One thing that consumer finance companies and credit sellers share in common with their customers is the desire and business necessity to protect customers from becoming victims of identity theft. Identity theft too often results in loss to both consumers and businesses. We both spend countless hours and a lot of money trying to undo the damage that identity theft causes.

There is a way to minimize the incidents of identity theft. The means to do so are now available to consumers under amendments to the Fair Credit Reporting Act (“FCRA”). Creditors cannot themselves invoke these options. However, finance companies and credit sellers can offer guidance to customers as how to best protect against identity theft.

In the next couple of blogs, I want to address fraud alerts and security (or credit) freezes, so that you can assist your customers in protecting their personal information while still assuring their ability to access credit from you. Let's start with the basics.

  • A fraud alert may be placed on a consumer's credit file with one of the nationwide credit reporting agencies (“CRAs”). A fraud alert serves the purpose of basically telling a business that it must confirm a transaction with the consumer before extending credit on a loan or sale. Any consumer may instruct any of the nationwide CRAs to add a fraud alert to his or her credit file; and, that CRA then notifies the other nationwide CRAs. A fraud alert lasts for one year, except when the consumer has already been a victim of identity theft, and then such an alert can be extended for seven years. There is no charge to a consumer for a fraud alert.
  • A credit or security freeze is more like a lock-down of credit information. It restricts access to a consumer's credit report, making it difficult for identity thieves to open new accounts. To impose a credit freeze, the consumer must contact each of the three nationwide CRAs. But such a freeze can also interfere with a consumer's ability to access credit. As of last year, credit freezes are also free to the consumer to place and lift.

The FCRA is the body of federal law that governs these frauds and alerts. But, states also have adopted consumer credit report security freeze laws. State laws sometimes have separate “notices of rights” that must be delivered to consumers in connection with FCRA notices. An example is found in Alabama law at Alabama Code Section 8-35-3.

In the next two blogs, I will dive more deeply into fraud alerts and credit freezes. Meanwhile, consider whether it is in your company's best interest to teach your CSRs about these protections.

Please note: This is the forty-third blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.