Identity theft and the case for a national credit report freeze law

North Carolina Banking Institute, March, 2008 by Kristan T. Cheng

Businesses in general are also concerned about the increase in costs of compliance with new privacy laws. (167) Several industry groups including the Financial Service Coordinating Council (168) argue that additional "regulation would be duplicative, overly burdensome, and unnecessary." (169) Those in the mortgage industry are also concerned that federal credit freeze legislation could frustrate business and pose an economic health risk to the mortgage industry. (170) These industries' fears, however, would be addressed if a uniform, national credit freeze law was put into place. (171) The national law could contain a quick thaw provision that would reduce the thawing period to that of fifteen minutes. (172) Even a thawing period as long as an hour would not prohibitively lengthen the time it takes to complete a transaction. (173)

Additionally, some state credit freeze laws exempt from the freeze businesses that have a pre-existing business relationship with a consumer. (174) Opponents of credit freeze laws argue that this exemption gives bank or financial institutions, which have preexisting relationships, an unfair competitive advantage. (175) Affiliates of the institution would also be exempt from the freeze and able to access the consumer's credit file. (176) Competing institutions would not have this opportunity. (177) A national credit freeze law could provide uniformity of these exemptions and additionally prevent exempted creditors from accessing the consumer's credit file for purposes that were not directly related to the current credit relationship. (178)

Opponents of credit freezes argue that credit freezes are not necessary because a majority of consumers in states where credit freezes are available do not take advantage of credit freeze protection. (179) Other factors, however, may potentially explain the minimal use of credit freezes; first, consumers may not be aware of a credit report freeze option. (180) A national credit freeze campaign, similar to the free credit report campaign, could make consumers aware that this form of protection is available. (181) Second, individuals might avoid credit freezes to keep their credit reports accessible in case they apply for new lines of credit. (182) If quick thaw provisions were available nationwide, consumers would be able to enjoy the protection of a credit freeze while being able to quickly thaw their credit if they wished to apply for new credit. (183) Finally, consumers may not be aware that credit freezes do not prevent the use of current lines of credit. (184) In other words, consumers may misinterpret a credit freeze as a complete freeze of credit rather than just freezing the release of a credit report on the consumer. (185) In addition to raising awareness of credit freezes, a national campaign might also offer education about credit freezes to remedy this misperception. (186) Although there are issues associated with credit freezes, these can be addressed and remedied.

C. Credit Bureaus Offering Credit Freezes for All Consumers Does Not Negate the Need for National Credit Report Legislation