States consider laws to put ID theft on ice

High-profile data leaks at information warehouse companies such as ChoicePoint and Lexis-Nexis are keeping the U.S. postal service busy, with well over 1 million bad-news letters telling consumers they are now vulnerable to identity theft. 

People who receive the letters have one immediate question: What do I do now? Generally, the answer has been vague and unsatisfying: watch your credit report and hope for the best.

But state legislators around the country think they have found a better answer: a credit report "security freeze." Put simply, a freeze would lock down a consumer's credit report, preventing anyone -- including the legitimate consumer -- from instantly opening new credit cards or taking out loans.

Until recently, only Californians had the right to implement a security freeze, but the idea has spread like wildfire across statehouses in recent months. About 20 states now have pending legislation which would force credit bureaus to give consumers the right to freeze their accounts.

"The ChoicePoint issue and all the subsequent breaches are drawing consumers' attention and policy makers' attention," said Kerry Smith, senior consumer attorney with the Public Interest Research Group. The agency penned model security freeze legislation that has been adopted by many state lawmakers.

"Right now, consumers don't have enough tools to protect themselves," Smith said.

'Bad advice,' says industry
A credit freeze would be the essential identity theft prevention tool, consumer advocates say. With a freeze in place, credit files cannot be accessed, and instant credit -- such as retail credit cards or on-the-spot car loans -- cannot be granted. 

Only after a consumer provides additional evidence they are who they say they are, a process known as "thawing," can credit be granted. Thawing can take up to three days, and generally can't be done at the point of sale, such as that critical moment when consumers find themselves unexpectedly across a table from a car salesman. But freezes also prevent identity thieves from making high-speed credit purchases and opening new accounts. 

"This puts the consumer in the driver's seat over their personal information," Smith said.

The retail industry and the nation's credit bureaus are less enthused. The industry argues that consumers like the convenience of instant credit and those who lock down their credit files will miss out on good deals. No impulse buys at the car dealership, no 10 percent discount for signing up for the store credit card.

"Ultimately (telling someone to use a credit freeze) is bad advice," said Stuart Pratt, CEO of the Consumer Data Industry Association, which lobbies for the credit bureaus. "It's a little like telling consumers to brick up their windows and doors to prevent burglary, but then you can't get out of house when you need to."

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