WSJ.com - Freezing Out Identity Theft Identity Theft

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Consumer advocates say the freeze laws are one of the most effective measures available. “The best form of prevention is before the damage starts to occur,” says Gail Hillebrand, senior attorney for the nonprofit Consumers Union's West Coast office.

This July, laws allowing security freezes will go into effect in Louisiana and Vermont. Similar legislation has been considered this year or is being considered in Colorado, Connecticut, Illinois and Maryland, among others, while bills introduced this year have already died in Utah and Indiana. New legislation being considered in Texas would grant the right to freeze their files to all consumers. Currently, only identity-theft victims can do so in Texas, whereas anyone in California can.

What this means is that more consumers may soon face the same choice as California residents: Is it worth the hassle to have to turn your credit files on and off every time you want to get a mortgage or open a bank account in exchange for an almost ironclad guarantee that your identity won't be stolen and misappropriated? The freeze doesn't shut people out of their credit files altogether; they can still open them up temporarily using a personal identification number.

and then the companies that make a profit selling your own data to you complain (and lobby)...

Credit bureaus and others in the credit-data industry, who are lobbying against the legislation, argue that immobilizing credit files is overkill. “It's akin to recommending that to prevent burglary, let's put bars on our windows only to discover that I can't get out of the bedroom when there's a fire,” says Stuart Pratt, president and CEO of the Consumer Data Industry Association, a Washington trade group.

The credit-data industry, of course, has a financial stake in the issue. When lenders, banks or other businesses look at a credit report, credit-reporting agencies like Equifax Inc., GUS PLC's Experian and TransUnion LLC collect fees. If many files were frozen, agencies wouldn't be able to sell as many reports.

Joanne McNabb, chief of the office of privacy protection at California's department of consumer affairs, says as of last fall, only about 2,000 consumers had taken advantage of the freeze since the law went into effect in 2002.

“People don't know about it,” Ms. McNabb says. At the 30 to 40 consumer presentations the department does each year where security freezes are mentioned, she says none of the audience members has generally heard about it.

Consumers with frequent credit needs could find a freeze to be too much of a hassle. To put one in effect generally requires sending certified letters to credit agencies, and, in some states, sending copies of police reports on the identity theft. There also may be small fees, up to $10 to freeze a report and up to $8 to temporarily unfreeze it.

Thawing the files requires several steps too. Someone with locked credit files might need to unfreeze them with all three credit-reporting agencies if he or she doesn't know which company a business uses to check credit histories. It would also be impossible to take advantage of deals where a customer gets 10% off that day's purchase when getting instant approval for that store's credit card. Preapproved 0% balance transfer offers would likely slow to a trickle. And applying for a mortgage, which already requires a mountain of paperwork, would get only more complicated.

The credit agency group's Mr. Pratt says the fraud alert and the free annual credit reports that federal law now requires agencies to give out are enough to help consumers deal with identity theft. Plus, he says his organization is already receiving complaints from consumers who implemented fraud alerts and have become frustrated with how they slow down the process of getting credit. A full-on freeze, he says, would only gum up the works even more.