U.S. shouldn’t restrict states’ stricter rules on consumer protection

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Austin American-Statesman (Texas)

Many Americans are getting more careful about giving out personal information — a Social Security number, a driver’s license number, a home address or telephone number — for fear of an identity theft that could damage their credit and force them to spend months cleaning up a financial mess.

The U.S. Senate may take up as soon as this week a bill that would strengthen in some respects the consumer protection provisions of the existing Fair Credit Reporting Act. But it also would restrict the ability of the states to enact even tougher legislation on behalf of their citizens, especially California but, to a lesser degree, Texas.

The legislation already has passed the House and cleared the Senate Banking Committee. The new and positive provisions in the bill include allowing consumers one free credit report a year from each of the three major credit reporting agencies, which would make it easier for consumers to ensure that the information collected on them is accurate. The bill also has provisions to require companies to use a fraud alert system to help deter and detect identity theft, and orders the General Accounting Office to study the role of race and gender in granting credit.

The law in California is even tougher. It requires financial conglomerates to give consumers a chance to block one affiliate they do business with — a bank, for example — from sharing information about that consumer with a separate but affiliated company, such as an insurer or a stock broker. (Federal law already requires such companies to give consumers a chance to block information sharing with nonaffiliated companies.)

In Texas, the Legislature this year enacted new laws to fight identity theft. Victims of identity theft now can block the issue of credit reports on themselves, effectively stopping a thief from opening a new line of credit in their name.

However, the financial services industry is fighting to prevent the states from adopting their own laws. They say that, in a continental economy, the nation cannot afford to have varying regulations. A spokesman for the Securities Industry Association said the bill’s provision to exclude state laws was “critical.” And, of course, businesses want to be able to easily share information gathered about customers by one affiliate with other affiliates in hopes of boosting sales and profits.

Consumer groups argue that Congress should not restrict the states from adopting tougher restrictions on businesses sharing financial information.

There’s a reason some states have taken such steps: people want them. Just look at the popular reaction to the Federal Trade Commission’s do-not-call list.

But on financial information, it’s not just a matter of ducking unwanted solicitations. The more personal information is shared, the easier it is for it to get in the hands of identity thieves. There’s another serious problem: Affiliates of a conglomerate could develop internal “credit reports” affecting their customers without giving them any right to see such information, as they have with the credit report agencies.

States should be allowed to enact tougher laws than the Fair Credit Reporting Act, or the federal law itself should be considerably strengthened to protect consumers.

Consumer Watchdog
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