“The Creditor Was Always Right”
posted by Frank Pasquale
What would a world of totally privatized justice look like? To take a more specific case—imagine a Reputation Society where intermediaries, unbound by legal restrictions, could sort people as wheat or chaff, credit-worthy or deadbeat, reliable or lazy?
We’re well on our way to that laissez-faire nirvana for America’s credit bureaus. While they seem to be bound by FCRA and a slew of regulations, enforcement is so wan that they essentially pick and choose the bits of law they want to follow, and what they’d like to ignore. That, at least, is the inescapable conclusion of a brief but devastating portrait of the bureaus on 60 Minutes. Horror stories abound regarding the bureaus, but reporter Steve Kroft finds their deeper causes by documenting an abandonment of basic principles of due process:
Steve Kroft: So all these people who take the time to meticulously document a case that the bill isn’t theirs or the bill has been paid — that is never seen by anybody?
Len Bennett: It’s not seen by anyone who considers it in determining whether or not information will be removed from a credit report.
Steve Kroft: It’s not forwarded onto the person who has the complaint with you?
Len Bennett: No. It is never forwarded on, never forwarded onto the creditor.
Sylvia Goldsmith: We can get a jury verdict for $1 million. That’s chump change to some of these bureaus [given that they dominate a $4 billion a year industry]. They would rather pay a verdict in $1 million than to actually go in and change the policies and procedures that they have, because that’s much more expensive to them.
Later Kroft talks to someone who actually worked in one of the bureaus’ dispute resolution centers:
Steve Kroft: If there was a difference of opinion between the creditor and the person who was filing the complaint, how was it usually resolved in the– in favor of the creditor?
Enzo Valdivia: Yeah. The creditor was always right.
The negative consequences of this slapdash system are legion. As Kroft narrates, “Every day, [Ohio Attorney General Mike] DeWine’s office fields calls from desperate constituents who can’t get the credit reporting agencies to answer their questions or correct mistakes on their report like paid bills listed as delinquent, closed accounts listed as open, and bad debts that belong to other people with similar names or social security numbers.” Once an error occurs, one can only pray that someone in authority within the bureaucracy happens to respond to it. One thing is certain: the higher ups are more than happy to continue flouting the law as long as the cost of breaking it is less than reforms that would make their system even minimally more responsive.
Consumer advocates have long criticized credit bureaus for unresponsive “customer service” and mysterious scoring practices. Many allege the scores burden already disadvantaged groups. Law was supposed to make credit decisions more transparent, but weak enforcement has assured a race to the bottom. “Dispute agents” on the program said they had to review 90 cases a day. Even assuming a 9 hour work day, that’s 6 minutes a case, on average. Even if they took more time to try to get to the bottom of things, they appear to have no power to resolve the matter in favor of the consumer. It’s Potemkin dispute resolution.
Data driven analytics have promised a more scientific approach to credit allocation and marketing than narrative histories or one-dimensional scoring. But they can only be as good as the data they are based on. Garbage in, garbage out—and we are subject to yet another misapplications of natural science methods to the social realm.
Credit bureaus need to be held to a higher standard. They are not merely producing reports on social reality; they are helping to create it. Credit bureaus increase the chance of a consumer defaulting once they label him a risk and banks price loans accordingly. (It is much harder to keep up with 10% interest payments than 4% ones.) As long as credit bureaus are so careless and cavalier about responding to customer disputes, their evaluative methods will remain an opaque and troubling form of social sorting.