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

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

B. The Challenges and Competing Interests of a Federal Standard

The Consumer Data Industry Assocation (CDIA), which represents the interest of the three largest credit bureaus, has vigorously campaigned against the enactment of state credit freeze laws. (146) The CDIA argues that credit freezes can be expensive for credit bureaus when state law mandates only a nominal fee for credit freeze services and that they remain unused by a majority of consumers. (147) Lobbyists for the CDIA maintain that protections under federal law are more than adequate to protect identity theft victims. (148)

If a consumer's credit is frozen, credit bureaus are unable to sell that consumer's credit report to the various pre-screening and spam mail companies, which cut into a large portion of credit bureau profits. (149) Lobbyists for the CDIA argue that there are "significant, significant protections available to consumers under the Fair Credit Reporting Act and under state laws." (150) The CDIA argues that the FACTA meets the needs of victims of identity theft and that time will show that there is no need for additional protective legislation. (151) Although the fraud alert under the FCRA and the FACTA may allow consumers to stop identity theft prior to major damage, the fraud alert system requires an extreme amount of diligence and time on the part of the consumer. (152)

Another industry affected by credit freezes is the credit monitoring service industry. (153) Credit monitoring services like ID Watchdog and LifeLock charge consumers a fee each month to place and renew fraud alerts on consumer credit reports, request credit reports from credit bureaus, and remove consumers from pre-approved credit card and spam mail lists. (154) Additionally some services, like LifeLock, guarantee their services and help to navigate consumers through the repair process if their identities are stolen. (155) Consumers are able to perform all of these actions for themselves for free, but the convenience of having a credit monitoring service may justify the monthly fee for some consumers. (156) Credit monitoring services would stand to lose significant business, or become obsolete, if credit freezes were mandated because credit freezes would allow consumers to freeze their credit and then forget about it. (157) A credit freeze does not require consumers to check back periodically because it is a secure way of blocking new account identity theft. (158) If consumers were provided with a hassle-free, simple way to stop identity theft, then these credit monitoring services would no longer be needed. (159)

Retail industries that rely on instant credit decisions, such as automobile dealerships, also contest the passage of credit freeze laws. (160) "The credit and retail industries fear interruption in the free-flow of credit ... will cut down on consumer impulse buys." (161) The retail industry, however, has been lobbying Congress for years to make declaring personal bankruptcy more difficult. (162) If frozen accounts need to be thawed before an extension of credit, this could reduce the number of consumers that default. (163) The delay and process in removing the credit freeze would provide consumers with time to consider the purchase thoroughly. (164) Additionally, a handful of states require credit bureaus to thaw an individual's credit within fifteen minutes of that individual requesting that her credit be unfrozen. (165) A waiting period of fifteen minutes would not drastically reduce the availability of instant credit that retailers are so anxious to protect. (166)