States Offer Consumers New Tool To Thwart Identity Theft

By Brian Krebs Staff Writer
Wednesday, May 9, 2007; 6:31 AM

George Fitzgerald never imagined he would take on the nation's largest financial services industry and win. But his upstart coalition of consumer and business groups did just that when they took up the cause of identity theft victims in Delaware, winning passage last September of a state law enabling residents to opt out of America's instant-credit economy.

Delaware became the seventh state to enact a law enabling consumers to "freeze" their credit reports as a means of preventing identity thieves from establishing new, fraudulent lines of credit. Altogether, 33 states and the District of Columbia have secured such rights for their citizens, and more states are considering similar measures.

Credit freezes can be an effective, if blunt, tool to fight identity theft. A freeze directs the three major credit reporting bureaus to block access to a consumer's credit report and credit score. While a freeze does little to stop abuse with existing accounts that have been compromised by criminals, it can limit victims' total exposure, saving them the time and expense of clearing new, fraudulent accounts from their records.

In securing a freeze law in Delaware, Fitzgerald, a 66-year-old retired insurance salesman, achieved a victory for consumers in what is perhaps the nation's most corporate-friendly state. Delaware lawmakers have fought hard to woo companies with business-friendly tax laws, and the state's legal system has rendered landmark pro-businesses decisions. More than 300,000 corporations are chartered in the state, as well as some 60 percent of Fortune 500 companies and half of publicly traded U.S firms. Six of the top 10 banks with the highest volume of credit-card lending are located in the First State, including Internet banking giant ING Direct and MBNA, the second-largest issuer of MasterCard and Visa credit cards.

The pro-business climate extends to the workings of government. Proceedings and debate on legislation in the Delaware House and Senate are closed to the public and media. Outsiders are allowed to participate by invitation only.

Fitzgerald's story, retold through his eyes and others who witnessed the process, offers an insider's look at the politics behind the identity fraud problem, which affects more than 10 million Americans each year at a cost of more than $50 billion, according to the Federal Trade Commission.

Taking on the Credit Giants

By February 2005, only California, Louisiana, Texas and Vermont had laws allowing credit freezes. Texas and Vermont reserved their laws for identity-theft victims who could produce police reports as proof of their misfortune.

California and Louisiana allow any consumer to obtain a freeze, but consumers are required to pay $10 to each of the three major credit bureaus for the privilege. They also must pay additional fees to unlock their files if they later apply for a loan or line of credit. Consumer applications must be sent via certified mail to each bureau. The applications must include a raft of documents, such as a copy of the applicant's driver's license and credit-card information.

Fitzgerald, a volunteer member of the Delaware Credit Union League, experienced identity theft first hand in 2004. In doing research about the topic, he learned about California's freeze law and decided he wanted to bring it to his state.

Fitzgerald rang his friend Dave Bakerian, executive director of the Delaware Bankers Association, and asked how he could convince a state lawmaker to take up the cause. Bakerian told him that his toughest challenge would come from the Consumer Data Industry Association, a powerful group representing companies like ChoicePoint, LexisNexis parent company Reed Elsevier and more than 250 other companies trading in consumer data.

Following Bakerian's advice, Fitzgerald phoned CDIA lobbyist Christopher DiPietro. Fitzgerald recounted that he had a polite but unproductive conversation. Toward the end of the 10-minute discussion, Fitzgerald said he asked what it would take for the CDIA to support a credit freeze bill in Delaware. According to Fitzgerald, DiPietro chuckled and said CDIA's main policy goal for 2005 was exactly the opposite.

"He said to me, 'We're not going to give you any support for this Delaware bill. In fact, I'll tell you our objective for 2005 nationally. We are going to drive a stake into the heart of the four states that have already passed these laws. That's what we're going to do.'"

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