Credit reporting firm sues LifeLock over fraud alerts in consumer history files

Experian's lawsuit claims that identify theft protection service is itself engaging in fraud

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There are other costs as well, Experian claimed. "Once an initial fraud alert is placed, it triggers costly statutory obligations for consumer reporting agencies such as Experian," the company said in the lawsuit. For instance, the credit reporting firms are required to mail a notice to anyone who has a fraud alert placed in his or her file. They also have to provide a free credit report, in addition to the one that people are entitled to annually, the company noted.

"Such obligations were never intended to be triggered by a private company seeking to profit by illegally placing fraud alerts on behalf of consumers who do not have a genuine suspicion of imminent fraud," Experian said in the lawsuit. It described LifeLock's business model as a scheme to "game the system" and said the latter company was misleading consumers by giving them the false impression that it was authorized to act on their behalf in placing the fraud alerts and that those alerts could be renewed indefinitely.

The lawsuit also calls into question the background of one of LifeLock's founders, saying that he spent time in jail for financial fraud and has been barred by the Federal Trade Commission from engaging in certain credit reporting activities.

Davis challenged Experian's assertions and said they were motivated not by concerns for consumers but instead by a desire on the part of Experian to protect its bottom line. LifeLock is cutting into Experian's own credit monitoring business, Davis claimed. And, he said, the fraud alerts placed by LifeLock make it harder for Experian to sell credit records to third parties because it is required to notify people beforehand.

In addition, Davis contended that Experian is making "semantic arguments" about the spirit of the FCRA as it relates to fraud alerts. Such alerts are meant to be used to protect consumers against identity theft, he said, adding that there is nothing in the law that says the alerts can only be used for 90-day periods. All the FCRA says is that an alert will remain in place for a maximum of 90 days, according to Davis. At the end of that period, an individual is free to place another alert if he or she chooses to, he said.

Davis said Experian also is ignoring the spirit of the FCRA by claiming that the law doesn't allow companies such as LifeLock to place fraud alerts on the behalf of individuals who appoint it to do so. "We are more than willing to let the court decide that issue," he said.

Furthermore, Davis said that if Experian provided LifeLock with an interface for placing the alerts in files electronically, it would be glad to use that option instead of the 1-800 phone numbers. In fact, LifeLock is discussing that option with one of the other credit reporting agencies, he said, declining to identify which one.

Donald Girard, a spokesman for Experian, dismissed the suggestion by Davis that the lawsuit was driven by fears of competition and said that Experian doesn't consider LifeLock to be a rival to any of its businesses.

Girard charged that LifeLock is abusing both the spirit and the letter of the FCRA. Laws regarding the use of credit alerts clearly intend for them to be used as a temporary measure to guard against identity theft and other types of fraud, he said. They aren't meant to be used as a permanent tool, and doing so will only end up diluting the efficacy of fraud alerts in the long term, according to Girard.

"LifeLock is acting as a proxy for an individual in a way that Congress did not intend or permit," he said. "They are using a temporary stop-gap method as a permanent perpetual tool." He added that Experian has yet to decide exactly how much it will seek from LifeLock in monetary damages but that the amount will run into the millions of dollars.

Copyright © 2008 IDG Communications, Inc.

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