Opinion

Nationalize the credit bureaus

Take this power out of incompetent private hands

Equifax, the credit-reporting agency, has suffered one of the worst data breaches in history, with 143 million American citizens having their personal data stolen. Worse, Equifax executives reportedly sold a bunch of their company stock after they heard of the breach, but before it was released to the public. Then they followed up that potentially illegal act with perhaps the worst response to a corporate data breach in history, setting up a clearly nonfunctional site that attempted to trick people into signing away their right to a class-action lawsuit, and into signing up for a one-year trial of a credit oversight service that costs $20 per month after it expires.

It's time to nationalize the credit reporting industry — not just Equifax, but also the other two major credit bureaus: Experian and TransUnion. The power to adjudicate creditworthiness should not be in private hands.

On one level, Equifax's insouciant attitude likely reflects the rot and corruption among top federal prosecutors, law enforcement agencies, and regulators. Back in the day, this kind of thing — especially the probable insider trading — would raise fears of prosecution and jail time. But as Jesse Eisinger's excellent new book The Chickenshit Club details, hardly anyone is successfully prosecuted for white-collar crime these days. Modern prosecutors and regulators largely don't know how to pursue these cases, or actively sympathize with the criminals, or fear being blackballed from future high-paying private sector gigs; meanwhile neoliberal hack judges have sharply raised the legal bar for such prosecutions, making it harder still.

But on a deeper level, this kind of abuse and negligence is just to be expected from a private credit score system. These companies conduct non-consensual surveillance, and use a proprietary algorithm to judge people's creditworthiness. There is no transparency about their methodology, and they have little incentive to get things right. Even after some reforms strengthening Consumer Financial Protection Bureau oversight, the companies are not legally liable for errors. As a result, even aside from this jaw-dropping security breach, they screw up constantly. A 2012 Federal Trade Commission study found that one in five people had a mistake on at least one of their three credit reports, and one in 20 had an error that harmed their credit. Nearly a quarter of over 186,000 complaints to the CFPB in 2016 were about credit report mistakes — the largest category of complaint, and divided up fairly equally among the big three agencies.

Naturally, Republicans want to further insulate them from the consequences of their mistakes. As David Dayen writes:

In fact, the industry wants to shield itself from its own incompetence. The same day as the Equifax announcement, House Republicans held a hearing on a bill to massively curtail damages from private litigation under the FCRA. It would eliminate punitive damages and cap statutory damages to $500,000. If the bill becomes law, the 143 million victims of the Equifax breach eligible for the class-action lawsuit filed Friday would be able to get a maximum of one-third of a penny in restitution. [The New Republic]

Despite the manifest unreliability of the credit score system, it has still become a keystone part of daily life. To get a home loan, or a car loan, or rent out a new place, you typically need at least decent credit. But increasingly, employers use credit reports to vet new employees. There is no sign that this latter practice is conducted with some sort of rational justification or careful study; it's merely just one more way that employers can dominate and control their workforce — and for (disproportionately black and brown) low-class people to get trapped in an endless cycle of debt, bad credit, and bad jobs.

It is understandable for lenders to want to know someone's payment history before deciding on giving a loan. But it is unacceptable that the power to make such judgments reside in unaccountable private hands — especially when they are clearly incapable of avoiding grotesque errors.

Therefore, all three of the credit-reporting companies should be nationalized, and their data and algorithms folded into a government credit data system. Obviously people's personal data would remain under lock and key — which the government is eminently capable of doing, as evidenced by the IRS managing hundreds of millions of highly private tax returns every year. But credit-scoring methods would be made completely public, so people could know for sure how to get a good score — and researchers could examine whether the score is actually an accurate judge of creditworthiness. More importantly, citizens would be able to dispute any mistakes directly with an agency that is accountable to the public and their representatives, instead of going through the janky and unreliable process the agencies have now. Many European countries have a similar system, and it works just fine.

No doubt a public credit bureau would make its share of mistakes. But it's impossible to imagine them doing worse than the current private oligopoly. If people's lives are to be so heavily influenced by credit scores, then let that score be under the supervision of democratic institutions.

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