JAMES F. FLYNN
‘Instant answers’ expected

As identity theft continues to wreak havoc on millions of Americans, lawmakers in several states have implemented legislation that allows a consumer to freeze their credit report to stop further fraud following an incident. National trade groups, however, have complained that it can hinder the home-buying process. In Massachusetts, legislators are working on a bill that would also allow consumers to stop someone from gaining access to their credit report and mortgage lenders have mixed reviews on the possibility of such a credit freeze.

In early August, the National Association of Mortgage Brokers warned that new state credit-freeze laws and legislative proposals, intended to protect consumers from identity theft, could prevent speedy access to credit and disrupt the home purchases and other transactions the consumer is trying to initiate.

“By denying mortgage brokers, car dealers, department stores and others the ability to quickly access credit reports, credit-freeze laws threaten to disrupt the benefits of instant access to credit for consumers,” said NAMB President Jim Nabors.

Not so, said Sen. Jarrett T. Barrios, D-Cambridge, who has authored a comprehensive identity theft bill that is currently before the Committee on Consumer Protection and Professional Licensure.

“The purpose of the freeze is to promote consumer safety and allow for efficient business practices,” Barrios said.

The legislation includes language that allows a consumer to place a security freeze on their credit report.

“A security freeze shall prohibit a consumer reporting agency from releasing any part of the consumer’s credit report or any information derived from said report without the express authorization of the consumer,” the legislation read. “This section also requires a consumer reporting agency to notify consumers of their right to obtain a security freeze.”

The legislation allows a freeze to be made via certified mail, telephone or a secure e-mail connection. Upon receiving the request, a consumer reporting agency must place the freeze on the credit report no later than five business days after receiving a written or telephone request or three business days after receiving e-mail correspondence.

The agency must also provide the consumer with a personal identification number to be used by the consumer when providing authorization for the release of credit. In order to lift the freeze for a period of time, a consumer will have to contact the agency requesting the freeze be removed. The freeze must be lifted within three business days of the request.

“Not enough has been done to protect the elderly and others from the growing crime of identity theft,” Barrios said. “We must get tough on the criminals that victimize unsuspecting consumers, but we also need to get to the root of the problem. Allowing people to place a security freeze on their financial data is far and away the best way to protect consumers from identity thieves.”

Barrios, who expects to see action on the bill in September, said if a consumer were to apply for a mortgage, there would simply be one additional form attached giving a lender authority to request a consumer’s credit report from the credit agencies.

“This is just one part of the application,” Barrios said.

Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said protecting consumers’ identity comes with a price – one that everyone will have to tolerate.

“We certainly live in very interesting times,” Cuff said. “Threats of terrorism, cyber terrorism and other identity breaches spur government intervention by way of credit freezes and identity theft legislation, all the while living under financial reporting restraints of the Patriot Act. New legislative and regulatory burden come with unexpected or unintended consequences of well-intended action. Freezing consumer credit or other vital financial documents may prevent an identity breach or other fraudulent activity but we also now live in a world where we must recognize an accompanying degree of inconvenience. Personal intrusion, decision delay Â… are now the realistic byproduct of well-intended [regulatory] oversight. This has much more to do with the world in which we now live than any specific financial transaction.”

James F. Flynn, president of Hopkinton-based Marathon Mortgage, said he doesn’t believe anyone truly opposes the legislation, but said working around a security freeze can be time-consuming.

“People don’t even remember they’ve done it [placed a freeze on their report],” Flynn said, adding the lender will typically have to call the customer and ask about the freeze.

In today’s marketplace, where consumers expect instant answers, Flynn said that could slow things down.

“We move faster than we did 15 to 18 years ago,” Flynn said.

Cuff agreed, saying three business days was acceptable for document processing in the past, but people now are beneficiaries an accelerated loan approval process due to recent technological advances.

“People have begun to demand more immediacy,” Cuff said.

While the approval process could slow down, Cuff also said not all borrowers require immediate loan approval.

While he thinks the legislation is a good idea, Robert Rocklein, vice president of sales at First Call Mortgage in Andover, said there are a few particulars that need to be fleshed out.

“The idea makes a lot of sense,” said Rocklein. “It’s probably long overdue.”

Pre-Approval Problems

If a consumer finds a property and wants to put an offer on it, Rocklein said in some instances they will look to the lender to issue a pre-approval letter quickly in order to secure the property before another potential buyer. If it could take three days to lift a freeze on a credit report, as suggested by the legislation, Rocklein said consumers could be hurt.

“You could get into a slowdown” and a would-be buyer could lose a dream home, Rocklein said.

If a consumer places a freeze on their credit report, they will need to be aware of the potential consequences.

“Borrowers are going to [have to] take into account it could slow down obtaining a credit report,” Rocklein said.

Another issue at stake is when consumers shop for the best mortgage rate with multiple lenders. Rocklein said it could become “cumbersome” to require every lender to get permission to access a credit report within a small window of time. However, Rocklein admitted that a freeze could also benefit consumers and prevent lenders from constantly pulling a credit report, which can also hurt a consumer’s credit score.

But ultimately, while authorizing credit freezes may hurt some consumers in isolated cases, it won’t knock out the pre-approval process all together, Rocklein said.

“This isn’t going to delay or kill pre-approvals [for every consumer],” Rocklein said.

James Dougherty, executive director of the Massachusetts Mortgage Association, said if a consumer asks to have their credit pulled and needs it for a mortgage within three days, there is a chance that they didn’t anticipate their financial needs well enough.

California, Colorado, Connecticut, Illinois, Louisiana, Maine, Nevada, Texas, Vermont and Washington all have credit freeze laws currently in place. According to NAMB, current federal law provides newly activated fraud protections from identity theft. The Fair Credit Reporting Act allows the consumer to put an extended alert on their credit file for up to seven years if they have been an identity theft victim and filed a police report. Creditors are required to take extra steps to confirm a person’s identity if a credit file has been flagged before approving new credit.

“Unfortunately, due to the exceptions built into the laws, credit-freeze laws are not accomplishing what they were created to do,” Nabors said. “In fact, credit-freeze laws can negatively affect consumers, possibly preventing them from getting the best loan option or even the home they want.”