Let's face it, 143 million frauds won't be perpetrated right away; it will take some time to filter through," Steve Bowman, chief credit and risk officer at GM Financial, the auto-lending subsidiary of General Motors, told Reuters.
He was talking about the consequences of the Equifax hack during which the most crucial personal data, including Social Security numbers, of 143 million American consumers along with equivalent data of Canadian and British consumers, had been stolen. These consumers have all at once become very vulnerable to all kinds of fraud, including identity theft - where a fraudster borrows money in their name.
The day Equifax disclosed the hack, I urged affected consumers to put a credit freeze on their credit data at the three major credit bureaus - Equifax, TransUnion, and Experian - to protect themselves against these frauds. Soon, the largest media outlets and state attorneys general urged consumers to do the same thing. Financial advisors are recommending it. Even Wells Fargo jumped on the credit freeze bandwagon.
As a result, consumers have flooded the websites of the three credit bureaus to request credit freezes in such numbers that the sites slowed down, timed out, or went down entirely for periods of time. This credit freeze frenzy is scaring the credit industry - not just the credit bureaus, but also lenders and companies that rely on easy credit to sell their wares, such as automakers and department stores with instant credit cards.
With a credit freeze in place, those consumers cannot be approved for new credit until they lift the credit freeze, which can take up to three business days. The time and extra hoops to jump through before applying for a new loan might deter consumers from buying that car at the spur of the moment.
No one knows how this is going to turn out - and how it will impact the debt-based consumer economy. But fears are mounting. If just 10% of 324 million folks in the US put a credit freeze on their data, the credit industry will feel the impact painfully. Hence the efforts to contain the fallout.
On Wednesday, an apology by the interim CEO of Equifax, Paulino do Rego Barros Jr. - he succeeded CEO Richard Smith, who'd been sacked - concluded with tidbits of a service Equifax is hoping to roll out by January 31. It would allow "all consumers the option of controlling access to their personal credit data." It would allow them to "easily lock and unlock access to their Equifax credit files." This is going to be "simple," and "free for life."
This "credit lock" or whatever Equifax wants to call it is not a "credit freeze." TransUnion is offering a similar service. Credit freezes are covered by state law, and credit bureaus have to conform to state law. With these "credit locks" credit bureaus can do whatever they want to, and consumers will have to read the fine print to figure out what that is and how well a "credit lock" will protect them.
But those credit locks offer the credit industry a huge advantage over a credit freeze: They can be designed to be lifted instantly. And this is a sign of how frazzled the credit industry, including the lenders, are becoming, about the credit freezes.
They're worried that a credit freeze - because it takes a few days to lift - would prevent consumers from impulse-borrowing, such as getting a car loan when the mood strikes to buy new car. Some consumers, including myself, have had a credit freeze in place for years, but the numbers have been small. Now the numbers are soaring. The credit industry probably has data showing that consumers with credit freezes in place borrow less, or don't borrow at all. That's a scary thought for them.
Bankers expect the credit locks to be easier to remove, resulting in less "friction" to lending than credit freezes, Avivah Litan, a security analyst at research firm Gartner, told Reuters.
The credit industry and companies producing and selling consumer goods profit from turning consumers into debt slaves. And they're worried that consumers, by the mechanics of having to lift the credit freeze first, would suddenly become more prudent and less impulsive borrowers. Impulse-borrowing to buy things people don't need and often can't afford is a key element of the US economy. Allowing credit freezes to get in the way could do all kinds of damage.
A banker, "who was not authorized to speak on the record," told Reuters that the industry doesn't know how much credit report restrictions will ultimately slow business. But "that's on the worry list," he said.
"Banks hate credit freezes," explained Chris Hoofnagle, a law professor at the University of California, Berkeley, and author on consumer protection law. "The banks want people to buy things on credit without a second thought," he told Reuters.
And this "second thought" could lead people to borrow less and spend less. The auto industry, including auto lenders, are already reeling from falling sales accompanied by rising delinquencies