crime, they can download everything they need online, and there’s little training or capital outlay required. Almost anyone can do it.

Well, not really. Structurally, the economics of cybercrimes like spam and password-stealing are the same as those of fishing. Economics long ago established that common-access resources make for bad business opportunities. No matter how large the original opportunity, new entrants continue to arrive, driving the average return ever downward. Just as unregulated fish stocks are driven to exhaustion, there is never enough “easy money” to go around.

How do we reconcile this view with stories that cybercrime rivals the global drug trade in size? One recent estimate placed annual direct consumer losses at $114 billion worldwide. It turns out, however, that such widely circulated cybercrime estimates are generated using absurdly bad statistical methods, making them wholly unreliable.

Most cybercrime estimates are based on surveys of consumers and companies. They borrow credibility from election polls, which we have learned to trust. However, when extrapolating from a surveyed group to the overall population, there is an enormous difference between preference questions (which are used in election polls) and numerical questions (as in cybercrime surveys).

For one thing, in numeric surveys, errors are almost always upward: since the amounts of estimated losses must be positive, there’s no limit on the upside, but zero is a hard limit on the downside. As a consequence, respondent errors — or outright lies — cannot be canceled out. Even worse, errors get amplified when researchers scale between the survey group and the overall population.

Suppose we asked 5,000 people to report their cybercrime losses, which we will then extrapolate over a population of 200 million. Every dollar claimed gets multiplied by 40,000. A single individual who falsely claims $25,000 in losses adds a spurious $1 billion to the estimate. And since no one can claim negative losses, the error can’t be canceled.

THE cybercrime surveys we have examined exhibit exactly this pattern of enormous, unverified outliers dominating the data. In some, 90 percent of the estimate appears to come from the answers of one or two individuals. In a 2006 survey of identity theft by the Federal Trade Commission, two respondents gave answers that would have added $37 billion to the estimate, dwarfing that of all other respondents combined.

This is not simply a failure to achieve perfection or a matter of a few percentage points; it is the rule, rather than the exception. Among dozens of surveys, from security vendors, industry analysts and government agencies, we have not found one that appears free of this upward bias. As a result, we have very little idea of the size of cybercrime losses.

A cybercrime where profits are slim and competition is ruthless also offers simple explanations of facts that are otherwise puzzling. Credentials and stolen credit-card numbers are offered for sale at pennies on the dollar for the simple reason that they are hard to monetize. Cybercrime billionaires are hard to locate because there aren’t any. Few people know anyone who has lost substantial money because victims are far rarer than the exaggerated estimates would imply.

Of course, this is not a zero-sum game: the difficulty of getting rich for bad guys doesn’t imply that the consequences are small for good guys. Profit estimates may be enormously exaggerated, but it would be a mistake not to consider cybercrime a serious problem.

Those who’ve had their computers infected with malware or had their e-mail passwords stolen know that cleaning up the mess dwarfs any benefit received by hackers. Many measures that tax the overall population, from baroque password policies to pop-up warnings to “prove you are human” tests, wouldn’t be necessary if cybercriminals weren’t constantly abusing the system.

Still, that doesn’t mean exaggerated loss estimates should be acceptable. Rather, there needs to be a new focus on how consumers and policy makers assess the problem.

The harm experienced by users rather than the (much smaller) gain achieved by hackers is the true measure of the cybercrime problem. Surveys that perpetuate the myth that cybercrime makes for easy money are harmful because they encourage hopeful, if misinformed, new entrants, who generate more harm for users than profit for themselves.

Dinei Florêncio is a researcher and Cormac Herley is a principal researcher at Microsoft Research.

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DEALBOOK; TransUnion to Be Purchased by Two Private Equity Firms

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The remote server returned an unexpected response: (417) Expectation failed.

7:51 p.m. | Updated

TransUnion, one of the nation's three largest consumer credit reporting companies, agreed on Friday to sell itself to a pair of private equity funds, including an arm of Goldman Sachs

Advent International and GS Capital Partners, the Goldman unit, will buy the company from Madison Dearborn Partners and the Pritzker family, the Chicago billionaires. The deal, which values TransUnion at more than $3 billion, is one of the largest private equity transactions of the year.

The sale is the latest shake-up for TransUnion, which was controlled by the Pritzkers until 2010. When the Pritzkers sold their controlling interest to Madison Dearborn Partners, one of Chicago's largest private equity shops, the company was worth $2 billion.

The deal announced on Friday will not prompt changes to the company's management team, TransUnion said in a statement. The companies did not announce the full terms of the takeover on Friday.

''I wish the TransUnion management team and all the associates the very best in this next, and very exciting, stage in the evolution of the company,'' Penny Pritzker, one of more than 10 heirs to the Pritzker family fortune and the chairwoman of TransUnion's board, said in a statement.

The credit reporting industry is facing broad federal oversight for the first time. The Consumer Financial Protection Bureau, the nation's federal consumer watchdog, introduced a plan on Thursday to keep a closer eye on credit reporting companies and debt collectors, two industries that have largely flown under the government's radar. The proposal would ensnare the industry's 30 largest companies, including TransUnion and its two biggest competitors, Experian and Equifax.

Credit agencies, which produce on-demand reports with a consumer's credit score and a detailed snapshot of a person's borrowing history, are essential for obtaining a car, a home mortgage or even a cellphone. But the companies have also drawn criticism for producing the occasional error-riddled report and for deferring to creditors at the expense of consumers.

The TransUnion deal is expected to close by early in the second quarter.

''TransUnion has demonstrated strong growth under the support and guidance that Penny Pritzker has provided as our chairman, and we have benefited greatly from the resources, network and expertise of Madison Dearborn Partners,'' Bobby Mehta, TransUnion's president and chief executive, said in a statement. ''We look forward to working closely with the Advent and Goldman Sachs teams to continue executing against our strategic blueprint by remaining focused on providing our clients with highly attentive service and the very best information and risk management products.''

TransUnion was advised by Bank of America and Deutsche Bank and the law firm Latham & Watkins. Evercore advised Advent and Goldman Sachs.

This is a more complete version of the story than the one that appeared in print.

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One Couple’s Ordeal Against Credit Card and Housing Debt

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The remote server returned an unexpected response: (417) Expectation failed.
TWELVE-STEP programs often talk about the moment of clarity, when an addict starts to understand just how dire the situation has become.

For Karawynn Long, 42, and Jak Koke, 47, it arrived in 2005, when they crossed the $40,000 mark on their credit card bills. “For some reason that was a scary number, over some internal threshold,” Ms. Long said.

Their pledge to fix the problem came a couple of years before the economy turned, giving them a head start on all the other people who buckled down once disaster become clear. Ms. Long and Mr. Koke, who live here, paid off the debt, earned more money and changed their spending habits — all of the things you’re supposed to do when plotting a financial turnaround.

But in the end, their best efforts were not enough to avoid being dragged down by the one asset that they thought would protect them — their home, which they will have to shed before they can complete their comeback.

Their story begins in early 2002, when they moved in together. A year later, they began a publishing start-up — Per Aspera Press — that they hoped would become their own science fiction and fantasy imprint. The business name is taken from the Latin phrase “ad astra per aspera,” which means “to the stars through difficulties.” But the effort generated more difficulties than stars, and they struggled to finance it with ever-more credit card debt.

Ms. Long, an author herself, also acknowledged that half of that $40,000-plus debt load was from living beyond their means.

She always assumed she would share the upper-middle-class lifestyle of her childhood. She went out to eat — a lot — something that continued during her relationship with Mr. Koke. They took vacations. And when money was tight? “Basically I just put it on credit cards to keep that level of lifestyle no matter the actual situation,” she said. “Like I was entitled to that.”

Mr. Koke grew up in what he describes as an average middle-class family. Both his parents worked. His money philosophy has always been to try to arrange his expenses and his life so that he could live on part-time employment, with the rest of his time devoted to writing novels.

“I did pick up the responsibility gene in the sense that up until we had our business where we ran up this huge debt, I didn’t have much debt on my cards,” he said. And the pair were sure the publishing imprint would succeed. “It always seemed like at some point it will break through and pay for itself and our lives, too,” Mr. Koke said. “But it never actually did.”

The credit cards had also seen them through periods of unemployment. Both have spent the bulk of their careers in the technology industry, mostly as contract employees. She has worked as a Web designer at various start-ups, and he has had jobs as a biotech researcher at several universities, as well as on-and-off work doing technical and marketing writing and editing at Microsoft.

He has two daughters from a previous marriage: Michaela, 19, who rents a room from a great-aunt in Portland, Ore., while saving for college, and Claire, 13, who lives half-time with her father and Ms. Long.

By late 2005, Ms. Long started to worry about the ballooning debt. Early in 2006 they began household austerity measures, including few or no meals in restaurants, no vacations and the suspension of contributions to their retirement funds.

The couple also shut down the publishing effort and found full-time jobs. She worked for a brokerage firm, and he got what he thought was a long-term contract writing for Microsoft. That raised their combined annual income to around $150,000.

Then, they threw every extra penny at the credit card debt, around $2,000 a month. Soon the older daughter, Michaela, noticed that the formerly automatic answer of “Sure, honey, here’s the money” started to change. “If you wanted to get a sports sweatshirt or something we would work something out where I paid half if I really wanted it,” Michaela said.

Devin Maverick Robins contributed reporting.

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Careless Social Media Use May Raise Risk of Identity Fraud

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The remote server returned an unexpected response: (417) Expectation failed.
Information provided on social networking sites.

Updated 2:08 p.m. / To add Facebook comment.

Users of social media who don’t restrict the information they share online have a higher risk of identity fraud, a new report from Javelin Strategy & Research finds.

The incidence of identity fraud in 2011 rose to about 5 percent of the adult United States population, up from roughly 4 percent the year before, the report found. But among Facebook users with public profiles, the rate was 7.5 percent, while users who accept “friend” requests from strangers had an even higher rate, of nearly 9 percent.

The study defined a “public” profile as one that allows strangers to see personal information, including profiles open to “friends of friends.” Roughly a quarter of Facebook users have public profiles, the study found.

Fred Wolens, a spokesman for Facebook, dismissed the survey’s findings, saying it doesn’t reveal any higher risk of fraud among Facebook users because the percentages reported were within the survey’s stated margin of error.  “This survey doesn’t prove anything,” he said.

He added that it is “common sense” that if you post about your dog using its name on Facebook, you probably shouldn’t be using your dog’s name as any sort of password.

While there’s no direct “causation” between using social media and identity fraud, the report found, the behavior of those participating is probably a factor. Information revealed in public profiles, including your full date of birth or your mother’s maiden name or the name of your pet, is valuable to thieves because companies often use such information to verify your identity online. Nearly half of those with public Facebook profiles revealed their full birth date, including the year, compared with about a third of those with private profiles, the report found.

“The proper use of privacy settings on social network profiles is essential to reconcile the connectivity of social media with the protection of personal information,” the report said.

A probable factor in the rise in identity theft in 2011, the report found, was an increase in reported data breaches, like those at Sony PlayStation and Epsilon. Fifteen percent of Americans were notified that their information was lost in a data breach in 2011, and those notified of a data breach are almost 10 times more likely to be an identity fraud victim than someone who wasn’t notified, Javelin found. But, the report found, the dollar amount of the typical fraud incident is declining. “Although fraud is more pervasive,” the report said, “it is less severe.”

Smartphone users, too, face a higher risk, the report found, with nearly 7 percent of users experiencing fraud in 2011. Smartphone users’ generally higher incomes may contribute to their higher risk, but behavioral factors may also play a role, the report found. For instance, a third of smartphone users store personal information on their phones, but only 16 percent have installed software that allows them to remotely wipe the device if it is lost or stolen.

The report is based on survey conducted in October of 5,022 adults recruited by the survey firm Knowledge Networks, which uses address-based online sampling. The margin of sampling error is plus or minus 2 percentage points. (For a subset of questions asked of fraud victims, the margin of sampling error is 3 percent.)

What steps do you take to guard your privacy when using social media?

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Consumer Agency Seems to Soften Limit on Credit Cards Fees

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The remote server returned an unexpected response: (417) Expectation failed.
The agency, the Consumer Financial Protection Bureau, introduced a proposal that would make it easier for credit card issuers to charge fees before borrowers’ accounts were officially open.

The bureau, which began overseeing many consumer financial products last year, said it was issuing the proposed rule in response to a federal court decision that challenged how the Credit Card Act was being applied. The act, which took effect in February 2010, put several rules in place aimed at curbing abusive lending practices.

Part of the new law said that credit card issuers could not charge fees equal to more than 25 percent of the borrower’s credit limit in the first year after the account was opened. But after certain credit card issuers started charging application or processing fees before consumers’ accounts were opened, the Federal Reserve expanded the rule so that the fee limit would also apply to those upfront charges. That’s the piece of the rule that the consumer protection agency, which has since assumed regulatory authority, is proposing to eliminate.

The bureau declined to say why it took this course. But some consumer advocates said they believed that the consumer agency, led by Richard Cordray, may be backing down because it has decided to “pick its battles,” while trying to show that it is not unfriendly to business.

But other advocates said they could not understand why the agency was not taking a more aggressive stand. “Even if it is a small rule, it affects the most vulnerable of consumers — consumers with impaired credit records, often of limited means, who end up with these expensive fee-harvester cards,” said Chi Chi Wu, a lawyer at the National Consumer Law Center, referring to cards marketed to people with tarnished credit histories. “Exactly the sort of consumers that we think C.F.P.B. should stand strongest for.”

The bureau’s proposal stems from a ruling in September by the Federal District Court for South Dakota that granted a preliminary injunction blocking the rule on the upfront fees from taking effect. To resolve the matter, the consumer agency said it was seeking comment on whether it should revise the rule so that it no longer applies to fees charged before an account is opened.

The initial lawsuit that led to the federal ruling was brought in July 2011 by First Premier Bank of South Dakota, which issues cards to borrowers with troubled credit records. The bank told the court that it would “suffer irreparable harm” if it were not allowed to collect the upfront fees. “The regulation will threaten First Premier’s very existence by causing the loss of millions of dollars in profits,” the bank said.

It also argued that it is “one of the few businesses in the country that offers such high-risk borrowers the chance to rebuild their credit history.”

A First Premier spokeswoman, Brenda Bethke, said Thursday that the bureau’s proposal is under review by its legal counsel and declined to comment.

Odysseas Papadimitriou, chief executive at CardHub.com, a credit card comparison Web site, said that to his knowledge, First Premier was the only bank that has been trying to make up for revenue that had been crimped by the new credit card regulations by charging more upfront fees. “However, you can count on other banks to start doing the same thing if consumers embrace these high-fee credit cards,” he added. “A smarter strategy for the C.F.P.B. might be to drop the amendment and the associated legal battle but require any issuers that charge fees before the account is opened to send a notice that clearly shows consumers how much their credit card will cost them.”

But some consumer advocates said they still believe that the fees are egregious enough to warrant more of a fight. They said First Premier began charging a $95 processing fee before the card account was opened, as well as a $75 annual fee. Yet the credit limit on the card was $300.

“The C.F.P.B. should not back down in protecting consumers from this sort of chicanery,” Ms. Wu said.

The consumer agency said all comments on its proposal must be received by June 11.

“We welcome and want public feedback on this proposal,” the agency said.

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Consumers Sought More Car Loans in February

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The remote server returned an unexpected response: (417) Expectation failed.
Consumers increased borrowing by $8.7 billion, the sixth straight monthly increase, the Federal Reserve said in its monthly report.

The increase in borrowing was driven by an $11 billion increase in the category that includes mostly auto and student loans. Borrowing on credit cards fell by $2 billion, after a $3 billion decline in January.

Total consumer borrowing rose to a seasonally adjusted $2.52 trillion. The figure was nearly at prerecession levels and was up from a postrecession low point of $2.39 trillion reached in September 2010. Borrowing had tumbled for more than two years during and immediately after the recession.

Consumer borrowing rose by $18.6 billion in January, after similar gains in December and November. The gains for those three months were the largest in a decade.

A rise in borrowing could suggest that consumers are feeling more confident about the economy. However, few are comfortable enough to step up credit card use. Consumers carried $799 billion in credit card debt in February — 15 percent less than they held in December 2007, the first month of the recession.

Steven Wood, chief economist at Insight Economics, said February’s borrowing increase was strong. But he said it was the smallest increase since October.

“Consumers still appear to be reluctant to use their credit cards,” Mr. Wood said in a note to clients.

Consumers are taking on more debt at a time when their wages have not kept pace with inflation. And they are paying more for gasoline. The average price per gallon nationally was $3.94 on Friday.

Households began borrowing less and saving more when the recession began and unemployment surged. While the expectation is that consumers are ready to resume borrowing, they are not expected to load up on debt the way they did during the housing boom of the last decade.

The Federal Reserve’s borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.

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A Look at Why Consumers Are Using Prepaid Debit Cards

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The remote server returned an unexpected response: (417) Expectation failed.

It’s clear that prepaid debit cards — cards that you load with cash, spend down and then reload — are hot.

In 2009, consumers loaded roughly $29 billion on such cards, which are especially popular with young adults and those considered underbanked — meaning they have little access to mainstream financial institutions like banks. But by next year, that amount is expected to reach $202 billion, according to an estimate cited in a report from an arm of the Pew Charitable Trusts. Even the budgeting guru Suze Orman is marketing a prepaid card.

So to gain insight into why consumers are using the cards, researchers from Pew’s Safe Checking in the Electronic Age project convened focus groups last fall in Houston and Chicago.

The project recently released some of its findings, along with excerpts from the comments made by participants in the focus groups. The gist of the findings is that users do not like some of the fees associated with prepaid cards, but seem to prefer them over higher and, from their perspective, less predictable fees that come along with traditional checking accounts.

Some of the comments are not only enlightening but also fun to read, so I decided to share some here. (You can read more in the full report).

Here’s one of my favorites, in which a Chicago woman re-enacts a telephone call she made to the customer service number for her prepaid card to question a charge — only to learn that she was being charged for the inquiry. (The card brand isn’t identified.)

Participant: “It was like, ‘Ma’am, you get charged for calling customer service.’ ‘I’m getting charged now for calling you all about the money that I got charged?’ She was like, ‘Yes, I’m sorry.’ I was like, ‘The next time I load my card, I have to pay for the fees that you charge me for talking to you right now?’ ‘Yes.’ ‘O.K. ’Bye.’”

Yet participants seemed to prefer the fees associated with prepaid cards, which Houston participants described as more transparent, to charges like overdraft fees that can come into play with checking accounts at banks.

Male Participant: “Compared to my situation, I went through a lot of late fees with the credit cards, extra fees with the checking accounts. I was paying monthly between $35 to $50 in fees compared to $3.99 that I pay for a maintenance fee to get a card.”

Female Participant, on the prepaid card fees: “I think they are fair because they’re upfront. I’m thinking in contrast to a checking account. I think the ambiance and the idea of the marketing behind a checking account is they’re your friend; they’re your hometown bank. You can depend on them. You can count on them and, really, they’re just lulling you into the sense of comfort because they’re going to whammy you with fees on the backside. Whereas prepaid debit cards, they’re very upfront. This is the cost of the card; this is the cost for the services. It’s up to you at that point.”

Several participants seemed uneasy about the notion of adding credit options to prepaid cards, since they see a major benefit of the cards as helping them stick to a budget and avoid overspending.

Female Participant (Chicago): “It defeats the purpose of a prepaid debit card because it is, like, it’s a credit card. You can use money that you really don’t have to pay back, and I wouldn’t want to do that because I know I’m just going to get myself in some trouble.”

Have you used prepaid debit cards? Are the fees charged for them worth it for the service the cards offer?

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Advent and Goldman to Buy TransUnion in $3 Billion Deal

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The remote server returned an unexpected response: (417) Expectation failed.
Examples of credit reports from Equifax and TransUnion, two of the major reporting bureaus.

7:51 p.m. | Updated

TransUnion, one of the nation’s three largest consumer credit reporting companies, agreed on Friday to sell itself to a pair of private equity funds, including an arm of Goldman Sachs

Advent International and GS Capital Partners, the Goldman unit, will buy the company from Madison Dearborn Partners and the Pritzker family, the Chicago billionaires. The deal, which values TransUnion at more than $3 billion, is one of the largest private equity transactions of the year.

The sale is the latest shake-up for TransUnion, which was controlled by the Pritzkers until 2010. When the Pritzkers sold their controlling interest to Madison Dearborn Partners, one of Chicago’s largest private equity shops, the company was worth $2 billion.

The deal announced on Friday will not prompt changes to the company’s management team, TransUnion said in a statement. The companies did not announce the full terms of the takeover on Friday.

“I wish the TransUnion management team and all the associates the very best in this next, and very exciting, stage in the evolution of the company,” Penny Pritzker, one of more than 10 heirs to the Pritzker family fortune and the chairwoman of TransUnion’s board, said in a statement.

The credit reporting industry is facing broad federal oversight for the first time. The Consumer Financial Protection Bureau, the nation’s federal consumer watchdog, introduced a plan on Thursday to keep a closer eye on credit reporting companies and debt collectors, two industries that have largely flown under the government’s radar. The proposal would ensnare the industry’s 30 largest companies, including TransUnion and its two biggest competitors, Experian and Equifax.

Credit agencies, which produce on-demand reports with a consumer’s credit score and a detailed snapshot of a person’s borrowing history, are essential for obtaining a car, a home mortgage or even a cellphone. But the companies have also drawn criticism for producing the occasional error-riddled report and for deferring to creditors at the expense of consumers.

The TransUnion deal is expected to close by early in the second quarter.

“TransUnion has demonstrated strong growth under the support and guidance that Penny Pritzker has provided as our chairman, and we have benefited greatly from the resources, network and expertise of Madison Dearborn Partners,” Bobby Mehta, TransUnion’s president and chief executive, said in a statement. “We look forward to working closely with the Advent and Goldman Sachs teams to continue executing against our strategic blueprint by remaining focused on providing our clients with highly attentive service and the very best information and risk management products.”

TransUnion was advised by Bank of America and Deutsche Bank and the law firm Latham & Watkins. Evercore advised Advent and Goldman Sachs.

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Lenders Returning to the Lucrative Subprime Market

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The remote server returned an unexpected response: (417) Expectation failed.
“Even I wouldn’t make a loan to me at this point,” Ms. Alejandro said.

In the depths of the financial crisis, borrowers with tarnished credit like Ms. Alejandro were almost entirely shut out by traditional lenders. It was hard enough for people with stellar credit to get loans.

But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.

Consumer advocates and lawyers worry that the financial institutions are again preying on the most vulnerable and least financially sophisticated borrowers, who are often willing to take out credit at any cost.

“These people are addicted to credit, and banks are pushing it,” said Charles Juntikka, a bankruptcy lawyer in Manhattan.

The banks, for their part, are looking to make up the billions in fee income wiped out by regulations enacted after the financial crisis by focusing on two parts of their business — the high and the low ends — industry consultants say. Subprime borrowers typically pay high interest rates, up to 29 percent, and often rack up fees for late payments.

Some former banking regulators said they worried that this kind of lending, even in its early stages, signaled a potentially dangerous return to the same risky lending that helped fuel the credit crisis.

“It’s clear that we are returning to business as usual,” said Mark T. Williams, a former Federal Reserve bank examiner.

The lenders argue that they have learned their lesson and are distinguishing between chronic deadbeats and what some in the industry call “fallen angels,” those who had good payment histories before falling behind as the economy foundered.

A spokesman for Chase, Steve O’Halloran, said the bank “seeks to be a careful, responsible lender,” adding that it “is constantly evaluating the risks and costs of funding loans.”

Regulators with the Office of the Comptroller of the Currency, which oversees the nation’s largest banks, said that as long as lenders adhered to strict underwriting standards and monitored risk, there was nothing inherently dangerous about extending credit to a wider swath of people.

In fact, an increase in lending is a sign that the economy is improving, economists say. While unemployment remains high, consumers have been reducing their debts. Delinquencies on credit card accounts and auto loans are down sharply from their heights in the crisis. “This is a natural loosening of credit standards because the banks feel they can expand again,” said Michael Binz, a managing director at Standard & Poor’s.

And lenders miss many potential customers if they focus just on people with perfect credit.

 “You can’t simply ignore this segment anymore,” said Deron Weston, a principal in Deloitte’s banking practice.

The definition of subprime borrowers varies, but is generally considered those with credit scores of 660 and below.

The push for subprime borrowers has not extended to the mortgage market, which remains closed to all but the most creditworthy.

Capital One is one lender that has been courting borrowers with damaged credit, even those who have just emerged from bankruptcy, with pitches like, “We want to win you back as a customer.”

Pam Girardo, a spokeswoman for Capital One, said, “Our strategy is to provide reasonable access to credit with appropriate guardrails in place to ensure consumers stay on track as they rebuild their credit.”

Ms. Alejandro, 46, was one of the borrowers fresh out of bankruptcy courted by Capital One. So far, she has turned it down.

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Credit Card Rates Up Slightly, but 0 Percent Offers Get Longer

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The remote server returned an unexpected response: (417) Expectation failed.
Bloomberg News

Interest rates on general consumer credit cards ticked up in the first three months of the year, but no-interest offers generally got longer, a new analysis from CardHub.com finds.

The average annual percentage rate on cards for a customer with excellent credit was 12.98 percent in the first quarter of the year, up from 12.46 percent a year ago — an increase of about 4 percent.

Meanwhile, terms for 0 percent offers, for both new purchases and balance transfers, grew longer. It appears, according to CardHub’s report, that card issuers are willing to sacrifice interest revenue early on, in the hope of recapturing it later through higher annual percentage rates.

Introductory terms now range from six to 18 months, depending on the the card and the type of transaction. The average introductory no-interest offer was about 10 months in the first quarter, up from about seven months a year ago.

But balance transfer fees rose slightly, as card issuers try to compensate for lost finance charges during the longer introductory no-interest periods.

There are no-transfer fee offers out there, however. Slate from Chase, for instance, is currently offering no interest for 15 months, for both purchases and balance transfers, with no balance transfer fee.

Cardhub says its report is based on a review of about 1,000 credit card offers.

Have you taken advantage of no interest offers recently?

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Imposters Arise in Afghanistan’s Struggle With Taliban

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The remote server returned an unexpected response: (417) Expectation failed.
Just so with a mullah in Kandahar named Noorul Aziz. After trading his job as a Taliban commander for a cushy post as an Afghan government official, the story goes, he was taken last month by the military coalition on a tour of his old bases, where he made speeches to persuade the locals not to support the insurgency.

Except the locals say they never heard of him.

Then there was the Afghan “senator” who instead may have been a Taliban operative. In January, he conned his way into getting a V.I.P. tour of some of the most secret locations in Kandahar, with briefings from the American-backed provincial governor, Tooryalai Wesa, the local head of the Afghan intelligence service and the governor of the strategic district of Dand.

He did not even bother to adopt a real senator’s name. “There was no senator by that name in the entire senate,” said Bismillah Afghanmal, who is a real senator, from Kandahar.

These are hardly isolated cases. In September, a man posing as a Taliban peace envoy traveled from Kandahar to Kabul to meet the head of the High Peace Council, and used a bomb hidden in his turban to assassinate him. The year before, a scammer who persuaded the Americans that he was a high-ranking Taliban official who wanted to talk peace was flown in by a NATO helicopter to meet with President Hamid Karzai, and paid handsomely for his time. In late 2009, a CIA informer who turned out to be a Qaeda plant killed eight people in a suicide attack at an agency outpost.

Mr. Aziz, the supposed Taliban commander, showed up in Kandahar last year with 30 armed men and a letter from the Taliban leadership in Pakistan showing that he had just been appointed the shadow governor of Kunduz Province in the north.

His story was that he did not like it up north so was turning himself in as part of the government’s reintegration program, in which former Taliban fighters are offered access to community and jobs programs. The reintegration program has been off to a slow start, so to get a shadow governor of a province to walk in was a big deal. Governor Wesa and other officials greeted him with bear hugs.

In southern Afghanistan, officials say fewer than 300 Taliban insurgents have turned themselves in under the two-year-old program; many are believed to be opportunists looking for government handouts.

“We have two kinds of Taliban, fake Taliban and real Taliban,” Amanullah Hotaki, the chairman of the Oruzgan Provincial Council, said of those who have turned themselves in there. “The fake are 60 or 70, but the real ones are only five.”

In an interview last year, Mr. Aziz insisted he had been the Taliban commander in the district of Nad Ali in Helmand Province, once one of the most violent places in Afghanistan.

Elders there, however, said they had never heard of him. “We don’t know a Taliban commander by the name of Noorul Aziz,” said Haji Mirwais Khan, a tribal elder. “Maybe he has been called by a pseudonym?”

Western military intelligence officials have also cast doubt on Mr. Aziz’s bona fides. “We don’t know who he is,” said one.

Nonetheless, after his surrender, Mr. Aziz managed to become the provincial director of the Department of Hajj and Religious Affairs, a plum job that in many parts of Afghanistan has been a font of corruption. He was appointed by Governor Wesa, who reportedly also arranged the visit of the mysterious non-senator.

In the senator case, a man calling himself Muhammad Asif Sarhadi said he was a senator from Ghor Province who wanted to start a new museum and open a Kandahar branch. The governor, according to local officials, then gave him introductions to district officials, where he met with police, intelligence and government officials.

“He was not here officially and we did not deal with him officially,” said Zalmai Ayoubi, a spokesman for Governor Wesa. He conceded, however, that “Mr. Sarhadi” talked with officials about security issues as well as museums.

Mr. Aziz, the supposed former Taliban, went on tour last week in Helmand Province, visiting what he said were his former bases from his insurgency days, and meeting NATO coalition soldiers there.

“Meeting face to face with a former Taliban commander gave me mixed feelings to begin with,” said Maj. Kaido Kivistik, commander of an Estonian Army company.

Mixed feelings about Mr. Aziz are common. “We don’t know him, “ said Qari Yusuf Ahmadi, the spokesman for the Taliban in southern Afghanistan. “He’s a sick man and he’s an imposter.”

Emma Watkins, a spokeswoman for the southwest regional command of the NATO-led coalition, which includes Helmand, disputed that Mr. Aziz was not genuine. “I am informed that Mr. Aziz continues to be the director of Haj in Kandahar and in particular he made a speech at the Kandahar peace conference in September last year,” she said.

Turning against the Taliban, whether sincerely or not, has become something of a family business for Mr. Aziz, who was rewarded with a house, bodyguards, money and a job. At least four of his brothers and a father have also turned themselves in — one of them, Abdul Aziz Agha, claimed to have been the Taliban commander in Panjway District, a Taliban stronghold just outside of Kandahar.

In Panjway, no one had ever heard of Mr. Agha, either.

Taimoor Shah contributed reporting from Kandahar, Afghanistan, and Sharifullah Sahak from Kabul.

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