Imagine you are graduating high school and you’ve just celebrated your 18th birthday. In anticipation of starting college in the fall, you begin applying for student loans. The first loan application is returned as “denied” because apparently you have too much debt already. You think it must be a mistake and with your parent’s guidance, you order your very first credit report to see what is going on. What you find chills you to the bone; someone has been using your credit information to take out loans, purchase cars, and use credit cards. Several accounts are in collection and the score is very, very low. Your credit is ruined!
Child identity theft is a growing problem yet one with a solution. Let’s consider how the stage is set for such bad actors to perform against us. Since 1986, with the passing of the Tax Reform Act, a child over the age of 5 claimed as a dependent on your income tax required a Social Security number. In 1990, the age was lowered to 1 year, and now most parents apply for the Social Security number via the birth certificate paperwork. As the child grows up, various organizations and institutions require the parents to provide the Social Security number to prove the identity of the child. Elementary schools, doctors’ offices, summer camps and banks all may ask for this information on their documents. This increases the number of hands through which this very private information flows, allowing people with criminal intent to gain all the private information necessary to access your minor child’s information and untapped credit file.
The appeal for using a child's information to secure credit is that the owner of the identity may not discover the crime for many years, allowing the criminal access to the credit for as many as 18 years. Some child ID theft is committed by the child's parents but the vast majority is committed by strangers. According to the FTC, only 6% is committed by family members.
How big is the problem? One study from Carnegie Mellon, found an estimated 10% of their sample of 40,000 children had already had their identities compromised. Overall, an estimated 9.9 million Americans have been victims of ID theft and estimates for minor ID theft range from 140,000 to 400,000 cases each year.[1] A particularly vicious form of identity theft, known as tax fraud, is also growing quickly. My own 19-year-old niece found she was a victim this year when she attempted to file her income tax return. Someone else had filed “for her”, claiming a refund. Tax fraud is now estimated by the FTC as 24% of all their ID theft cases.
And if all of this doesn’t anger and frustrate you, consider how much worse the situation is for the most vulnerable population of minor children, those in our foster care system. A Newsweek article on California foster kids found that 50% of these children are victims of ID theft. As a result, then-California Governor Arnold Schwarzenegger passed a law to provide credit checks for foster children as they age out of the system. In 2011, President Obama made that a Federal requirement. Unfortunately by that point, the problem has existed and must be fixed via complex reporting efforts and diligent record-keeping. Imagine you are a newly emancipated foster child worrying about a place to live, getting a job or an education. Fixing your credit will be difficult and perhaps even something you hope to deal with eventually. It would be far better for every child to prevent it from ever happening.
One clever idea to prevent child identity theft is a bill passed in the State of Maryland allowing parents or guardians to proactively put a credit “freeze” or lock on their child’s identity. The law SB 295; HB 555, went into effect January 1, 2013. If you would like to read the text of the laws, here are links to that information: Bill: SB 295: http://legiscan.com/MD/text/SB295/2012 and Bill: HB 555: http://legiscan.com/MD/text/HB555/2012. Legislators in the State of Florida are currently working on a similar bill.
Unless you live in Maryland, none of the three credit reporting agencies (TransUnion, Equifax, and Experian) allows you to freeze a child’s account unless there’s already been a problem. Even finding out if anyone has accessed your minor child’s credit can be complicated. At least TransUnion has a web form to fill out; the other two agencies require you to send in copies of birth certificates and Social Security cards. I recently checked my daughter’s Social Security number, using the TransUnion website and received a response within a few days.
According to Maryland Delegate Craig Zucker (Assemblyman)’s website: “One of my proudest accomplishments as a delegate was passing the Child Identity Lock Bill, which gives parents a tool to protect their children from identity theft. With this legislation, parents will be able to freeze their child’s credit, completely preventing the child’s personal information from being used fraudulently. Child identity theft is a growing problem in the United States, but my hope is that the Child Identity Lock Bill helps parents stop fraud before it affects their kids.”
Zucker is right to feel proud. He and his Maryland legislative colleagues have made the first pass at stopping a terrible crime. Now we need the remaining 49 states to pass similar laws until we close this credit fraud loophole and secure the credit futures of our children. We need it to stop criminals, we need it to preserve our credit system and we need it now.