BILL ANALYSIS                                                                                                                                                                                                    Ó






                                  SENATE HUMAN
                               SERVICES COMMITTEE
                            Senator Jim Beall, Chair


          BILL NO:       AB 1658                                      
          A
          AUTHOR:        Jones-Sawyer                                 
          B
          VERSION:       May 23, 2014
          HEARING DATE:  June 10, 2014                                
          1
          FISCAL:        Yes                                          
          6
                                                                      
          5
          CONSULTANT:    Sara Rogers                                  
          8

                                        

                                     SUBJECT
                                         
             Foster care: consumer credit reports: security freeze

                                     SUMMARY  

          This bill requires a consumer credit reporting agency to  
          place a security freeze on the credit report of any child  
          between 10 and 15 years of age who is placed into foster  
          care, or, if no report exists, to preclude a credit card  
          from being made in the name of that child. This bill also  
          requires a county child welfare agency to notify each of  
          the three major credit reporting agencies that a child 10  
          and 15 years of age is in foster care, to discover whether  
          the child has an active credit report, and take specified  
          actions in response.

                                     ABSTRACT  

           Existing Law:


           1.The federal Child and Family Services Improvement and  
            Innovation Act of 2011 reauthorized Title IV-B child and  

                                                         Continued---




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            family service programs and renewed Title IV-E state  
            child welfare waivers. This broad legislation required  
            states to assist each foster youth who is 16 obtain,  
            interpret and resolve inconsistencies in a credit report  
            each year they are in placement to help prevent identity  
            theft. [PL 112-34 (Section 475(5)(I)]


          2.Requires, upon the 16th birthday of a child in foster  
            care, a county welfare or probation department to request  
            a free annual credit check available under the Fair  
            Credit Reporting Act, from each of the three major credit  
            reporting agencies.  (WIC 10618.6(a))


          3.Requires a county welfare or probation department to  
            assist a nonminor dependent annually in requesting  
            consumer credit disclosures from each of the three major  
            credit reporting agencies, pursuant to the free annual  
            disclosure provision of the federal Fair Credit Reporting  
            Act, while the nonminor dependent is under the  
            jurisdiction of the juvenile court. (WIC 10618.6 (b))

          4.Requires a county social worker or probation officer to  
            ensure that the dependent child or nonminor dependent  
            receives assistance with interpreting the consumer credit  
            disclosure and resolving any inaccuracies. Additionally  
            provides that the assistance may include, but is not  
            limited to, referring the youth to a governmental or  
            nonprofit agency that provides consumer credit services.  
            (WIC 10618.6 (c))

           This bill:
           
          1.Requires a consumer reporting agency, following  
            notification from a county child welfare or probation  
            department that a child between the ages of 10 and 15 has  
            been placed into foster care, to notify the county  
            whether the child has an active consumer credit record,  
            and if so, to place a security freeze on the child's  
            credit report, or if not, to preclude the child's  
            information from being used to create a credit account.


          2.Requires a county child welfare or probation department  





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            to, upon the entry of a child between the ages of 10 and  
            15 into foster care, notify each of the three major  
            credit reporting agencies that the child is in foster  
            care, to discover whether the child has an active  
            consumer credit report.


          3.Provides that if an active consumer credit report is  
            discovered, the county child welfare or probation  
            department shall do both of the following:


                     Immediately request that the credit reporting  
                 agencies place a freeze on the child's report; and 


                     Work with the California Department of  
                 Justice's Privacy Enforcement and Protection Unit to  
                 resolve any credit irregularities or negative  
                 actions that have been discovered on the foster  
                 child's credit report. 


          1.Requires that if the child does not have an active  
            consumer credit report, the county department must  
            provide the credit reporting agencies with information  
            necessary to preclude a foster child from having a credit  
            account created in his or her name.


          2.Requires that if a child in foster care, age 16 or over,  
            is found to have an active consumer credit report, the  
            county social worker or probation officer must  
            immediately notify the three major credit reporting  
            agencies of the child's placement in foster care and to  
            request a freeze be placed on the report, unless the  
            child declines.


          3.Provides that if a child in foster care, age 16 or over,  
            is not found to have an active consumer credit report,  
            the county social worker or probation officer shall  
            provide the credit reporting agencies with information  
            necessary to preclude a foster child from having a credit  
            account created in his or her name, unless the child  





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            declines.


          4.Requires that if a nonminor is found to have an active  
            consumer credit report, the county social worker or  
            probation officer must ensure that the nonminor dependent  
            receives assistance with the placement of a freeze on his  
            or her credit report.


          5.Requires CDSS, in consultation with specified  
            stakeholders to issue instructions to counties via an  
            all-county letter or similar instructions to do all of  
            the following:


                     Provide the circumstances by which a credit  
                 report freeze can be lifted;


                     Provide instruction to counties regarding how  
                 they shall notify the three major credit reporting  
                 agencies that a foster child can reacquire the  
                 ability to develop credit.


                                  FISCAL IMPACT  

          An Assembly Appropriations analysis states there are  
          ongoing administrative costs to CDSS of approximately $2.9  
          million (GF) to handle cases. The affected foster care  
          caseload is approximately 41,000 in 2014-15. DSS indicates  
          it takes a social worker about one hour to handle or freeze  
          an account. Additionally, the analysis states there are  
          unknown costs to cover fees charged by credit reporting  
          agencies (capped in statute at $10 per agency) to freeze  
          credit reports. Assuming that 5% of the reports are frozen,  
          costs of $30 per child x 2,050 cases would be approximately  
          $60,000 (GF). The analysis also notes ongoing CDSS costs of  
          $140,000 associated with unfreezing credit accounts, plus  
          $60,000 in fees to the credit reporting agencies. The  
          analysis states it is unclear in the bill who would pay the  
          fee for unfreezing the reports.

                            BACKGROUND AND DISCUSSION  





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           Purpose of the bill:


           According to the author, the purpose of the bill is to  
          protect against identity theft and other errors that can  
          negatively impact the clean credit of foster youth, given  
          that their personal information touches many hands  
          throughout the foster care system prior to reaching  
          adulthood.  


           Credit Records of Minors
           
          Minors generally are prohibited from opening credit  
          accounts on their own. While in some instances a minor may  
          have a legitimate credit report as a result of  
          "piggybacking" on the account of a parent or guardian who  
          has included the minor as a joint account holder or an  
          authorized user on one of the parent's accounts, it is rare  
          for a minor to have a legitimate credit report or history.  
          Increasingly, minors have been targeted for identity theft  
          which can go undetected for years, until the minor reaches  
          adulthood and applies for a credit card or loan. A 2011  
          study conducted by Carnegie Mellon University found  
          children are far more likely to be targeted for identity  
          theft for their unused social security numbers. The report  
          found that of 42,232 children polled, 10 percent, or 4,311  
          of them, had their identities stolen. When compared to the  
          rate of identity theft in adults, children in this study  
          were 51% more likely to experience identity theft.<1>   


          Establishing credit under a minor's identity often involves  
          using a minor's personal information, such as name and  
          Social Security Number, to obtain a credit card, loan or  
          employment in the child's name. When a parent or guardian  
          suspects their child's identity has been stolen, the parent  
          or guardian may request a credit report on the minor's  
          -------------------------


          <1> Child Identity Theft: New Evidence Indicates Identity  
          Thieves are Targeting Children for Unused Social Security  
          Numbers. Richard Power, Distinguished Fellow; Carnegie  
          Mellon CyLab. April 2011.






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          behalf in writing and report any suspected fraud to the  
          credit agencies who will place a fraud alert on the child's  
          report.<2> Foster youth have been identified as being  
          particularly vulnerable to identity theft as a result of  
          frequent moves between multiple placements.  


          AB 2985 (Maze), Chapter 387, Statutes of 2006 required  
          county welfare departments to request the credit histories  
          of foster youth at the age of 16 and to assist youth in  
          correcting any inaccuracies or negative findings.  
          Subsequently, the federal Child and Family Services  
          Improvement and Innovation Act of 2011 mirrored and  
          expanded the law, requiring each foster youth age 16 and  
          older receive an annual consumer credit report until  
          juvenile court jurisdiction is terminated, and requiring  
          the youth receive assistance in interpreting and resolving  
          any inaccuracies in his or her credit report. AB 1521  
          (Liu), Chapter 847, Statutes of 2012 enacted federal  
          compliance with this Act.


          California's 2006 law was not immediately implemented due  
          to procedural barriers with the major credit reporting  
          agencies that did not wish to receive the nearly 5,000  
          annual individual requests from counties. CDSS developed an  
          "electronic batch request process" with the credit  
          reporting agencies which began implementation in 2010.<3>   
          Under this process, CDSS extracts needed information from  
          the Child Welfare Services/Case Management System (CWS/CMS)  
          on all youth in foster care, provides it electronically to  
          a dedicated website maintained by the credit reporting  
          agencies that then provide credit reports back to CDSS.  
          CDSS then produces a list for each participating county  
          indicating, for each child, whether a credit report was  
          found. If there is an indication of a credit report, the  
          -------------------------


          <2> Office of Attorney General. Consumer Information Sheet  
          3B 2012. 


          <3> California Office of Privacy Protection.   A Better  
          Start: Clearing Up Credit Records for California Foster  
          Children  . 2011  






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          county then must make a separate request with the credit  
          reporting agency and take the statutorily required actions  
          to protect the youth.<4> In five counties that have not  
          opted to receive the batch file, counties must adhere to  
          the differing request procedures established by each of the  
          three major reporting agencies Equifax and TransUnion  
          requires counties to open an electronic account and pay a  
          $500 fee.  For Experian, counties must submit a formal  
          letter requesting the report, which must include a copy of  
          the court's dependency order with sensitive information  
          redacted. 


          A 2010 pilot headed by the California Office of Privacy  
          Protection, the Los Angeles County Department of Consumer  
          Affairs and the Los Angeles County Department of Children  
          and Family Services, with the assistance of the three  
          national credit reporting agencies, was designed to test  
          procedures for achieving the law's intent. The pilot and  
          subsequent report<5> evaluated the effectiveness of the  
          system in reviewing the credit histories of 2,110 foster  
          children in Los Angeles County. It found that 5 percent, or  
          104 foster children, were victims of error or fraud and  
          that those children had 247 separate accounts reported in  
          their names. The average account balance was $1,811, with  
          the largest being a home loan of over $200,000. The  
          accounts found were two to three years old, opened when the  
          child was 14 years old on average, and 12% of the children  
          had records loosely linked to them by Social Security  
          number only, which while not affecting their credit ratings  
          could nevertheless pose problems for them in the future.  
          The project team successfully cleared all negative items  
          from the credit reports those foster children. 

                                    COMMENTS


           The County Welfare Directors Association (CWDA) expresses  
          numerous concerns with the implementation of the bill as  
          -------------------------


          <4> CDSS ACL No. 14-23


          <5> California Office of Privacy Protection.   A Better  
          Start: Clearing Up Credit Records for California Foster  
          Children  . 2011




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          drafted, acknowledging that conversations with the author  
          that are continuing. Specifically, CDWA raises concerns  
          that County Welfare Agencies are precluded from disclosing  
          information about children in their care, while this bill  
          would require these agencies to disclose such information  
          to three credit reporting agencies. CDWA instead recommends  
          the bill impose additional requirements on credit agencies  
          to better ensure credit is not issued to any minors,  
          whether they are in foster care or not. Additionally, CDWA  
          states that as written, the obligation to notify credit  
          reporting agencies could arise each time a child enters  
          into foster care, or is assigned a new placement resulting  
          in multiple and duplicative notification requirements. 


          Further CDWA states that the bill requires the county to  
          "discover" whether the foster child has an active consumer  
          credit report, but doesn't clarify how. CDWA recommends the  
          bill specify the manner in which such discovery is to  
          occur, from whom this information is supposed to be  
          garnered and how. Finally, CWDA states that the county  
          obligation to place a freeze on the child's report is  
          obligatory, yet the establishment of a process to  
          "unfreeze" the account is subject to the findings of a  
          working group established by the bill thus imposing an  
          obligation on counties, with which they have no actual  
          ability to comply. CWDA instead recommends the bill be  
          amended require this of  credit reporting agencies.


          The author has arranged a diverse stakeholder meeting that  
          includes representatives from CDWA, credit reporting  
          agencies and others, to address numerous concerns with the  
          bill. Of particular concern is the concept of "freezing"  
          and "unfreezing" a youth's credit report, which may not be  
          technically feasible. Based on the outcome of the  
          stakeholder meeting, the bill may be substantially amended,  
          should it pass this committee and be referred to the Senate  
          Judiciary Committee.


                                   PRIOR VOTES  

          Assembly Floor      78 - 0
          Assembly Appropriations  17 - 0





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          Assembly Banking and Finance11 - 0
          Assembly Human Services    7 - 0

                                    POSITIONS  

          Support:       AFSCME
                         California Reinvestment Coalition
                         City of Los Angeles
                         Common Sense Media
                         Family Online Safety Institute
                         National Association of Social Workers
                         Western Center on Law and Poverty
          
          Oppose:   None received.
                                   -- END --