Quote of the Day - If your credit report shows that you had six or more inquiries in the last 12 months that you triggered, you are eight times more likely to go bankrupt than somebody without any inquiries.
The Courts Freeze The *Security Freeze* Statute
You may think you can freeze your credit report from distribution, but according to the Second Appellate District in California, the legislature's attempt to protect you is mostly unconstitutional. Not even an appeal by California Attorney General Bill Lockyer could stop the court from overturning California Civil Code section 1785.11.2 that relates to public records and prevent identity theft. The plaintiff, U.D. Registry, Inc. collected consumer information and resold it to landlords and lenders.
The statute preventing dissemination of credit reports cost the credit reporting agencies business, and they were happy to have the chance to challenge it. The agencies looked at the problem this way: the information they gathered about you and me came from public records such as court files and was both truthful and legally obtained. It included information including foreclosures, unlawful detainers, bankruptcies, criminal matters, tax liens and even out-of-state records.
The credit agencies argued that they have a First Amendment right to free speech to sell the information gathered. There's a difference here from what you may consider the "typical" purpose of the First Amendment - to be able to say what you want. Here we're dealing with commercial speech (a credit report), so the "freedom" in the freedom of speech right in the First Amendment isn't as broad as it is for political speech.
The U.S. Supreme Court established a four-part test to determine whether commercial speech is abridged by the government in this statute. In passing the "security freeze statute," the legislature met the first three prongs of the test. In the minds of the court, it didn't, however, pass the fourth one: whether the restriction placed on the commercial speech was "excessive." The court thought that since the statute prevents dissemination of truthful information in the public record, it excessively restricted the credit agencies' "commercial free speech."
In such situations, courts can excise from the statute the offending portions, but here in the case entitled: U.D. Registry v. State of California, the Second District of the Court of Appeal refused to do so and instead invalidated the entire statute as it relates to this particular plaintiff, but allowed the statute to be enforced against other credit agencies. Frankly, this portion of the decision doesn't make sense to me. Either it is or it isn't unconstitutional, and if it's invalid against one credit agency, it's invalid against all. The Court tried to hang its hat on the fact that the trial court hadn't received any evidence on how other credit agencies handled reporting of credit information, but it seems to me that we're dealing with an issue of law here, not facts. But that's just me. I don't sit on the Court of Appeals.
On the other hand, the Court could have just invalidated the portion that related to public information and still allow us to freeze our private information, but they didn't. The California Legislature now gets a "do-over" and the opportunity to draft a statute that isn't unconstitutional.
If the matter isn't taken up by the California Supreme Court to straighten out the confusion at the end of the opinion, then we'll see if the Legislature can get it right this time. Many Californians want to protect what they consider to be their private information, even if it is from public records.