As concern grows over child identity theft, Maryland is considering legislation that would make the state the first in the nation to protect a youngster's credit report.
Minors aren't supposed to have such reports because they're too young to get credit. But the Maryland legislation would allow parents or guardians to create a credit file for a child and then immediately freeze it. This would prevent a thief from opening credit under the child's name.
"It's a great step in the right direction," says Bo Holland, chief executive of AllClear ID, an identity protection company in Austin, Texas.
Indeed, this is good news for Maryland parents and would put the state in the forefront of protecting children against this crime. The bill won't prevent all ID fraud, but it could stop devastating credit fraud before it happens. The legislation has bipartisan support and is expected to pass.
But even if it becomes law, the protection will be effective only if parents take advantage of it.
It's unknown how many children have been victims of identity theft. The crime can go undetected for years because kids don't use credit — so they aren't likely to be aware that someone is sharing their identity. They might find out only when they turn 18 and are rejected for a student loan, credit card or apartment because someone else has ruined their credit history.
San Diego-based ID Analytics, which offers identity protection, studied children enrolled in its services last year and estimated that 140,000 identity frauds are perpetrated against youngsters annually.
Based on AllClear's experience, Holland says, about 10 percent of children's Social Security numbers have been used by someone else.
Maryland's attorney general received 190 identity theft complaints last year, and seven of the victims were children. In one case, according to state officials, a young woman in Baltimore discovered her foster parents had accrued $6,000 in utility bills using her Social Security number. In another case, a father racked up more than $20,000 in credit card debt under his son's name.
Children make attractive targets because of their pristine credit history. Kids in foster care are especially vulnerable because their information is shared with a number of people.
Once thieves get hold of a child's Social Security number, they can use it to obtain jobs, car loans, mortgages and credit cards, as well as medical and government benefits.
Identity theft experts say the culprits are often financially strapped parents or other relatives. But AllClear's Holland says the theft is more often the handiwork of organized crime, which hacks into databases in search of children's Social Security numbers.
Maryland's legislation was prompted by a break-in at an Annapolis house last fall, in which a family's Social Security numbers and other personal information were stolen, says Vicki Gruber, chief of staff for Senate President Thomas V. Mike Miller, one of the bill's sponsors.
The parents quickly froze their credit reports to block new credit lines from being opened. But they complained that they could not do the same to protect their children, who are too young to have credit reports, Gruber says.
The Maryland legislation would not only allow parents to create and then freeze a report for a child, but it would also allow guardians to do the same for an incapacitated person in their care.
State officials asked the three major credit bureaus for their input, says Steve Sakamoto-Wengel, deputy chief of the Maryland attorney general's Consumer Protection Division. The credit bureaus, concerned that thieves would try to game the system, recommended changes that will likely be added to the bill, Sakamoto-Wengel says.
The first change would require parents to submit a copy of a birth certificate, Social Security card or other documentation to prove the child's existence. This would prevent a thief from creating a fake identity to use, Sakamoto-Wengel says. The credit bureaus also suggest permitting only the child to lift the freeze after turning 18.
The protection isn't foolproof.
"If you have a custodial parent who is intent on using a child's information, there is little to do to prevent that," Sakamoto-Wengel says. "But it could prevent an estranged parent or other relative from using a child's information."
It also wouldn't prevent someone from pilfering a child's Social Security number and using it for purposes that don't require a credit report check, such as getting medical benefits.
Other states are looking to address this problem, which some regulators fear is growing. Sakamoto-Wengel says a few states, including New York, have contacted Maryland about its bill.
Utah recently created a Child Identity Protection program with TransUnion, one of the three major credit reporting agencies.
Children enrolled in the program will have their Social Security numbers added to a TransUnion database. A creditor checking the report of a consumer using a child's Social Security number will be warned of potential fraud.
Since the launch in late January, 1,000 children have been registered, says Kirk Torgensen, Utah's chief deputy attorney general. Torgensen says he hopes the momentum continues so that more states develop similar programs and that the other two credit bureaus join in.
Federal regulators and lawmakers are also seeking ways to tackle the problem.
After the Federal Trade Commission held a forum on child identity theft last summer, the agency created a consumer alert for parents on how to safeguard their child's information at school.
The FTC also plans to release a guide within a few months for parents that will explain child identity theft and the remedies, says Steven Toporoff, an attorney in the FTC's Division of Privacy and Identity Protection.
And a new federal law passed last year requires that every child in foster care who is 16 or older receive a free annual credit report, as well as help fixing any problems.
These are all moves in the right direction.
If Maryland's legislation becomes law, then it will be up to parents to take action. They will have to assemble the documents and send in the request to create and freeze a child's report.
Some identity theft experts questioned whether parents would even bother, since many adults don't freeze their own reports to stave off theft.
Let's hope Maryland parents prove them wrong.