Senate bill proposes free credit freezes to fight identify theft

Measure would also reduce protections against unfair, risky lending

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations

Senate bill makes credit freezes free to fight identity theft

Consumers will get free, fast credit freezes to halt identity theft under a Senate bill – which will also reduce safeguards against unfair and risky loans.

The Economic Growth, Regulatory Relief, and Consumer Protection Act, S. 2155, as amended by SA 2151, was cleared for takeoff Monday in a procedural vote to limit debate. Sixteen Democrats joined Republicans to push the measure forward by 66 to 30, over objections that it sets the stage for another financial crisis.

The House has already passed a more aggressive bank deregulation bill, making approval there likely.

Highlights of bank deregulation-consumer protection bill

  • Makes credit freezes and un-freezes free; one hour to process if requested electronically.
  • Protects veterans from certain reporting of once-delinquent medical debt on credit reports.
  • Erases delinquent student loans from credit reports after completion of rehabilitation program.
  • Eases capital requirements and regulatory standards for midsize banks, increasing bailout risk.
  • Reduces reporting of home loan data needed to fight discrimination in lending.
  • Reduces quality standards for home loans made by small banks.

Free credit freezes but fewer consumer protections

A credit freeze blocks access to your credit report for new loans. That shuts out fraudsters who try to open accounts under your name. Interest in freezes mushroomed after the data breach at Equifax, which exposed Social Security numbers and other sensitive data of nearly 148 million Americans.

“We have a patchy regulatory framework now that is really confusing to people,” said Eva Velasquez, president of the Identity Theft Resource Center, in an interview. She said the organization doesn’t oppose or endorse specific legislative proposals. However, “we’re certainly in support of free credit freezes.”

But consumer advocates, civil rights leaders and most Democrats aren’t lining up to applaud the bill. To the contrary, opponents call the measure’s protections crumbs for consumers that distract from a dangerous rollback of the Dodd-Frank Act’s bank safety measures.

“Are our memories so short that we learned nothing from the 2008 Wall Street crash?” Sen. Bernie Sanders, I-Vt.,said during debate.

"Are our memories so short that we learned nothing from the 2008 Wall Street crash?"

Wins for consumers in S. 2155

  • Free credit freezes: Credit bureaus must implement a freeze on your credit for free, within one hour of receiving the request by phone or computer, or three days by mail. Unfreezing your report when you apply for credit will be just as fast.

  • The Federal Trade Commission will set up a web page as a central dispatch with links to the major credit bureaus pages where you can freeze your report; put a fraud alert on your credit file, or opt of letting your information be shared for marketing purposes. Freezes don’t shut out companies you have an existing relationship with, or debt collectors working for them.

    Note: Two of the three big credit bureaus already offer free locking and unlocking of your credit report via their web or mobile apps, much like a credit freeze. And free credit freezes are the centerpiece of other pending measures in Congress which do not also roll back protections from bank failures.

  • Veterans’ credit protection: Excludes from veterans’ credit reports some medical debt that was paid or settled after going delinquent. Establishes a dispute process with the credit bureaus and requires the Department of Veterans Affairs to set up a database to verify medical debt.

  • Student loan defaults erased: Private student loans are removed from credit reports after a default if the borrower completes a loan rehabilitation program, bringing payments current. Note: The U.S. Government Accountability Office will conduct a study on the costs and impact of the provision.

Losses for consumers in S. 2155

  • Banks with $50 billion to $250 billion in assets get a break from enhanced regulation standards, including higher capital requirements and “living wills” designed to protect taxpayers from their failure, a key protection in the Dodd-Frank Act.

  • Banks with less than $10 billion in assets are exempt from Dodd-Frank’s Volcker Rule, allowing them to make risky trades backed by depositors’ money.

  • Banks that make fewer than 500 home loans a year will report less data on borrowers’ race. The data is used to fight discrimination in lending. Note: The Independent Community Bankers of America says basic data on borrowers’ race would still be reported.

Toss-ups for consumers in S.2155

  • Easier, but riskier, mortgages. Lenders with under $10 billion in assets get a pass from home mortgage rules that restricted risky provisions, such as interest-only loans, that increase borrowers’ risk of foreclosure. Loans would also get an exemption from appraisal requirements in some cases.

  • Access to manufactured-home loans. The bill eases restrictions on mobile home loans designed to protect buyers, such as restrictions on sellers steering buyers to affiliated lenders.
"Tailoring costly provisions will allow many U.S. banks to free up capital for consumers and small-business loans."

What experts say about S. 2155

Thumbs down:

  • Sheila Bair, former chair FDIC during the financial crisis and current chair of the Systemic Risk Council. Cutting capital requirements raises the risk of more taxpayer bailouts. “Given market volatility, now is the time we should be bolstering bank capital, not chipping away at it,” Bair said on Twitter.

  • Paul Volcker, former Federal Reserve chair and author of the Dodd-Frank Volcker Rule. Raising the regulatory threshold for heightened requirements to $250 billion “goes too far,” he said in a letter to Senate Banking Committee ranking member Sen. Sherrod Brown, D-Oh.

  • Vanita Gupta, president of the Leadership Conference on Civil and Human Rights and former head of the Justice Department’s civil rights division. The bill would undermine the Fair Housing Act, which prohibits discrimination in the housing market, Gupta said.

Thumbs up:

  • Randal Quarles, Federal Reserve vice chairman for supervision. In a speech Quarles said the Volcker rule is too complex, not working well, and that he supports an exemption for community banks.

  • Richard Hunt, president and CEO of the Consumer Bankers Association. “Tailoring costly provisions will allow many U.S. banks to free up capital for consumers and small business loans instead of diverting funds to pay for compliance costs that do not contribute to economic growth,” Hunt said in a letter supporting the bill. Note: Hunt criticized the measure for not reformulating the Consumer Financial Protection Bureau with a bipartisan commission structure instead of a single director.

Down the middle:

  • The Congressional Budget Office says that rolling back tougher capital standards for big banks would “increase the likelihood that a large financial firm with assets of $100 billion and $250 billion will fail.” But given the low likelihood of a financial crisis, it estimates the bill’s net cost to the FDIC at a relatively modest $28 million during 2018-2027.

Is S.2155 really a bipartisan compromise?

Twelve Democrats signed on as co-sponsors of the bill. However, during committee debate, none of the 30-plus proposed amendments were approved by the Republican majority, Sen. Elizabeth Warren, D-Mass., said, undercutting claims that the measure is a bipartisan compromise. On Monday, more than one-third of all Democrats in the Senate voted in favor of moving forward with the proposal.

“Only a bunch of bank lobbyists, and their friends in Washington, would call this a consumer protection bill,” Warren said during Senate floor debate.

“We're not trying to blow up Dodd-Frank,” responded Sen. David Perdue, R-Ga. “Many of us have taken a big step back from what we think we need to do, to get support for this bill.”

The companion piece of Dodd-Frank deregulation in the House goes further in rolling back restrictions on banks. It also weakens the powers of the Consumer Financial Protection Bureau.

See related: Under Trump appointee, CFPB is reversing consumer protection, 12 consumer protections in the Credit CARD Act

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Updated: 03-23-2018