Victims of child identity theft and their parents are left with an obvious question when they discover the crime: Why would anyone grant credit to a child?
The answer, for those who find it, is perhaps even more infuriating: Creditors often have no way to know an applicant is a child. Lenders, for example, usually have no idea how old the rightful holder of a Social Security number is. The nation's credit bureaus often don't know either.
A new Child Identity Protection program implemented by the Utah state attorney general's office and the credit bureau Trans Union may be able to change that.
Believed to the first system of its kind, Utah parents can now register their children with the state agency, which will then pass the data along to Trans Union. In turn, the credit bureau will place the child's SSN in a "high risk" database that warns potential lenders not to issue credit to applicants using that number.
"For the first time, parents can proactively protect their children from being victims of identity theft," said Richard Hamp, the assistant attorney general for Utah who helped create the program. "We're really excited about it."
The program is currently open only to parents in Utah, but both Utah authorities and Trans Union are already in talks with other states to make it available nationwide.
Prior to Utah's Child Identity Protection program, concerned parents couldn't do much to protect their kids' credit until after they suspected their kids' identities were stolen. Even then, the available options were often frustrating. Parents could ask a credit bureau if there was an open credit file using their kids' personal information and request that it be closed and the erroneous information expunged. If no credit file existed, they would receive an unsatisfying "no file" response, and be left to wonder if a criminal would open one in the future.
Hard data on the incidence of child identity is hard to come by, because the crime can go undetected for a decade or more – until the child turns 17 and applies for credit or a college loan. But there are plenty of indications the crime is on the rise. A study released by fraud-fighting firm ID Analytics in 2011 found that 140,000 kids each year are hit by the fraud; another 500,000 sets of parents and children are "inappropriately sharing" Social Security numbers, hinting at an even more widespread problem, ID Analytics found.
Hamp was an early advocate of credit freeze laws passed by dozens of states that forced the nation's credit bureaus to offer identity theft victims to "lock" their credit reports from any applications for credit. Seeing the rise in fraud against kids, Hamp began working on legislation that would require the credit bureaus to let parents lock their children's Social Security numbers about two years ago.
"But Trans Union called and said they'd work with us on a voluntary basis. You don't need to legislate," he said. "I took them up on it."
Utah already had a leg up in creation of this kind of system, having launched its Identity Theft Reporting System website several years ago. Victims use the system, known as IRIS, to report the crime, and it includes a robust authentication system using various state databases, such as driver's license records. Hamp agreed to use IRIS to authenticate parents who wish to enroll children in an anti-ID theft program. That made Trans Union's part of the work much easier.
After Utah verifies the identity of the parent and collects a child's personal information, state authorities send the child's SSN and age to the credit bureau. Trans Union then places the information in its "high risk fraud database." If a child ID thief tries to use a kid's SSN while applying for credit, the lender gets a pre-programmed warning message.
"Initially I wanted a message that said, 'This number belongs to a kid,' but this allowed them to tap into a system they already had and get it done quickly," Hamp said.
Trans Union and Utah officials held a launch ceremony for the system in late January.
"We do recommend every parent enroll their children," said Steven Katz, senior director of consumer operations for Trans Union. "There is no downside to it."
Enrollment is free. Kids are automatically removed from the high-risk database on their 17th birthday, he said. Trans Union has agreed that none of the information entered into the system will be used for marketing purposes.
"The intention of this program is to assist parents and guardians in preventing ID theft among children, and that’s all the data will be used for," he said. Trans Union will consider sharing the data with the nation’s other credit bureaus, he said, much as the bureaus share fraud alert information now.
Parents who worry that Trans Union might misuse the data shouldn't allow that to keep them from using the program because "they don't give their kids' data to Trans Union, they give the data to us," Hamp said. "We retain all rights to the data."
The program isn't perfect, however. ID theft expert Linda Foley, who runs IDTheftInfoSource.com, said she's worried that the system only stops credit-based ID theft. It's powerless to prevent creation of fake driving licenses, for example. Such a system risks "giving parents a false sense of security," she said.
Also, because so much of child identity theft is committed by parents, there's a fundamental flaw in the way the program is set up, she said.
"Since parents enroll kids, those stealing from their kids will not be interested in this opportunity. It needs to cover all children," she said.
Still, Hamp believes the Child Identity Protection system is a big step in the right direction, and he's urging all parents to consider it. Already, about 1,000 children have been registered, Hamp said. He plans on bumping up participation by partnering with school districts students can be registered en masse.
"I'm really excited about this," he said. "Instead of having to fight Trans Union, we came up with a mutually acceptable resolution. Is it perfect? No. Are there still going to be problems? Yes. But it's the best thing available for parents to protect their kids."