As Congress moves into the final wrangling over an update to the Fair Credit Reporting Act designed in part to slow the growth of identity theft, victim advocates are complaining the legislation might actually make things worse. The central issue is one of the oldest debates in American politics: states’ rights vs. a strong central government. But victim advocates worry that millions who face identity theft each year might have a hard time finding justice, and stopping the crime, if the states’ rights advocates lose the argument.
The National Consumer Credit Reporting System Improvement Act of 2003 adds new layers of complexity to an already complicated law that affects nearly everyone in the United States. The Fair Credit Reporting Act, initially passed in 1970, governs the way national credit bureaus and credit granters — such as credit card companies — are allowed to store and use the financial information they gather about individuals.
The FCRA legislation has been tweaked much since then, with the most recent major revision occurring in 1996. Congress that year gave the credit industry a provision it aggressively sought: pre-emption of state laws governing the credit industry. In certain critical areas, such as the way the industry handles inaccurate information, only the 1996 federal legislation currently has force of law. The pre-emption meant state legislatures couldn’t pass their own “mini-FCRAs,” which could place tougher regulations on the credit industry.
That state pre-emption is set to expire on Jan. 1, 2004, setting off the current round of legislative haggling. The credit industry has lobbied hard to make the pre-emption permanent, and to expand the areas of the law that are off-limits to state lawmakers — sparing firms the worry of dealing with state legislatures passing a wide variety of identity theft regulations.
Identity theft advocates say extending pre-emption would erase a number of new state laws that place tougher accuracy standards on the credit bureaus, most designed to prevent identity theft or ease the pain of victims. And the ban would permanently prevent states from passing laws that protect their residents against identity theft.
SSN in the sky
Consumer groups say that credit card companies and the credit reporting bureaus bear some responsibility for the identity theft epidemic because they have been slow to react to it. Victims who end up with pock-mocked credit reports often find it takes years to clean up their credit histories. Advocates have taken aim at the industry, and have been using the required update to the Fair Credit Reporting Act as a chance to force companies to fix their part of the problem.
Debate on the complicated pre-emption issue has been emotional in some corners. In October, The Foundation for Taxpayer and Consumer Rights, a California group, made its point by using an airplane skywriter to write the first five digits of Citigroup CEO Charles Prince’s social security number above Citigroup headquarters in New York.
Vote may come this week
The House and Senate have passed similar bills to update the FCRA, but there are key differences which are set to be hashed out during a conference committee hearing early this week. Passage of the final bill is expected as early as the end of the week.
Both bills permanently extend the pre-emptions granted by the 1996 law, to the chagrin of consumer advocates, but the House bill goes a step further, adding to the list of items which would become off-limits for state legislators of the future.
In a last minute flurry of lobbying, consumer advocates are urging members of the conference committee to stick to the Senate bill, which leaves the door open for many state laws.
“We are working on this bill and we are asking in the identity theft issues that lawmakers take the Senate versions of the bill,” said Gail Hillebrand, staff attorney for Consumers Union. “The Senate measure is better for consumers.”
Linda Foley, Executive Director of the Identity Theft Resource Center, said consumer-friendly laws already passed in at least nine states would be essentially nullified by the House bill. In California, for example, a new law gives victims of identity theft the right to obtain one free credit report a month. The new federal law would limit that to one free credit report a year, erasing California’s rule. In Texas, victims can ask for a “credit freeze,” which prevents any new credit from being granted in the consumer’s name — useful when it is a child or senior citizen whose identity has been stolen. The Texas law provides a “golden bullet” for identity theft victims, Foley said, but it would be reversed by the updated FCRA.
“This is one of the few tools we have to help them,” Foley said. “If the House version is allowed to pre-empt state laws, we fear that not only will this enable criminals but will leave victims more vulnerable and unable to recover completely.”
Industry wants uniformity
Mallory Duncan, senior vice president and general counsel for the National Retail Federation, said consumer advocates’ concerns are “grievously misguided.” Both versions of the new law are loaded with provisions to help victims, he said, including the ability to get a free annual credit report. He also reiterated the credit industry’s position that it couldn’t operate efficiently if all 50 states were allowed to pass their own credit reporting laws.
“A concern many of us have is if you have 47 or 50 different rules floating around out there, you’re going to undercut the system we have,” he said. “We have a national credit system. ... We don’t let the states dictate how the national highway system works.”
Consumer groups’ animosity toward the credit reporting industry has grown in recent years, and at a congressional hearing earlier this year, they called on Congress to simply let the state pre-emption expire on Jan. 1.
At the hearing, consumer advocates repeated tales of inaccuracy and sloppy reporting by credit card issuers, banks, and the three credit bureaus, Equifax, Experian, and Trans Union.
Len Bennett, a lawyer who represents consumers who sue the credit firms for inaccuracies, said states need to be able to pass additional identity theft provisions because Congress has been slow to react to the current crisis. According to the Federal Trade Commission, 27 million Americans have been hit with some kind of identity theft in the past five years.
“If we had a national standard that was working, if the Fair Credit Reporting Act had tough national standards that were enforceable, that would be one thing,” Bennett said. “But with respect to some things, it is impotent.”
Consumers have also expressed their frustration with the industry. Statistics obtained from the Federal Trade Commission by MSNBC.com under a Freedom of Information Act request show complaints against the credit bureaus have jumped about 40 percent per year in the past two years. While 9,722 consumers filed complaints in 1991, over 13,000 filed complaints in 2002, and nearly 14,000 filed complaints in the first nine months of this year.
Ed Mierzwinski, Consumer Program Director at the U.S. Public Interest Research Group, said any limitation of states’ abilities to pass identity theft laws will end up hurting victims.
“Consumers are getting screwed, and banks are getting everything they want,” Mierzwinski said. While the new federal law does include specific components to help identity theft victims, the crime is constantly changing, he said, and state legislatures are much more nimble than Congress in dealing with such high-tech crimes.
“Federal law is supposed to be a floor, not a ceiling. ... When lobbyists tell you they don’t want 50 state laws, they are spinning you a line. They want one, weak uniform law,” he said. “If the House bill is crappy, and it passes, we’ll have to wait for the Congress to fix it, and that’s a bad idea.”