Will The Credit Freeze Frenzy Impact Your Credit Union?

September 20, 2017 at 9:50 am Leave a comment

This morning’s American Banker points out that credit freezes are becoming a hot topic. As consumers contact your credit union about the best way to protect their information, I would strongly suggest reviewing §380-t of New York’s General Business Law, which provides a mechanism for members to request credit freezes. I wouldn’t be surprised if consumers are already asking you what credit freezes are and this statute is where you should look to answer the questions. Unfortunately this statute, while helpful, offers no quick fixes for consumers. In addition, depending how widely used credit freezes become, we could see some unintended consequences which diminish their value as consumer protection tools.

First, some background. The statute does not directly apply to your credit union. Instead, it places a responsibility on credit reporting agencies to place a security freeze on a consumer credit report, no later than one business day after receiving such a request. Once the freeze is put in place, consumers are to be given a unique identifier or password to allow them to access their report. A security freeze shall remain in place until a consumer requests that it be lifted. It must be lifted within three business days of the request.

So, what’s the downside to a consumer putting a credit freeze in place? My guess is that most consumers don’t realize just how much their credit report is used by businesses with which they want to work. For example, credit unions pride themselves on being able to provide quick credit to members looking for a new car, but if that member searching for a car this weekend has put a credit freeze in place, the consumer won’t be able to get immediate credit approval. New York has a required disclosure accompanying credit freezes. It informs consumers in bold type that:

“YOU SHOULD BE AWARE THAT USING A SECURITY FREEZE TO TAKE CONTROL OVER WHO GETS ACCESS TO THE PERSONAL AND FINANCIAL INFORMATION IN YOUR CREDIT REPORT MAY DELAY, INTERFERE WITH, OR PROHIBIT THE TIMELY APPROVAL OF ANY SUBSEQUENT REQUEST OR APPLICATION YOU MAKE REGARDING A NEW LOAN, CREDIT, MORTGAGE, GOVERNMENT SERVICES OR PAYMENTS, INSURANCE, RENTAL HOUSING, EMPLOYMENT, INVESTMENT, LICENSE, CELLULAR PHONE, UTILITIES, DIGITAL SIGNATURE, INTERNET CREDIT CARD TRANSACTION, OR OTHER SERVICES, INCLUDING AN EXTENSION OF CREDIT AT POINT OF SALE.”

New York’s statute, and I assume similar statutes across the country, was not designed in anticipation of a massive data breach. Security freezes are a common sense mechanism to help the isolated individual who is victimized by identity theft. It was not intended to address a situation in which more than a hundred million consumers are put at risk of identity theft. At the end of the day, lenders need access to credit information and debtors need to provide that information. The American Banker warns that the wide-spread use of credit freezes would cause access to consumer credit to suffer.

In addition, when the statute was drafted in 2008, it was believed that it could be fairly easy for a consumer to know when they have been victimized by identity theft. In fact, one of the key issues confronting policy makers and judges, is figuring out precisely when a consumer whose information is compromised is in fact a victim of identity theft. The way hackers work now, information stolen from a consumer may not be used to perpetrate a fraud for several months or even years.  

Entry filed under: Compliance, New York State. Tags: , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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