Ed's Blog

The credit reporting system is backwards. Congress can pass one law to fix two things about it.

By Ed Mierzwinski
Senior Director, Federal Consumer Program

Last week, Sens. Jack Reed (RI) and Chris Van Hollen (MD) introduced legislation to finally give consumers real control over our own credit reports. The Consumer Credit Control Act (S. 2685) would change what Sen. Reed appropriately calls our “backwards” credit reporting system by helping to solve two problems. 

First, the Big 3 credit bureaus -- Experian, Equifax and TransUnion -- share or sell our private information without our consent. Shouldn’t our information be protected until we decide to share it; for example, when we want to apply for a new loan? 

Second, the credit bureaus convince many of us to pay them hundreds of dollars per year for credit monitoring products that don’t actually prevent identity theft. 

The Consumer Credit Control Act is a win-win for consumers. It improves their privacy and saves them money.

When it comes to privacy, we’ve known for years that our best protection against identity theft is the optional credit report freeze, which is allowed by law in nearly every state but only became commonly known after the 2017 Equifax breach. Congress finally made the freeze both free and available nationwide in 2018. 

Right now, the process is optional and you have to activate it. This new legislation would freeze your credit by default and the optional step would be unfreezing your credit. With that “new normal,” fewer consumers will subscribe to unnecessary and expensive credit monitoring. They’ll realize they don’t need it if their privacy protection freeze is always switched on.

Consumer advocates have known for years that new account identity theft is fueled by a major flaw in the credit granting process:  the Social Security number is the key to unlocking your credit report and committing identity theft.

While you want to protect the privacy of your credit report, you need to be aware that bad guys don’t need your report  to steal your identity. Instead, thieves usually obtain your Social Security number at black market sites on the Internet or trick you into giving it to them through a “phishing” email or telephone scam. 

Then, they simply apply for credit with your name and your SSN at their address. Because creditors are trusted bulk customers of the bureaus, the creditor gets the credit report easily but then issues credit in your name to the wrong person.

The credit bureaus didn’t create the concept of the credit freeze. I was on a phone call in the late ‘90s where consumer advocates and consumer protection attorneys batted around ideas to stop the growing epidemic of identity theft. We decided that giving consumers more control over their reports could fix the flaw in credit granting. We wondered: “What if consumers controlled when their credit report could be shared with a new creditor? What if they could “freeze” access to their reports?”

Following the first credit freeze law taking effect in California in 2003, over the next fifteen years similar laws passed in nearly every state. But the credit bureau lobby fought back, arguing that they couldn’t do it for free and that consumers should have to opt in. They wanted to keep selling credit monitoring, which only warns you of identity theft after that horse has left the barn.

The massive 2017 Equifax breach finally convinced Congress that consumers weren’t credit bureau customers and that the system was set up to sell consumers’ data as a product, to the credit bureaus’ actual customers, businesses.

When it comes to saving consumers money, the Reed bill will diminish demand for overpriced, underperforming subscription credit monitoring products hawked by the bureaus -- or often, your bank. Banks also sell credit monitoring products because at a price of $19.99 or more per month, the bureaus can afford to give them a hefty commission. 

If your credit report is frozen for free by default, the demand for -- and the market value of -- credit monitoring will drop. Consumers who might still want monitoring would pay a much fairer price.

Like with so many other issues, when it comes to protecting consumer credit, states have led the way and showed  Congress what to do. Due to credit reporting mistakes, the first free credit report laws were passed in seven states in the 1990s. Congress finally followed in 2003. 

Even then, the credit bureaus bollixed things up by continuing to confuse consumers with “free trial offers” for expensive “add-on” credit monitoring plans. Experian subsidiaries paid the FTC civil penalties in 2005 and 2007 for deceptive marketing of “free” credit add-on products. In 2017, each of the Big 3 bureaus, (ExperianEquifax and TransUnion), paid millions in government penalties for deceptive marketing of these and similar “add-on” products.

Now it is time to take the next steps. The Consumer Credit Control bill kills two birds with one stone. It gives us the peace of mind that our confidential credit information is safe, all the time. It also stops credit bureaus from collecting hundreds of dollars for a product that simply closes the barn door too late to prevent identity theft.

Isn’t protecting your privacy and saving you money a win-win?

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