Insurers Cool to N.Y. Proposal to Freeze Access to Consumer Credit

November 22, 2005

Insurance company lobbyists urged New York lawmakers in Albany this week to refrain from blocking insurers’ access to consumer credit information as part of their efforts to protect consumers from identity theft.

The lawmakers are considering a measure that would allow consumers concerned about identity theft to place a security freeze on their credit information.

Kristina Baldwin, regional manager and counsel for the Property Casualty Insurers Association of America, maintained that utilizing existing fraud alert and other identity theft protections would be more helpful to consumers than placing a blanket freeze on their credit information.

“While a security freeze is intended as a consumer protection measure, the result may actually be detrimental to the consumer,” said Baldwin. “A freeze would result in enormous difficulty, or even the inability to purchase numerous goods and services. Once a consumer freezes his file, applying for a loan or credit, applying for insurance, or even buying a cell phone can become a difficult and inconvenient process as the consumer must specifically lift the freeze, with a waiting period, each time the information must be accessed.”

In addition to harming consumers, a security freeze would also affect insurers and “most likely result in increased costs, burden and inconvenience both for the consumer and for businesses operating in the state,” Baldwin said.

PCI was not alone in urging lawmakers to consider the insurance ramifications of a security freeze. The American Insurance Association told the same joint hearing of the New York State Senate’s Consumer Protection Committee and Assembly Consumer Affairs and Protection Committee that any security freeze legislation aimed at combating identity theft should not prevent property-casualty insurers from conducting normal business operations.

AIA said that access to consumer reports should be restricted to those with a legitimate business need to use them. “However, even in situations where a security freeze is put into place some users, including insurers, should be able to review these reports as part of normal business operations,” argued Gary Henning, AIA assistant vice president, Northeast Region.

Applying a security freeze to insurers would have little benefit since it is difficult to imagine a scenario where an identity thief would attempt to buy an automobile or homeowners insurance policy for monetary gain, according to Henning.

Henning said there would be disadvantages to applying a security freeze to insurers. It could block access insurers need to underwrite when consumers are seeking to obtain insurance coverage quickly to buy a car or to close on a home. In addition, insurers use the information in consumer reports as a tool to fight insurance fraud, especially in dealing with third party claimants with whom the insurer has no prior relationship.

The Federal Fair and Accurate Credit Transactions Act (FACTA) of 2003 currently allows a consumer to request that a consumer reporting agency mark the consumer’s file with a fraud alert for a period of not less than 90 days when identity theft is suspected, and such alert must be included by the consumer reporting agency with all requested credit scores. In addition, the consumer reporting agency is required to notify other consumer reporting agencies relative to the fraud alert and offer a free copy of the credit file to the consumer upon request. FACTA also authorizes consumers who have made a report of identity theft to block fraudulent items from appearing on a credit report. Blocked items will not be released to users of credit information, and therefore, could never be considered by the user.

There is also a security freeze bill pending at the federal level. S1408, the Identity Theft Protection Act, includes a freeze provision, and, if enacted, would preempt all state freeze laws already in place.

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