New law to curb credit abuses

Bush signs bill to bar ID theft, shield privacy

Bush signs bill to bar ID theft, shield privacy

December 05, 2003|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

Consumers will get a host of new protections against identity thieves and uncaring companies that damage their credit under new legislation signed by President Bush yesterday.

The new law will make it easier to know what your creditors are saying about you, fix errors, and opt out of marketing promotions from companies sharing information about you.

"Consumers will get a number of benefits they don't now have and substantially added protections," said Democrat Sen. Paul S. Sarbanes of Maryland.

Some consumer groups say these protections should help, but they worry that the law prevents states from providing even tougher regulations and doesn't do enough to stop affiliated companies from sharing customer information.

"There are good things in this bill ... but despite the fact that there are meaningful new federal consumer protections, they come at a very high price," said Travis Plunkett, legislative director for the Consumer Federation of America.

"States are now going to be handcuffed in many important areas. It's the states that have been the innovators, that have responded to problems when they came up."

The Fair and Accurate Credit Transactions Act amends the Fair Credit Reporting Act. The multitude of changes take effect at different times, but most should be in place by 2005, experts said.

The legislation addresses three major issues: access to credit reports, accuracy of credit information and identity theft.

Cases where thieves steal a person's financial information and open new credit accounts in the consumer's name have been growing at an alarming and costly pace.

In the past five years, 27.3 million Americans have been victims of identity theft, the Federal Trade Commission said in September. Last year's 9.9 million victims spent $5 billion out-of-pocket to resolve the problem, and identity theft losses cost businesses almost $48 billion.

"It's huge," said Rick Fischer, a lawyer and privacy expert in Washington. "Consumers are hurt because their reputations are injured and their time is taken. It can take two or three years to get your credit report repaired."

Among the legislation's highlights:

Consumers will be able to get a free credit report once a year from each of the three major credit bureaus, and they will only have to contact one source to get all three reports. (Maryland and several other states already require credit bureaus to give a free report each year. Otherwise, reports cost about $9 each. )

Financial experts typically advise consumers to look at their report at least once a year to make sure the information on it is correct and that no one has illegally taken out credit in their name. More than half of last year's cases of identity theft were uncovered by consumers monitoring their credit report, according to the FTC.

Credit reports are used by lenders and others to determine whether to extend credit and to set interest rates if credit is offered. Information on the report also is used to determine a credit score, a three-digit number that predicts the likelihood of a consumer repaying bills. This score is used not only by creditors, but also by insurers and some prospective landlords and employers.

Under the new law, consumers gain the right to their credit score for a "reasonable fee" that will be set by the FTC. Also, mortgage lenders will have to disclose to homebuyers the credit score that was used in the loan decision and the key factors that determined that score.

To prevent identity theft, banks and credit unions will have to create policies and procedures to safeguard consumers' information, and businesses won't be able to put more than the last five digits of a credit card number on receipts, said John M. Pachkowski, an analyst with CCH Inc., a company that provides tax information.

A consumer who suspects that he or she may be a victim of identity theft can place a "fraud alert" on a credit report for up to 90 days. Creditors would be required to take extra steps to ensure that anyone requesting new or increased line of credit under that consumer's name is indeed the right person.

Someone who is a victim of identity theft can place a fraud alert on his report for up to seven years. To do so, a consumer would have to report the identity theft to police, Fischer said.

No new credit could be issued on the account unless the creditor contacted the consumer. Also, the consumer would be able to block any information on the report that was attributed to the identity thief, Fischer said.

Fraud alerts have been available for years, but some creditors ignored them, consumer groups said. The new law requires creditors to honor fraud alerts, they said.

There will also be a new "active duty alert" for military service members called away on duty. The alert can be placed on a credit report for up to one year, and requires creditors to verify the identity of anyone applying for credit in the service member's name, Fischer said.

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