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Security Freezes

posted by Bob Lawless

In this security-conscious era, a "security freeze" strikes me as a great name for the newest treat at your local ice cream store. As it turns out, a security freeze is something a consumer can impose on their credit report and will stop most attempts to access a credit report for purposes of extending new credit. According to Consumers Union, twenty-two states now have laws that allow all consumers to put a security freeze on their credit report before identity theft strikes. In a few states, only victims of identity theft can impose a security freeze.

To be sure, a security freeze is not a good solution for everyone. It can be a powerful tool to prevent identity thieves from entering into transactions and stop problems before they occur. But just as a credit freeze stops identity thieves, it also can stop consumers. For a consumer with a security freeze in place, even a transaction as simple as buying a cell phone might be delayed for several days while the consumer directs the credit reporting agency to temporarily lift the freeze. There is also the hassle and expense. In many states, a request for a security freeze has to be done through certified mail. It generally costs $10 per credit reporting agency to start a security freeze and another $10 each time one is temporarily lifted. Consumers should think long and hard before they impose a security freeze on their credit reports, consider whether the benefits outweigh the costs and hassle given their individual circumstances.

The House of Representatives has on its calendar another one of those perversely titled bills, the Financial Data Protection Act of 2006 (H.R. 3997), that would preempt all state security freeze laws and as well as some other state laws intended to prevent and protect against identity theft. The federal law would allow only victims of identity theft to initiate a security freeze, rolling back the choice twenty-two states have given to their citizens. Groups such as Consumers Union, the Consumer Federation of America, the AARP, and the National Consumer Law Center have spoken out against the House bill, saying “Consumers today would be worse off under this bill than if nothing passed.”

If the bill emerges from the House, its prospects in the Senate are unclear. The upcoming midterm elections may deter any congressional action on a law opposed by so many consumer groups. The bill does have strong support among financial interests so it could find legs in a lame-duck congressional session or in a new Congress next spring. It wouldn't be the first time that Congress has limited consumer rights under the guise of a bill that purports to protect consumers in its title. If truth-in-advertising laws applied to Congress, this bill would be entitled, "The Limit Consumer Choice in Credit Reporting Act of 2006."

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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