Posted on: Thursday, December 25, 2003

THE COLOR OF MONEY
Legislation offers better safeguards against identity theft

By Michelle Singletary

Here's something that should go under the category of "it's about time."

Congress has passed legislation that would give consumers some new protections against a growing and costly problem — identity theft.

The Fair and Accurate Credit Transactions Act of 2003, which President Bush signed, would among other things create a national fraud alert system so that consumers will have to make just one telephone call to report fraudulent activity.

The law, which updates the Fair Credit Reporting Act, would also grant consumers one free credit report per year from each of the major credit bureaus — Trans- Union, Equifax and Experian. For most consumers that alone will be a savings of about $27. It generally costs about $9 per credit report. (Seven states — Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey and Vermont — already mandate that credit reports be provided free of charge.)

But perhaps the most noteworthy addition to the law is a requirement that consumers be notified if a business is going to report negative information about them to the credit bureaus. This could give early warning to victims of identity theft.

"This is the most significant consumer-protection and financial-literacy legislation passed by Congress in decades," Chairman Michael G. Oxley, R-Ohio, of the House Financial Services Committee said in a release about the legislation. "With a free credit report and powerful new tools to fight fraud, consumers have the ability make identity theft a crime of the past."

Without a doubt, criminals have had a financially advantageous field day pilfering identities and using the information to steal hundreds of millions of dollars worth of goods. In the process, they have also ruined the good credit names of millions of consumers.

In fact, the Federal Trade Commission recently released a survey showing that 27.3 million people have been victims of identity theft in thepast five years, including 9.9 million this year alone.

In 2002, identity theft losses to businesses and financial institutions totaled nearly $48 billion, and consumer victims reported $5 billion in out-of-pocket expenses, according to the survey. Individual victims lost an average of $1,180.

So, as you can see, this legislation is badly needed. Here are some of the other major provisions of the legislation:

• Businesses would be prohibited from providing the credit reporting agencies with information that is known to result from identity theft activity.

• Financial institutions will have to do a better job of verifying a consumer's identity if a change of address is requested.

• Consumers will have access to their credit scores for a reasonable fee to be set by the Federal Trade Commission. (This was taken from a California law, where the fee ended up being around $4.) Each credit bureau, using specific information in a person's file at that agency, generates a credit score for a particular consumer. You can currently buy your scores, but at a cost of about $13 each.

• Mortgage lenders will be required to disclose credit scores to home-loan applicants at no charge.

• If you apply for a loan and are not given the best terms that a particular institution is offering its other customers, the lender must notify you of that.

• In addition to receiving one free credit report annually, consumers will be able to get a free report from national specialty bureaus that compile information on consumers' medical payments, residential or tenant history, check-writing history, employment history, or insurance claims.

When it comes to preventing identity theft, the law creates three types of fraud alerts, which are intended to stop credit grantors from opening any new accounts in a consumer's name.

A consumer who believes he or she has been or is about to become a victim of identity theft can trigger the first type of warning — an "initial alert" that must be placed in the consumer's file for 90 days.

If a consumer has an identity theft report (typically a police report) alleging that a transaction was the result of fraud by another person using the consumer's identity, then the consumer may alternatively request an "extended alert."

The credit bureaus must place the extended alert in the consumer's file for seven years and inform the consumer of the right to two free credit reports within 12 months. A consumer at any time can remove the fraud alert.

The credit agencies also must exclude the consumer's name from lists used to make prescreened offers of credit or insurance for five years, and include in the file the consumer's telephone number or another reasonable contact method designated by the consumer.

The law would also create a special fraud alert for active members of the military. The "active duty alert" can be triggered even if there is no immediate threat of identity theft. The alert could stay on the file for one year and the active military person would be excluded from lists used to make prescreened offers of credit or insurance for two years.

There is at least one piece of bad news about the Fair and Accurate Credit Transactions Act. It could take until the beginning of 2005 for all the provisions to take effect.

I can't wait.