Imagine the plight of an 18-year-old girl who has just left her last in a series of foster homes and is venturing into the world on her own. She applies to rent a small apartment and is turned down. She applies for an education loan to attend a community college and is turned down. She applies for a part-time job in a coffee shop and gets the same result. All doors seem closed to her.
The student loan company tells her how to get a copy of the credit report that led them to deny the loan. She eventually discovers that she has a very low credit score, based on numerous overdue credit accounts that she knows nothing about.
Now imagine the challenge this 18-year-old faces in cleaning up the mess: the phone calls to make, business letters to write to creditors, collectors and credit bureaus, visits to her local police department to file a report of identity theft and the resubmission of her applications with explanations of the previous bad record. This is a task that most adults find difficult—we know: they call us for help.
Undeserved bad credit, whether resulting from identity theft or error, is one of the factors that can so overwhelm newly emancipated foster children that they are unable to achieve self-sufficiency and financial security, according to the Children’s Advocacy Institute.
Concern for this situation led the California Legislature and the California Office of Privacy Protection to take action. The office recently completed a year-long pilot project to clear innocent foster children’s damaged credit ratings. The project was designed primarily to test procedures for implementing a California law intended to help foster children clear up credit records damaged by identity theft before they are emancipated from the system. Illinois has enacted a similar law, and other states are beginning to address the issue.
Children should not have credit reports, since, with limited exceptions, they cannot enter into contracts for credit, and the credit reporting agencies do not knowingly create credit records for minors. When a child does have a credit record, it is almost always the result of identity theft or error. In the pilot project, the California Office of Privacy Protection led two Los Angeles County agencies—the Department of Children and Family Services and the Department of Consumer Affairs—and the three credit reporting agencies in researching and clearing up the records of 16- and 17-year-olds in foster care in Los Angeles County.
Findings
Five percent of the 2,110 foster children in the pilot did have credit reports. We found 247 separate accounts in these 104 children’s reports. The accounts were for a variety of purposes (see chart). The mean account balance was $1,811, but the median was lower— at $322—due to a few outliers, including one home loan for $217,000. The accounts were not new, with 74 percent of them in collection. The average age of a child when an account was opened was 14, two to three years before discovery. We were successful in getting all the negative items removed from the children’s credit reports.
Identity Theft and Foster Children
So what did we learn about identity theft and foster children? While the primary goal of the pilot study was to test procedures for clearing the reports rather than find and prosecute fraudsters, we also wanted to learn more about identity theft in this population. The rate for adults, according to the most recent survey on identity theft, was 3.5 percent (Javelin Strategy & Research, February 2011). It is logical to expect a lower incidence of the crime among children, since they should not have credit or employment histories, and the likelihood of creditors granting credit in their absence should be low.
We cannot draw a firm conclusion on the incidence of identity theft among foster children. We found credit accounts in the records of five percent of the children, but that does not necessarily indicate an identity theft rate of five percent. One percent of the children with records had only records that were confirmed as errors or, in a few cases, as non-negative accounts, such as authorized users of an adult’s account and student loans. That leaves four percent as possible victims of identity theft. The actual rate may not be that high, because some of the potentially fraudulent accounts may in fact have resulted from errors. Or it may be higher, if other records found that were only loosely associated with the children by their SSNs and which did not appear in their credit reports, are indications of identity theft.
The report on the pilot project, A Better Start: Clearing Up Credit Records for California Foster Children (August 2011), is available at www.privacy.ca.gov/res/docs/pdf/Foster_Youth_Report_FINAL.pdf.