Credit Freeze

A Web start-up hopes to give consumers an easier way to protect themselves from identity theft, but the company may get the cold shoulder from credit-reporting agencies.

But if you ask anyone who has dealt with the credit-reporting agencies for an opinion on their sensitivity to consumer concerns, you likely won’t get a very polite answer. As an ID theft victim myself, I’m painfully familiar with the usual complaints. The companies are notoriously unresponsive, shuffling callers into voice-mail hell and corresponding with incomprehensibly bureaucratic letters. So it’s no surprise that Ahmad reserves some of his characteristic vitriol for the three agencies: “Tell me why execs at the credit-reporting agencies are not taken out like Enron execs in leg irons,” he said over lunch last month in Silicon Valley.

He’s not really serious, just making a point about his new mission—to mitigate the horrors faced by Americans trying to wrestle back control over their own credit. One of the toughest challenges for ID theft victims is trying to prevent the crime from happening all over again. But freezing your credit (a way of requiring that merchants and banks seek your verbal permission to open new credit in your name) is an arduous process involving sending registered mail to each of the three agencies. Currently 12 states have different credit freeze laws on the book, and each law is, naturally, a little bit different. Congress is considering a federal law that would impose a uniform right for all Americans to a credit freeze; a half dozen committees in the House and Senate are now considering multiple ID theft bills, and wrangling could continue into next year.

Ahmad's new Silicon Valley company, TrustedID, wants to act as a single "on-off switch" for consumers, allowing them to freeze their accounts with all three credit bureaus at once, from the Web. The company’s Web site, TrustedID.com, opened this week and will serve as that switch. After a 30-day free trial, customers will pay $8 a month and give power of attorney to the company, which will handle all the paperwork. That sounds expensive, but keep in mind that millions of Americans already sign up for costly credit-monitoring services that watch for suspicious activity. Placing a freeze on your account is more proactive, and probably more effective.

Over the long term, Ahmad and his partner, financial industry veteran Scott Mitic, hope to convince the three credit-reporting agencies to make the process electronic, which will drive down the cost. But for now, the business "is as ugly as you can possibly imagine," Ahmad says. TrustedID employees are shuttling back and forth to the post office, while the credit agencies are swamping the start-up with letters questioning its legal status. The company has raised $5 million in seed funding from venture capital firm Draper Fisher Jurvetson, which also backed Internet telephone start-up Skype.

Mitic and Ahmad say they are spending much of their time visiting the credit agencies and trying to solicit cooperation—with mixed results so far. “I would rather deal with Tony Soprano,” Ahmad says of the companies. “At least you would have a nice Italian meal and get something done.”

I got a sense of the challenge facing TrustedID after trying to elicit comment from the reporting agencies for this story. The companies themselves referred me to their industry organization, the Consumer Data Industry Association. Its spokesman, Norm Magnuson, left me a message saying the group was only now becoming familiar with TrustedID and to his knowledge, “We don’t have any problem with it.” Then he didn’t return several subsequent messages requesting further comment.

It’s not surprising that the credit-reporting agencies might be dragging their feet. They are not legally required to honor consumer credit freeze requests in 38 states. And the three companies have woken up to the opportunities of selling services to consumers, and probably want to offer their own credit freeze option directly to consumers—for a fee. Of course, it benefits consumers to be able to go to a single source like TrustedID, who can manage a credit freeze with all three bureaus.

But to make that happen, Ahmad and TrustedID will have to convince TransUnion, Experian and Equifax to cooperate. TrustedID is already exploring alternative ways to force their hand. It has hired a lobbyist in Washington to push for a federal credit freeze bill and to press for legal protection for third-party players. The company can also consider litigation, and has talked to former FTC commissioner Christine Varney about representing it.

Sounds like David picking a fight with Goliath. For Omar Ahmad, that’s right up his alley.