The Dodd-Frank rollback will prohibit credit bureaus from charging fees to freeze credit reports.
From Ashley Madison to Equifax, data breaches have increasingly plagued companies and their consumers in recent years. According to the Identity Theft Resource Center, over 1,500 data breach incidents occurred in the past year, reportedly a record high.
To protect consumers from identity theft after personal information has been exposed, the Consumer Financial Protection Bureau recommends that consumers place a security freeze on their credit reports. Since creditors frequently request a consumer’s credit report to open a new account, this freeze hinders bad actors from opening new credit accounts using the stolen information. But in over 40 states, credit reporting agencies charge fees to freeze and un-freeze consumers’ credit reports. That will soon change.
President Donald Trump recently signed legislation that will prohibit credit reporting agencies from charging fees for security freezes requested by consumers. This provision, buried in legislation that otherwise repeals certain regulations created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, provides consumers with “the strongest protection against new account identity theft,” according to one report.
Prior to the new legislation, only identity theft victims could obtain security freezes without paying a fee. For individuals who were prone to identity theft after their information had been exposed in a data breach, the fees to place a security freeze have ranged from $2 to $10, depending on the credit bureau.
Freezes must be placed with each bureau individually. For example, although Equifax waived its fees after the company suffered a data breach incident, consumers still needed to pay to freeze their credit reports with consumer credit reporting agencies Experian and TransUnion.
Government officials across the nation—at both the state and federal level—supported removing fees from security freezes. “I do not think it is right that consumers are paying to protect their data when credit agencies are the ones making that data vulnerable,” Washington State Representative Zack Hudgins (D-Tukwila) said, noting that it costs consumers $60 to freeze and unfreeze credit reports with all three credit bureaus in his state. Lifting a security freeze may be necessary when consumers purchase a car or take out a new cell phone contract, he noted.
Credit reporting agencies did not oppose the provision in the Dodd-Frank reform legislation. Although contending that credit bureaus should be able to charge a “modest” fee to recoup costs of security freezes, Consumer Data Industry Association President Francis Creighton said that he supported a national standard. Equifax and TransUnion both stated that the provision would simplify the security freeze process for consumers.
Perhaps surprisingly, some consumer advocates opposed the provision—not to mention other parts of the overall legislation. U.S. Public Interest Research Group Consumer Campaign Director Mike Litt argued that the negative implications of the provision on security freezes may outweigh its positive benefits. Litt said the legislation would actually preempt state regulations that provide stronger protections for consumers. According to Litt, the provision would only apply to security freezes that impede lenders from accessing a consumer’s credit file. But in some states, a security freeze also blocks insurers and employers from access. “Those states would be overridden,” Litt contended.
The legislation could also prevent states from freezing all credit accounts by default, Litt said. Such default security freezes halt the disclosure of all credit reports without the consumer’s express consent. They require credit bureaus to receive a consumer’s authorization before releasing credit information. Without such a default, consumers must actively place a freeze to block access to their information.
U.S. Senator Jack Reed (D-R.I.) introduced a bill earlier this year that would create a national default freeze on the disclosure of credit reports. “Under existing law, the current consumer reporting system is backwards. Consumer reporting agencies collect so much information on us, often without our consent, so at the very least, they should ask us for our permission before they share or sell our information,” Reed said. Since credit bureaus would need to receive consumers’ authorization before releasing their data, the bill would have protected even consumers who have not affirmatively placed a freeze on their account.
But credit bureaus argue that a default freeze would be too difficult to execute, as consumers must unfreeze the protection any time a credit check may be necessary, such as applying for a mortgage.
In addition, consumer advocate Litt has said that Congress should address security freezes in a separate bill. “Congress should really deal with credit freezes separately and keep it out of a bill that exposes consumers to bad mortgages and racial discrimination,” he said. He has objected that, although the legislation will provide some protections for consumers such as the free security freeze provision, overall it will also deregulate some of the largest banks and remove protections for homebuyers.
The prohibition against credit freeze fees will take effect on September 21, 2018.