Credit Freeze: An Example of How Regulation Gives Consumers Choice Where the Market Wouldn’t

Brian Krebs reports good news: Trans Union, one of the three major consumer reporting agencies, will offer all consumers the option to freeze their credit files in order to prevent identity theft:

A credit freeze directs the credit bureaus to block access to a consumer’s credit report and credit score. At present, at least 39 states and the District of Columbia allow consumers to freeze their credit files, but many of those laws do not take effect until 2008 or 2009. TransUnion would be the first bureau to voluntarily offer freezes to consumers in all 50 states (and D.C.).

There’s a lot to say about credit freeze, the ability to lock one’s credit report in order to avoid identity theft, but I want to use this opportunity to discuss how when this remedy was first proposed in California by then Senator Debra Bowen, the industry predicted gloom and initially killed the legislation (2000 Cal. SB 1767). Now, years since the first credit freeze bill passed, the sky didn’t fall, and Trans Union is actually offering freeze nationally.

After Bowen’s bill failed in 2000, she reintroduced it as SB 168 in 2001. A report accompanying the legislation details the arguments that the industry used against it:

The three national credit reporting agencies, Equifax, Experian and TransUnion oppose the security alert and security freeze provisions in the bill. On this point, Equifax states that the bill would:

Add significant new costs to the credit economy by forcing credit reporting agencies to develop new computer architecture to issue consumers PIN numbers to turn off and on their files as they like;


Harm consumers by delaying or preventing altogether necessary credit transactions for consumers who had blocked their files. In mortgage reporting instances, for example, consumers would have to remember three PIN codes for each of the national credit reporting agencies. Automobile dealers and auto finance companies, cellular phone providers, financial institutions, retailers, insurers, and those in the mortgage lending and real estate business would suffer as the process from freeze to unfreeze could take up to 14 days. Instant, online transactions would not be possible for consumers with a
“frozen” file.

Regular readers of the blog should be able to spot the denialism. But the broader point I’m making is that the consumer reporting agencies hated the idea of credit freeze seven years ago, and now, one of them is offering it nationally on a voluntary basis. Most of the objections, such as the supposed 14-day waiting period for a credit thaw, in retrospect, are silly (New Jersey requires a 15 minute thaw). This is a great example where regulation created a market that the free market never wanted to exist!