By Catherine Hubbard, CCH Washington Staff Writer

The Senate Banking Committee is acting swiftly to deter identity theft. At a recent hearing, several lawmakers said they plan to introduce legislation to address the problem, and they called on the Federal Trade Commission to compile a list of measures it thinks would be effective.

"We would be derelict in our duty if we didn't address how to tighten up on identity theft," said Committee Chairman Richard C. Shelby (R-Ala.). "We're going to do this."

The reform discussions are taking place within a larger debate regarding the proposed extension of the Fair Credit Reporting Act (FCRA).

Lawmakers backed continuing the federal preemption of state laws, under the Fair Credit Reporting Act (FCRA), as amended in 1996, but also want to strengthen ID theft prevention. "It is essential we consider [ID theft] in the context of extension of expiring provisions of FCRA," said Shelby. None of the lawmakers who spoke at the hearing suggested that states should pursue their own ID theft laws.

Sen. Tim Johnson (D-S.D.) said a uniform system "is our best tool for fighting ID theft," because it provides credit bureaus the information they need to clear a victim's credit. "Don't jeopardize millions of Americans' access to credit," by letting federal preemption expire, he said. Yet he noted that credit bureaus sometimes ignore fraud alerts and continue to approve credit for ID thieves. While extending the FCRA provisions, Congress needs to "fine-tune our system" so that it no longer takes victims years to clear their credit, he said.

ID theft occurs when someone opens credit card, bank and other financial accounts in the name of another person. Often they need only a person's name, their date of birth and Social Security Number. The bad charges and hot checks usually happen while the person is unaware that something is amiss, Shelby noted.

Three ID theft proposals are in the works:

• Sen. Michael D. Crapo (R-Idaho) said reauthorizing FCRA's expiring preemption provisions would help stem ID theft. The preemption provisions, which are set to expire on Jan. 1, 2004, are "part of the solution, not a part of the problem," he said, adding that he is working on legislation to extend the FCRA provisions.
• Sen. Jon Corzine (D-N.J.) said he hopes to introduce in late June a bill to require financial institutions to notify consumers and law enforcers when information security has been breached. His proposal also would require credit reporting bureaus to immediately put fraud alerts on reports of ID theft victims, provide victims four credit reports during the year following an ID theft and provide one free credit report per year to all consumers. "Our consumers are losing the battle against identity thieves," he said. Corzine also agreed that Congress needs to address ID theft in the FCRA debate.
• Sen. Charles E. (Chuck) Schumer (D-N.Y.) said he is developing a proposal to make sure credit databases are more secure and that people who have access to the databases do not have criminal records or otherwise questionable histories. His measure would let people go into databases only on a need-to-know basis, he said. In many past cases of ID theft, any employee could get into the database, whether they needed to or not, said Schumer. He noted that New York City is the ID theft capital of the U.S., with the state following closely behind. "We have to move and we have to move quickly," he said.
  Schumer also wants to require credit-reporting agencies to notify a consumer whenever they open a credit report and to send notification to the prior address. Many ID thieves list a sham address when they apply for credit in someone else's name. "You could stop a whole lot of ID theft with that simple notification provision."
  In addition, Schumer wants to include language to truncate credit card numbers on customer receipts. He noted that some companies already truncate numbers, by printing only a few numbers on receipts. But he added that all should be required to. "I'd like to. . .put these changes in the FCRA," he said. "I believe we can do it working together," said Shelby, referring to the ideas suggested by all three lawmakers.

Federal Trade Commission response

Testifying at the hearing, FTC's Director of the Consumer Protection Bureau Howard Beales, said "information sharing is the key in fighting ID theft." Timothy Caddigan, special agent in charge at the Criminal Investigative Division of the United States Secret Service, said information sharing, as allowed under FCRA, makes it easier for law enforcers to prosecute. In response to lawmakers' questions, both Beales and Caddigan said FCRA's provision that allows pre-screened credit card offers probably does not add to the ID theft problem.

Ranking member Paul S. Sarbanes (D-Md.) noted that the FTC in 2002 received 380,000 consumer fraud complaints--43 percent concerning ID theft. He asked whether requiring credit agencies to provide consumers free credit reports each year would be helpful. Caddigan said the reports would help improve enforcement of ID theft laws. But Beales said the commission has not yet taken a position on whether free credit reports should be required, adding that the staff is analyzing the issue.

Sen. Zell Miller (D-Ga.) asked Beales whether new ID theft legislation is needed. Beales said enhanced penalties would be useful in attacking the problem. But he reiterated that the FTC has not developed a full plan for combating the problem yet. "We will come back with a list at some point," he said. Sarbanes warned that if the federal government does not act, then states will seek action. "The commission has got to get moving," said Sarbanes.

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Lawmakers Back Extension of FCRA Preemption Provisions