Let's be honest. Before the massive data breach at Equifax, did many Americans — even privacy-minded folks — consider freezing their credit?
Credit freezes have been a data-security option for more than a decade, but they drew scant attention until this month, when Atlanta-based Equifax disclosed a hack that compromised sensitive information on 143 million Americans.
Suddenly credit freezes, also known as security freezes, became a hot topic, as anxious consumers scrambled to find ways to protect themselves.
Credit freezes lock down personal information on file at Equifax, Experian and TransUnion, so that lenders are unable to run credit checks, with the goal of stymieing thieves. They are a blunt tool, and they do not protect against all forms of identity theft, but they can prevent criminals from using hijacked identities to open new accounts.
Now one of the key questions facing the U.S. consumer lending industry is whether credit freezes will become much more popular. If they do, experts predict that the $12.8 trillion consumer credit sector will suffer.
In this scenario, the pool of customers from which consumer lenders now pull could be expected to shrink. Loan applications would be plagued by more frequent delays. And loan growth would likely slow.
“I think there’s clearly going to be a cost,” said Bert Ely, a longtime banking industry consultant.
Putting a freeze in place can cost as much as $15, depending on where you live, and lifting the freeze may require an additional fee. In order to make the protection effective, consumers must freeze their files at all three major credit bureaus.
Because consumers who freeze their credit reports are effectively cutting themselves out of the vast credit economy, they often get steered to less disruptive products such as credit monitoring.
On top of everything else, many consumers who have tried to freeze their credit in recent days have encountered technical problems.
“It’s a painful process to freeze your credit, and it’s particularly painful right now,” said Nick Clements, co-founder of MagnifyMoney, a comparison shopping website for consumer banking products.
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On Friday, Equifax promised to waive fees for placing and removing credit freezes through Nov. 21. That same day, Massachusetts Sen. Elizabeth Warren and 11 of her fellow Democratic senators announced legislation that would bar the credit bureaus from charging fees for credit freezes.
If that measure were to become law — and some analysts believe that it has a chance — credit freezes would become a much more attractive option for aggrieved consumers.
Credit freezes may fade from the public consciousness if the Equifax story stops making headlines. But that is unlikely to occur if large numbers of consumers start reporting that criminals used their stolen information to open new accounts. And credit freezes figure to receive renewed public attention the next time that a U.S. company reports a large-scale data breach.
“You will probably have heightened interest again,” predicted Paul Stephens, director of policy and advocacy at the Privacy Rights Clearinghouse.
It is unclear how many U.S. consumers have requested credit freezes in the last 12 days — Equifax, Experian and TransUnion did not provide numbers.
But an Experian spokesman said: "Consumers are asking for support and assistance in record numbers. We are working around the clock to help and address concerns and educate consumers on the steps they can and should take to protect themselves in response to the Equifax breach."
When consumers freeze their credit, it throws sand in the gears of the nation's credit economy, industry officials said.
For one, lenders typically stop sending them prescreened credit offers. They become less likely to apply for loans, since getting approved would require them to take the additional step of unfreezing their credit, said Marla Blow, the CEO of the credit card company FS Card.
"If it's all of a sudden not on, and you have to actually go turn it on, that has a deterrent effect," Blow said. "I think it would hurt demand."
In addition, many consumers who have frozen their credit reports will forget to request a thaw before applying for a loan. The consumer will then receive a notification from their bank that the loan cannot be approved until they have unfrozen their reports at all three major bureaus.
And even after the consumer makes those requests, it takes three days for frozen reports to be thawed, according to Doug Johnson, senior vice president of payments and cybersecurity policy at the American Bankers Association.
"Obviously it does slow down the credit granting process," he said.
Of course, consumer lenders have a host of other worries in the aftermath of the Equifax breach, including rising concern about fraudulent accounts and the threat that their own systems will be compromised.
Some in the industry are now calling for fundamental changes to longstanding U.S. identity verification processes, including the use of Social Security numbers.
"It's now out in the public," David Nelms, the CEO at Discover Financial Services, said at an industry conference last week, referring to compromised Social Security numbers and other sensitive consumer data. "And it makes it really hard for all of us financial institutions to defend against bad guys."