Proprietary credit score model now embedded in law
I’ve blogged before about how I find it outrageous that the credit scoring models are proprietary, considering the impact they have on so many lives.
The argument given for keeping them secret is that otherwise people would game the models, but that really doesn’t make sense.
After all, the models that the big banks have to deal with through regulation aren’t secret, and they game those models all the time. It’s one of the main functions of the banks, in fact, to figure out how to game the models. So either we don’t mind gaming or we don’t hold up our banks to the same standards as our citizens.
Plus, let’s say the models were open and people started gaming the credit score models – what would that look like? A bunch of people paying their electricity bill on time?
Let’s face it: the real reason the models are secret is that the companies who set them up make more money that way, pretending to have some kind of secret sauce. What they really have, of course, is a pretty simple model and access to an amazing network of up-to-date personal financial data, as well as lots of clients.
Their fear is that, if their model gets out, anyone could start a credit scoring agency, but actually it wouldn’t be so easy – if I wanted to do it, I’d have to get all that personal data on everyone. In fact, if I could get all that personal data on everyone, including the historical data, I could easily build a credit scoring model.
So anyhoo, it’s all about money, that and the fact that we’re living under the assumption that it’s appropriate for credit scoring companies to wield all this power over people’s lives, including their love lives.
It’s like we have a secondary system of secret laws where we don’t actually get to see the rules, nor do we get to point out mistakes or reasonably refute them. And if you’re thinking “free credit report,” let’s be clear that that only tells you what data goes in to the model, it doesn’t tell you how it’s used.
As it turns out, though, it’s now more than like a secondary system of laws – it’s become embedded in our actual laws. Somehow the proprietary credit scoring company Equifax is now explicitly part of our healthcare laws. From this New York Times article (hat tip Matt Stoller):
Federal officials said they would rely on Equifax — a company widely used by mortgage lenders, social service agencies and others — to verify income and employment and could extend the initial 12-month contract, bringing its potential value to $329.4 million over five years.
Contract documents show that Equifax must provide income information “in real time,” usually within a second of receiving a query from the federal government. Equifax says much of its information comes from data that is provided by employers and updated each payroll period.
Under the contract, Equifax can use sources like credit card applications but must develop a plan to indicate the accuracy of data and to reduce the risk of fraud.
Thanks Equifax, I guess we’ll just trust you on all of this.