In the Press

Privacy Times

Information Policy Institute Backs National Credit File Freeze

By Evan Hendricks

August 30, 2005

A think tank traditionally friendly to the financial services industry has endorsed credit report "file freeze" legislation, a solution opposed by major credit bureaus and some banks, but heartily endorsed by consumer advocates such as US PIRG and Consumers Union.

Pointing to the ten States that have enacted such measured, however, the Information Policy Institute (IPI) warned of "emerging chaos" due to inconsistent standards, and called upon Congress to preempt all State laws with a national statute.

The IPI said the legislation, which enables consumers to effectively block disclosure of their credit reports to lenders without their consent, would be an important tool in the fight against identity theft. Consumers who freeze their files must "unfreeze" or "thaw" them prior to applying for credit. Industry has warned that freezes will interfere with instant credit and cause upset to consumers seeking credit who forgot they froze their files.

"ID fraud imposes palpable costs on victims, lenders, and merchants alike. The stakes for the economy are higher still. Former Commerce Secretary Donald Evans recently remarked, 'If Americans lose confidence in their credit cards or the Internet, the impact on the economy will be devastating,'" the report stated.

The IPI cited inconsistencies in new State laws. In some States (Illinois, Texas, Vermont, Washington), only actual victims of ID fraud are able to have their credit files frozen. In others (California, Colorado, Connecticut, Louisiana, Maine, Nevada), all citizens have the right to freeze their credit reports, while in Washington state, ID fraud victims and those who have received a data breach notification are eligible to have their credit file frozen.

The fees for freezing and unfreezing are inconsistent as well. "Only Texas would charge an $8 fee for ID fraud victims to have their credit file frozen, and a freeze issued at one bureau must be honored by all three bureaus keeping the cost to the victim nominal. In all other states, ID fraud victims may freeze their credit files at no cost. For those who aren't ID fraud victims but wish to freeze their credit file nonetheless, the fee for freezing a credit file ranges between $8 and $15 for an indefinite freeze. In Washington State, the first freeze is free, but subsequent ones will cost $10 per freeze thereafter.

The fee structure for unfreezing credit files is a more complicated. In States only extending freezes to ID fraud victims (IL, TX, VT, WA), there is no fee to unfreeze a credit file. However, in all other states, both ID fraud victims and anyone else with a frozen file must pay between $8 and $20 to have their credit file unfrozen.

Accordingly, IPI endorsed "rational and uniform national law" that would preempt state law and allow that:

  • Verified victims of identity fraud should be able to freeze and unfreeze their credit reports for free, at their discretion, for seven years;
  • Everyone with a credit report should be afforded the opportunity to have their file frozen, but must pay a reasonable fee to have their account frozen and unfrozen; and,
  • Credit bureaus must be given sufficient time to develop the appropriate systems architecture to implement an efficient file freezing regime.

    The Institute said that such a national law also should include:

  • An exemption for ID fraud victims from fees for freezing or unfreezing their credit files;
  • A reasonable fee for freezing and unfreezing credit files for all non-victims based on the costs that would be incurred by the CRAs;
  • An 18 to 24 month window for implementing an efficient file freezing regime; A 7-year moratorium on a credit freeze fee exemption from the initial freeze or the date of the most recent fraudulent activity; and,
  • A 7-year moratorium on credit file freezes for non-victims of ID fraud.

    The IPI dismissed claims that file freezes would help fraudsters. "The alarmist scenario of an identity thief taking over someone's identity so thoroughly as to control their entire account line and credit history is unlikely. Further, it is important that a rational federal standard provide a fraud prevention and identity authentication exemption for frozen files. That is, even though an individual chooses to freeze his or her file, that person's identifying information, as contained in the frozen file, must still be available for fraud prevention and identity authentication purposesÑ for the individual's own protection.

    During the 2003 FACT Act hearings, the IPI President Michael Turner testified in favor of reauthorizing the preemptive provisions of the Fair Credit Reporting Act, particularly in the area of pre-approved credit cards. He cited preliminary research showing the benefits to the economy and consumers of FCRA preemption. The research was funded by industry, but sharply criticized by consumer advocates and privacy experts. http://financialservices.house.gov/media/pdf/050803mt.pdf (The CDIA, a trade group representing credit bureaus, did not comment on the report by deadline.)