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F I S C A L I M P A C T R E P O R T

SPONSOR Rawson

DATE TYPED 2/23/05

HB

SHORT TITLE Credit Report Freeze for Identity Theft

SB 701

ANALYST Ford

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB 246, HB 734

SOURCES OF INFORMATION

LFC Files

Federal Trade Commission

SUMMARY

Synopsis of Bill

Senate Bill 701 enacts three consumer protection requirements on credit bureaus and on entities

using credit reports related to identity theft: security alert, security freeze, and blocking of

fraudulent information.

Security Alert: The bill requires a credit bureau, at the request of a customer, to place a security

alert on the consumer’s credit report that will warn anyone receiving information that the con-

sumer’s identity may have been used without consent. The security alert shall be maintained for

ninety days, at which time the consumer is entitled to a free copy of his/her credit report. The

bill requires recipients of a credit report that contains a security alert to take reasonable steps to

verify the consumer’s identity prior to extending credit.

Security Freeze: Senate Bill 701 also allows a consumer to request a that credit bureau place a

security freeze on the consumer’s credit report that will prohibit a credit bureau from releasing

the information in the credit report without the consumer’s express written authorization. The

bill establishes a process by which a consumer can grant authorization to release information.

Block: The bill requires credit bureaus to block from inclusion in the credit report any informa-

Senate Bill 701 -- Page 2

tion the consumer alleges is the result of identity theft. The bill provides a process for the credit

bureau to unblock the information. If information is unblocked, the credit bureau shall promptly

notify the consumer and the consumer shall have a right to receive a free credit report each

month for up to twelve consecutive months.

Significant Issues

The provisions providing for security alerts and the blocking of fraudulent information are al-

ready covered in federal law.

The Fair and Accurate Credit Transactions (FACT) Act was passed by Congress in 2003 and

amends the Fair Consumer Reporting Act (FCRA).

With respect to security alerts, the FACT Act provides that a credit bureau, upon a consumer’s

assertion that the consumer has become a victim or fraud or identity theft, shall include a fraud

alert in the file for not less than 90 days and refer the information to each of the other consumer

reporting agencies. The consumer may request a free copy of his/her report.

The FACT Act also provides for extended alerts lasting 7 years. During the first 5 years of the

alert, the credit bureaus must exclude the consumer from the marketing lists it sells to third par-

ties. The law allows the consumer 2 free reports within the first 12 months.

The federal law prohibits users of credit reports from establishing new credit plans or extending

credit to a consumer with a security alert unless the user utilizes reasonable policies to verify the

identity of the person.

With respect to blocking, the FACT Act provides:

15 USCS § 1681c-2 (2005

)

Block of information resulting from identity theft

(a) Block. Except as otherwise provided in this section, a consumer reporting agency shall

block the reporting of any information in the file of a consumer that the consumer identifies

as information that resulted from an alleged identity theft, not later than 4 business days after

the date of receipt by such agency of--

(1) appropriate proof of the identity of the consumer;

(2) a copy of an identity theft report;

(3) the identification of such information by the consumer; and

(4) a statement by the consumer that the information is not information relating to any

transaction by the consumer.

This provision went into effect on December 1, 2004. The law also provides authority to the

consumer reporting agency to decline or rescind a block.

The security alert and blocking provisions of Senate Bill 701 may be pre-empted by the FACT

Act, which prescribes 6 areas where states are specifically pre-empted from enacting their own

legislation. Two of those areas are regulations relating to the time by which a consumer report-

ing agency must take any action in any procedure related to the disputed accuracy of information

in a consumer’s file, and regulations relating to information contained in consumer reports.

Whether or not the bill is pre-empted may be a moot point since it would appear that the FACT

Senate Bill 701 -- Page 3

Act provides similar or stricter protections. The only exception seems to be that Senate Bill 701

would provide the consumer with a greater number of free credit reports.

Federal law does not provide for security freezes, as provided in Senate Bill 701. Security

freezes most likely do not fall into any of the categories that are preempted and would be al-

lowed under the federal law.

FISCAL IMPLICATIONS

The bill does not create any new requirements for state agencies and thus, there is no fiscal im-

pact.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bills 246 and 743 both provide for the blocking of fraudulent information on credit re-

ports.

TECHNICAL ISSUES

Section 1 of the bill adds a definition of identity theft to Section 56-3-1 NMSA 1978 that is con-

sistent with the current definition in Section 30-16-2.1. However, it may be prudent for the bill

to simply refer to Section 30-16-2.1 so that consistency in the definition can be maintained in the

future. For example, legislation has been introduced this session that would amend the definition

in 30-16-2.1.

POSSIBLE QUESTIONS

Are the security alert and blocking provisions necessary given that federal law already provides

these protections. Would they be pre-empted by federal law.

EF/yr