Experian challenges LifeLock on fraud alerts

Experian, one of the three giant credit reporting bureaus, recently filed a lawsuit in U.S. District Court in California, designed to stop LifeLock from selling a service that, among other things, puts temporary fraud alerts on customers' credit reports and automatically renews them every 90 days. LifeLock charges $10 per month or $110 a year for this service.

Fraud alerts warn prospective lenders that a credit applicant might be an ID thief, and they should take steps to verify the identity of the borrower. Under the federal Fair Credit Reporting Act, consumers who make a good-faith assertion that they suspect they are, or are about to become, a victim of identity theft, have a right to file such alerts on their own—for free. That's one reason we criticized LifeLock recently in the Consumer Reports Money Adviser.

That hasn't stopped LifeLock from selling the service—heavily advertised through TV, radio, and newspaper ads featuring LifeLock's CEO Todd Davis, who claims the company offers protection so ironclad that he reveals his actual Social Security number. LifeLock says it's now adding 120,000 new subscribers a month and is closing in on 900,000 total customers.

Experian's central argument is that the Fair Credit Reporting Act "does not permit the placement of an initial fraud alert by corporations such as LifeLock." But the law does allow a "consumer" to directly place a fraud alert or an "individual" representing a consumer to place fraud alerts; it does not specifically say "corporations."

Experian also argues that LifeLock violates the FCRA, which allows temporary fraud alerts lasting only 90 days, saying that it doesn't anticipate a series of 90-day alerts that are perpetually renewed. Consumers who have had their identities stolen can get a 7-year extended fraud alert if they file an ID theft report.

The Federal Trade Commission has made no policy statement on the matter, but offers advice to consumers on whether or not to buy services that claim to protect against identity theft.

Davis says Experian's suit is "frivolous." Experian's retort: "This is not a frivolous thing we've done. We don't file frivolous suits," says Donald Girard, a spokesperson.

Protect yourself
As Davis himself admits, a fraud alert "isn't 100 percent bulletproof" protection against identity theft. Consumers Union, our parent organization, recommends that you consider using a "security freeze" to completely block access to your credit reporting file by all prospective lenders. This would stop ID thieves from opening new accounts in your name. You can unfreeze your file with a personal identification number. As of last year, all three credit bureaus allow anyone to freeze and thaw their credit report as they wish for about $10, less in some states, and for free if you've been the victim of ID theft. Click here for more information.—Jeff Blyskal