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--- STAFF ANALYSIS OF ASSEMBLY BILL 1658 (Jones-Sawyer) PageB 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 STAFF ANALYSIS OF ASSEMBLY BILL 1658 (Jones-Sawyer) PageC 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 STAFF ANALYSIS OF ASSEMBLY BILL 1658 (Jones-Sawyer) PageD 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 STAFF ANALYSIS OF ASSEMBLY BILL 1658 (Jones-Sawyer) PageE 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. STAFF ANALYSIS OF ASSEMBLY BILL 1658 (Jones-Sawyer) PageF 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 STAFF ANALYSIS OF ASSEMBLY BILL 1658 (Jones-Sawyer) PageG 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 STAFF ANALYSIS OF ASSEMBLY BILL 1658 (Jones-Sawyer) PageH 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 STAFF ANALYSIS OF ASSEMBLY BILL 1658 (Jones-Sawyer) PageI 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 --