In The Long Run Nothing Will Change

This is a cutting through the malarkey and airing a decades old pet peeve article. It was recently brought into the news by virtue of a major hack at the consumer credit reporting bureau Equifax. Along with their two major competitors Trans Union and Experian they have been giving the American consumer a raw deal for at least my entire adult life. Let’s explore.

I have familiarity with these three as both a consumer and a commercial banker. The sins of bankers further empowered them years ago. Back in my days of granting consumer loans the credit report was a major guide but the banker still used their training and expertise in granting loans. I was taught the three C’s: credit, capacity and character; character being the most important and credit the least important. The first thing you looked at was if the applicant could afford the payments (capacity). That was a simple arithmetic function with some discretion granted to the loan officer to stretch the bank’s guideline if justified by the borrower’s lifestyle. Next you looked at the credit report to review how they had historically handled debt. If they had a good payment record it was on to the next step. If there were blemishes you tried to find out why (without breaking bank policy and laws). I distinctly remember a loan I approved where the applicant had a terrible payment record sandwiched between histories that were sterling. As it turned out the man’s wife was dying of cancer and he went into debt over his head (remember capacity) to buy her anything she wanted in those last hours. The final element was character. Simply put was the applicant the kind of person who would pay their bills if at all possible. If there was a question with the first C’s character was the deciding factor.

Then the banks were caught discriminating against people of color mostly via redlining in the issuance of mortgages. The solution was to turn to credit bureau scores (which are colorblind) and base credit granting decision almost entirely on that number. It solved the discrimination problem (on the surface anyway) but it gave way too much power to three basically unregulated entities. If the information contained on “your” credit reports is accurate the system makes sense. The problem occurs when some of the information is incorrect.

For some forgotten reason many years ago I decided to check my credit reports. I found several entries that were not mine (some derogatory, some not). I was still working at the time and too busy to pursue the errors myself. Therefore I contracted a third party to pursue the matter with our trio. Soon I received a letter from one of them explaining that they would not deal with my representative. However if I was concerned about the accuracy of the reports THEY complied as part of THEIR “professional activity” I could purchase a service from THEM at an annual fee and THEY would be happy to report any new entries THEY made to my file soon after they were made. In other words I could pay for the “privilege” of monitoring how well THEY did THEIR job and if THEY made a mistake I would be able to inform THEM and prove THEY were wrong after which at some unspecified period of time they might remove the false information and of course be held harmless for any damages.

The credit reporting bureaus get paid (by the banks and eventually the consumers they “monitor”) to keep accurate records but if they make a mistake they are held harmless. To me it sounds like one hell of an unregulated scam. If any person disseminates untrue reports about an individual they are subject to legal action. These “professionals” are held harmless.

It was recently revealed that Equifax did such a poor job of protecting its data that the personal information of over 143 million Americans was stolen. The 143 million represents virtually every adult in America including their names, addresses and social security numbers. Talk about an opportunity for identity theft on a grand scale.

Equifax’s “immediate” response was to offer people the opportunity to freeze their credit in exchange for a fee and holding Equifax harmless. A few days after the scandal became public they announced the retirements of their Chief Information Officer, David Webb and Chief Security Officer, Susan Maudlin. Details were not released but if their golden parachutes were similar to those of executives at other companies in trouble who supposedly retired they include a generous severance package and their personal legal expenses being picked up by the company. This is typical in possible white collar prosecutions where the corporation wants to insure superior defense to keep a potential whistle blower quiet.

Progressives in Congress led by Massachusetts Senator Elizabeth Warren will make the noise they can and will even get a Congressional hearing or two. In the long run Equifax will be held harmless, no senior Equifax executive or Board member will go to jail, millions of Americans will be harmed and the scams will go on. That’s what happens when you have a “pro-business” government. Too big to fail is still the de facto law of the land.

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