[March 16, 2006]

Feds To Gut State Credit Freezing Laws?

By Tracey E. Schelmetic

Editorial Director,
Customer Inter@ction Solutions magazine

Hard on the heels of my recent article about credit freezing called, appropriately enough, "How To Freeze Your Credit," I received the following press release today regarding the Federal Government's plan to vote on and potentially pass some severely watered down (compared to the states' laws) legislation about credit freezing, thus essentially displacing the strong state laws of California, Connecticut and other states.

Whaddya think…do the Big Three credit agencies throw a lot of money at the campaigns of friendly politicians, or am I just overly cynical?

As Congress debates a plan to gut California’s landmark credit report freeze and security breach notice laws, California State Senator Debra Bowen (D-Redondo Beach) renewed her call for national laws that give all Americans the right to freeze access to their credit reports and the right to be told when their personal information is exposed in a corporate or government security breach. H.R. 3997, which Congress is expected to vote on tomorrow, creates a weak federal law that preempts California’s strong laws on two fronts. First, it only allows people to freeze their credit reports – widely touted as the most effective identity theft prevention tool – after they’ve become an identity theft victim. Second, it only requires businesses to notify their customers when a security breach happens if the breach is “likely to result in substantial harm.”

“Congress is poised to strip Californians of their right to place a freeze on their credit report, the most important tool people have to protect themselves from becoming an identity theft victim, all in the name of creating a national standard,” said Senator Bowen, who is the author of several of California’s identity theft prevention laws, including SB 168, which created the first credit report freeze law in the nation in 2001. “Privacy is the number one concern of most Americans. I don’t see how making life easier for would-be identity thieves, as Congress seems intent on doing, and setting the identity theft prevention efforts back five years does anything to help people protect their privacy.”

California has been a national leader in identity theft prevention, enacting ground-breaking laws in 2001, 2002, and 2003 to ban Social Security numbers from being used as public identifiers, give people the right to freeze access to their credit reports, and require notice to victims of security breaches. Unfortunately, Congress has a history of preempting California’s strong consumer protection laws and H.R. 3997 is just the latest case in point. For example, Congress passed the Fair & Accurate Credit Transaction (FACT) Act of 2003, which contained a number of provisions that were weaker than California’s financial privacy laws, and the Ninth Circuit Court of Appeals ruled in 2005 that the FACT Act preempted the opt-in “affiliate-sharing” provisions of SB 1 (Speier), California’s Financial Information Privacy Act (American Bankers Association v. Gould, 412 F.3d 1081 (9th Cir. 2005)). Congress also passed the CAN-SPAM Act of 2003 which set an opt-out standard for spam and specifically preempted California’s opt-in spam law [SB 186 (Murray) from 2003].

“Preventing people from freezing access to their credit reports unless they’re an identity theft victim is a little like saying people can’t buy flood insurance until their house is six feet underwater,” continued Bowen. “The whole purpose of the freeze is to let people take a pro-active, preventative step to ensure they don’t get ripped off. Why Congress wants to tell people, ‘Hey, there’s this great thing that will help you from becoming an identity theft victim, but you can only use it if your identity has been stolen and the thief has racked up thousands of dollars worth of bills in your name’ is beyond me.”

The FTC received 255,565 identity theft complaints in 2005, according to the January 2006 Consumer Sentinel report by the FTC.

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