The Commonwealth of Kentucky’s General Assembly is considering a bill which would permit parents to place security freezes on their children’s credit record. Senate Bill 23 (SB 23) was introduced in the Senate on January 6, 2016. After several readings and committee reviews, it was approved by the Senate with minor changes and sent to the House Banking & Insurance Committee on February 11, 2016. The 2016 Kentucky Legislative Session will adjourn on April 12, 2016.
Children do not have credit reports since they generally do not have credit in their names. So SB 23 provides that if there is no credit file/credit report, then the consumer reporting agency must create such a record for the protected person (as defined below).
SB 23 would require a consumer reporting agency to place a security freeze on a protected person’s record or report upon proper request by a representative. A “protected person” is defined as “an individual who is under sixteen (16) years of age at the time a request for the placement of a security freeze is made, or who is an incapacitated person or other person for whom a guardian or conservator has been appointed.”
State Laws and the Three Major Consumer Reporting Agencies Vary on Security Freezes for Children
The National Council of State Legislators reports that only “twenty-three states allow parents, legal guardians or other representatives of minors to place a security freeze on the minor’s credit report.” Kentucky is not currently one of those states.
The three major consumer reporting agencies, Equifax, Experian, and TransUnion, differ in their handling of security freezes for children in states where the law does not explicitly permit parents to file freezes for their children. Equifax permits parents to place security freezes—whether or not state law allows parents to place security freezes. TransUnion and Experian, on the other hand, only permit parents to file a security freeze if permitted by state law. Unless SB 23 becomes law, only Equifax would allow Kentucky parents to file security freezes for their children.
Children are Frequent and Ideal Targets for Identity Thieves
A security freeze could be a new option for Kentuckians to protect the credit and identity of children or vulnerable adults, both of whom are ideal targets for identity thieves. Identity theft is on the rise among children. According to a 2011 Carnegie Mellon CyLab Report based on AllClear ID data, 10.2% of child identities scanned exhibited evidence of identity theft, while children were an astonishing 51 times more likely to become victims of identity theft than adults. In 2012, AllClear ID reported that “2,875 or 10.7% of children had someone else using their Social Security numbers. This is an increase of .5% from the 10.2% rate reported in the 2011 report.” The Identity Theft Resource Center observes that children are frequent targets because “parents would never think of checking a child’s credit history” and because children generally do not have credit histories until they reach early adulthood and begin applying for student loans, renting apartments, and making purchases on credit.
How to Place a Security Freeze
In order to place (and also later to remove) a security freeze, SB 23 requires that a representative will need to present to the consumer reporting agency “sufficient proof of authority.” Such documentation includes but is not limited to:
- A court order granting custodianship, guardianship, or conservatorship;
- A birth certificate;
- A lawfully executed and valid power of attorney; or
- A written, notarized statement signed by a representative that expressly describes the authority of the representative to act on behalf of a protected person.
The current version of the bill requires the consumer reporting agency to place the freeze within 30 days of receiving the request (previous revisions of the bill required shorter deadlines). A security freeze would then remain in effect until either the parent or the child requests its removal, at which time the consumer reporting agency is required to remove the freeze within 30 days of the request.
Fees for Placing and Removing Security Freezes
Please note that there may be fees for placing and removing security freezes, which cannot exceed ten dollars for each consumer reporting agency. However, SB 23 would not allow a consumer reporting agency to charge a fee if the representative provided a copy of a police report to the consumer reporting agency alleging that the protected person had been a victim of a crime involving identity theft. A consumer reporting agency also cannot charge a fee if the request for the placement or removal of a security freeze is for a protected person who is under 16 years of age at the time of the request, and the consumer reporting agency already has a credit report pertaining to the protected person. The assumption appears to be that if a child under age 16 has a credit report, then it is because someone has fraudulently used their information to apply for credit and they are already identity theft victims (however, some children may have credit reports in their names if they are authorized users or joint account holders on their parents’ accounts).
Is a Security Freeze Necessary?
Experian’s position is that a security freeze is not necessary for most children. It believes that no credit record is actually better than a frozen record, and does not recommend that parents routinely freeze their children’s credit histories—unless the child has already been the victim of identity theft. The “Ask Experian” team explains its position:
Having no credit report is better protection than having a credit report with a freeze. If an identity thief applies for credit using your children’s information, the lender will get a response indicating no credit report exists with those identifiers, and also may receive an alert that the Social Security number belongs to a minor.
A notice that the Social Security number is issued to a minor can tip off the lender to fraud, stop the application and allow the lender to notify law enforcement.
If there were a credit history and it were frozen, the lender would receive only a message that the credit file needed to be thawed by the consumer. The lender would then have to ask the identity thief to thaw the credit file before the application could be processed.
The identity thief could then explain that he or she needed to go get the password and could simply walk out of the bank never to be seen again.
Many credit experts, such as financial guru Clark Howard, disagree and recommend placing a security freeze on children’s accounts to protect against identity theft.
Takeaways for Parents
Parents should consider whether to file a security freeze on their children’s accounts. They should also periodically check whether their children have a credit report, which could be a warning sign that their children’s information is being misused. It is especially recommended around age 16, so that if any issues are discovered, then they can be corrected before the child starts applying for a job, renting an apartment, applying for college loans, buying a car or anything else that requires a credit check. If a child has already been the victim of identity theft and the parent cannot file a security freeze because it is not permitted by state law, then think about adding a victim statement or fraud alert to the child’s credit report.
The Federal Trade Commission (FTC) and many state attorneys’ general websites provide additional resources and helpful suggestions to protect children’s identities and credit.