State law could hinder efforts to fight it

The San Francisco Chronicle

WASHINGTON — The Federal Trade Commission admitted Wednesday that identity theft was far more widespread than it had thought and warned that a new California law limiting the ability of companies to share consumers’ financial information with others could hinder efforts to fight the crime.

But advocates of the state’s new financial privacy law, which was enacted last month after a four-year battle, said the FTC and the Bush administration were ignoring an obvious solution to the problem of identity theft because of the powerful banking lobby’s influence.

The FTC, based on a telephone survey of 4,057 adults conducted in March and April, extrapolated that 27.3 million Americans had been victims of ID theft in the past five years, including 9.9 million in the past year alone.

“ID theft is the crime of the times. . . . It’s considerably higher than I expected, given previous estimates,” Howard Beales, director of the commission’s Bureau of Consumer Protection, said in releasing the FTC’s first effort to quantify the problem.

The FTC survey found that identity theft cost individuals $5 billion last year, while businesses and financial institutions lost $48 billion. The surge in losses has prompted state and federal legislation to punish offenders and protect consumers’ vital financial data from falling into the wrong hands.

The FTC weighed in as Congress considers renewal of the Fair Credit Reporting Act, a law that probably will contain new national protections against consumer fraud. These include a provision requiring credit agencies to place fraud alerts on the accounts of those who suspect their identity has been pilfered, heavier criminal penalties for identity thieves and a national rule requiring that credit card or ATM receipts print out only the last four digits of account numbers.

However, the FTC supports continuation of a federal law that bars states such as California from adopting a tougher standard on the sharing of information among financial institutions. The debate on federal pre-emption, a rule that expires at the end of this year unless Congress extends it, is fueling an intense battle in Congress.

Sponsors of California’s new law, which Gov. Gray Davis signed last week, said the legislation was designed in part to fight identity theft and prevent financial institutions from marketing consumers’ financial data.

The new California law, which takes effect in July 2004, bars companies from sharing consumers’ financial information, even with affiliated companies, unless consumers give their permission.

But Beales said the FTC hadn’t found evidence that identity theft had increased as a result of sharing financial data.

“It’s the theft of information from firms or by hackers, not from the sharing of information that institutions did intentionally,” he said.

If states adopt different privacy standards, it will hurt efforts to thwart identity crime, he said.

“A national credit reporting system is central in reporting this crime,” he said, “and it’s important it be a uniform national standard so people know what’s available.”

But Jamie Court, director of the Foundation for Taxpayer and Consumer Rights in Santa Monica, said the FTC has it backward. It’s no coincidence, he said, that the rise in identity theft has coincided with an easing of federal banking laws, which has allowed banks to enter a wide range of businesses, including stock brokerages, real estate and insurance, and share their customers’
information with those affiliates.

“The problem is that our information is being put at risk,” said Court.

Beales’ comments were “an unbelievable way of spinning away from a solution,” Court said. “The Bush administration has announced an epidemic, but it opposes the cure.”

But Catherine Pulley of the American Bankers Association said banks were eager to fight identity theft. “We eat the losses,” she said. “Trust me, it’s in our best interests to solve this problem.”

However, she said, a single national standard on privacy is vital. “With states having their own laws, it would be the equivalent of states having their own different gauge of railroad tracks,” she said. “Federal pre-emption makes the process seamless.”

In addition to filing police reports, consumers can report identity theft to the FTC by calling (877) 382-4357 or at http://www.ftc.gov/ftc/complaint.htm.
——————-
E-mail Edward Epstein at [email protected]