Freaking Out About Fraud

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2019 Issue Three

Freaking Out About Fraud

By: Evan Kirkham

Perhaps nothing is as horrifying as identity theft and credit card fraud. The stress can begin in any number of ways—noticing a handful of unauthorized charges on your credit card, receiving a “Notice of Overdue Account” in your mailbox, or being denied financing at the car dealership. Identities and banking information can be compromised by theft of a wallet, interception of incoming mail, appropriation of credit card credentials, or phishing. Panic is natural, but protecting your credit score requires a rapid and deliberate response.

In the first instance, the victim must take initiative—attempting to track down the thief, freezing their active accounts, and preventing any further fraud. After, the victim should consider engaging legal representation—investigating whether the credit reporting agencies fulfilled their statutory obligations and, if not, pursuing an award of damages.

Without any legal assistance, victims can take a number of immediate actions to stop the bleeding: (1) close and cancel preexisting and new unauthorized accounts by speaking with a representative in the security or fraud department of the coordinate financial institution; (2) obtain an identity theft affidavit from the financial institution once the account(s) have been closed and debts discharged; (3) file an identity theft report with the police department in the municipalities where the theft occurred (this report may later be required by the financial institutions discharging the debt); (4) obtain a credit report from the three main credit reporting agencies (Experian, Equifax, TransUnion) to help create a timeline of events; and (5) request that the reporting agencies place fraud alerts on the victim’s credit report.

Once a victim has regained control of her credit, legal action may be taken to ensure credit reporting agencies have conducted a full investigation and have deleted any information demonstrably procured by fraud. The process is statutory. In 1971, the United States Congress passed the Fair Credit Reporting Act (FCRA). The FCRA established a credit reporting code of conduct aimed at protecting the victims of identity theft from inaccurate reporting. The FCRA’s protections include: (1) remedies for the reporting of obsolete information; (2) verification and reinvestigation of information; (3) free access to credit files; (4) expedited dispute resolution; and (5) enhanced enforcement powers for the Federal Trade Commission. Credit reporting agencies are required to prevent the reporting of information related to disputed incidents, unless and until the dispute is settled.

Pursuant to the FCRA, victims of identity theft are empowered to hold credit reporting agencies and furnishers of credit information liable for failing to comply with the FCRA or any other statutory obligation. However, the victim will have to prove that the agency was negligently or willfully noncompliant. As such, if a credit reporting agency negligently or deliberately fails to investigate the completeness or accuracy of the disputed information, or otherwise fails to delete inaccurate information, it may be held liable for actual damages (including mental damages) and attorney’s fees. Still, if the consumer is able to prove that the reporting agency willfully violated the FCRA, she may recover additional “punitive” damages.

However, the victim must be able to prove that the credit agency’s lack of diligence actually caused some measurable harm. Victims are often hard-pressed to identify how they were injured—only citing their lowered credit score. More is required. Victims who have sought and have been denied financing for a new home, car, or student loans, have a much stronger case. For example, if the victim was initially denied financing for the purchase a new home because of inaccurate information on her credit report, only later curing the report, securing financing, and purchasing the home for a higher price, the credit reporting agency could be held liable for the difference in the purchase price. Note however, lawsuits against credit reporting agencies can be costly, especially considering that the duties imposed on the reporting agencies are typically judged by a standard of reasonableness—a question normally reserved for trial.

Identity theft and credit card fraud is certainly frightening. Indeed, it can take years to recover an identity and repair a damaged credit score after discovering the theft has occurred. But there is hope for victims who act quickly to prevent further fraud and hold reporting agencies responsible for the perpetuation of misinformation. Congress has provided victims with all the tools to recover their identities and get back to some sense of normalcy. Freak outs are expected. Diligence is required.