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A bill pending in the House of Representatives would
limit who can put a security freeze on credit files. If passed,
this federal bill, the Financial Data Protection Act of 2006, would
limit credit freezes to identity theft victims. Once you've been
hit by ID theft you may request a credit freeze, not before.
A credit freeze gives consumers control over their
personal financial information by allowing them to block new creditors
from accessing their credit reports and scores without permission.
Since most credit issuers require a credit check before granting
credit, the credit freeze should block most unauthorized attempts
to obtain new credit.
Currently, 21
states have passed legislation allowing any consumer to place
a credit freeze on his or her credit files -- whether a victim of
identity theft or not.
The idea of allowing anyone, anytime, to place a freeze
on his or her credit sparks controversy between consumer advocates
and financial industry proponents. Some see credit freezes as too
extreme, while others see them as "the biggest tool in the
toolbox."
The logic behind this bill, says Ed Mierzwinski, U.S.
Public Interest Research Group, or PIRG, consumer program director,
is "like saying you can't get a seat belt until you've been
in an accident."
J. Craig Shearman, vice president of government affairs
for the National Retail Federation, doesn't think a security freeze
is necessary for most consumers.
"Our concern is that the credit freeze issue has become overkill, because most consumers are never going to be the victims of ID theft. If millions of consumers place a credit freeze on their files, it can cause difficulties when trying to purchase homes, cars or even opening simple lines of credit at a department store," he says.
If not a credit freeze, then what?
Opponents of security freezes say that placing a fraud alert on
your account is just as effective for notifying the three credit
reporting agencies that your information has been tampered with
or stolen. A fraud
alert, which is free, allows U.S. citizens to place a 90-day
watch on their credit files, requiring banks and other credit lenders
to take extra steps to verify their identities before issuing credit.
While a credit freeze offers good protection, it means
a consumer may not be able to access his or her own credit during
that time period, says Steven Katz, spokesman for TransUnion's Truecredit.com.
Fraud alerts allow you to go about your credit activities without
paying or waiting to lift a freeze. An alert, unless removed or
renewed by the consumer, falls off after 90 days. A credit freeze
stays put until the consumer pays to remove it.
Consumer advocates warn that fraud alerts don't live
up to their labels. Calling fraud alerts a "fig leaf of protection,"
Mierzwinski says that they merely place a flag on credit reports.
They don't stop credit from being issued.
The need to protect customers should not be underestimated, especially since most consumers don't have the option of giving their consent about where their personal information is being sent.
"Credit bureaus and data brokers buy and sell your name, address, Social Security number and credit file to anyone who will pay for it," says Evan Hendricks, editor of Privacy Times.
Chris Hoofnagle, the west coast director of the Electronic
Privacy Information Center, says consumer reporting agencies' interests
are not in tune with consumers' interests. "The credit bureaus
are creatures that serve the creditors and don't want any slowdown
of instant credit."
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