Home > finance > Bad debit cards are not the answer to bad FICO scores

Bad debit cards are not the answer to bad FICO scores

February 10, 2014

Recently I was made aware of a petition by Suze Orman on change.org to mandate credit bureaus – the companies that create credit scores – to use information from debit cards.

At first glance this seems totally weird, for two reasons. First, debit cards by construction have no ability to go below zero, so they are not directly relevant to the concept of credit, which is by definition when you borrow something and then hopefully pay it back. Second, my first, second, and third intuitive response to credit bureaus is to give them less information, not more. I already think they have way too much data about us. Their recent foray into using social media data is super creepy, for example, and threatens the “no outdated information” rule of the Fair Credit Act, for example.

I watched Orman explain her reasoning about her card, which I believe launched in 2012, and I kind of get her points about why she thinks this is a good idea (even though she clearly has a conflict of interest here): some people have trouble with credit cards, and for that reason they should use debit cards or cash, but cash has no data trail and thus people who are in only cash can never improve their credit scores enough to qualify for things like mortgages and car loans, which they may well be able to handle.

Here’s the thing, though. Her card actually has bad terms, and loads of fees, and it doesn’t look like FICO is actually going to use data from her cards to build peoples’ credit scores after all. Oh well.

Here’s an idea, which is not original at all but hasn’t gotten momentum because it doesn’t make bankers money: instead of shitty and expensive debit cards, let’s have the Post Office open a national bank and let people put money for free on their phones. Systems like this already exist in Kenya (Matt Stoller calls it a “M-Pesa style mobile cash system” in this fine post about the Post Office Bank idea) and in Ghana, and they work great, and let me once again mention there are no fees. It’s a free service as long as you have a cell phone, and it certainly doesn’t have to be a fancy smart phone.

In the short term, such a system will free poor people from getting ever increasingly ripped off by banks and companies with their crappy pre-paid debit cards. It might not give them stellar credit scores, but I’d argue that it’d still be an improvement.

In the asymptotic limit of that system, we’d have a pretty sharp division between people who live in the world of credit, with good FICO scores, and people who deal in cash and mobile cash, with bad or nonexistent FICO scores. It would be hard to get a good mortgage or car loan if you are in the latter group, but that’s already true (unless you count the kind of mortgages Wells Fargo gave to minorities to rip them off).

In the longer term, if we wanted to give credit scores to people who deal in cash, we could use their mobile cash records to deem their spending habits “credit worthy”.

In the much longer term, it would be great if we stopped pretending (I’m looking at you Suze Orman) that having a bad FICO score is a moral failing: it’s really mostly a sign of being broke. If we want to help people get out of debt spirals, then let’s talk about a Basic Guaranteed Income.

Categories: finance
  1. FGD
    February 10, 2014 at 11:23 am

    Don’t secured credit cards already play this role? Is there an argument that these debit cards are a better alternative?

  2. February 10, 2014 at 12:24 pm

    I’m with you on the Post Office and sure they could pursue credit union affiliations too instead of having to work with banks…I’m in there. I have this big dislike for FICO as well and like you said they are there to make money. A couple of years ago they came out with analytics to sell to insurance companies and others that were to be including your FCIO score queried along with other data (which they would not disclose) that could predict if you were going to be a good patient and take your medications. We know that that means and sure there could be some relevance on income but not enough to sell it to insurance companies to categorize you on being a “bad” patient.

    Data as such would be taken out of context of course by insurers when they received your “medication adherence score”..bunk!

    Well about a year ago FICO wanted in to this space so bad that they bough a revenue cycling (billing analytics) company in the healthcare business…augh…so let’s wheel that medication adherence analytics crap right in here too…they are going to try to push relevancy where ever they can with “selling that FICO” credit score…so now you can be a double “evil twin” with a potentially error ridden FICO score and categorized as being a bad patient who won’t take their prescriptions too…you can’t win can you?

    http://ducknetweb.blogspot.com/2012/11/fico-buys-cr-software-and-gains-access.html

  3. February 10, 2014 at 8:00 pm

    I forget something…this makes the Target situation look tame..Barclays data breach…busted for selling client information to other brokers…whistle blower turned them in.. I don’t know why this is not bigger news as it should be…reads to me like an inside job..they have the formats and everything from the images shown..

    http://ducknetweb.blogspot.com/2014/02/barclays-brokers-caught-selling.html

  4. maxmoo
    February 10, 2014 at 9:49 pm

    This reminds me of something I’ve wondered about for ages. In Australia, since about 10 years ago, every ATM card has doubled as a debit VISA or Mastercard, linked directly to your bank account. Any reason why this hasn’t happened in the US — it seems a lot more straightforward than the Post Office/mobile phone idea … are there a lot of people who don’t even have bank accounts?

    • February 11, 2014 at 7:14 am

      In the USA debit cards do not offer the same protections against fraudulent use as credit cards do. With a debit card, if you are fortunate to have a bank account with some money in it, a thief could wipe out your whole balance. When a particular bank tried to convert my ATM card to a debit card, I declined, and have been issued ATM cards without the debit feature ever since.

      • maxmoo
        February 11, 2014 at 7:41 pm

        That’s really strange, I wonder why that is? Over here the fraud protections on debit cards are exactly the same as for credit cards.

  5. February 10, 2014 at 9:55 pm

    Free? Someone has to pay for it. Someone has to build it. The Post Office which is already a huge drain, does not have the resources to provide another service for “free.”

  6. February 11, 2014 at 12:30 am

    A post Office savings bank works in so many countries and works well. It would be a great way for the Post Office in this country to make extra income. However the intention of Congress is to destroy out Post Office in favor of more expensive private carriers. And to think of competition to a bank. That will be the day.

    The idea is never to help people especially poor people just make more money off of them until it is time to throw them in debtors prison.

  7. February 11, 2014 at 1:12 am

    “F”ICO is too secretive. We should be putting less personal information into “F”ICO, but at least as importantly, we should use political and other means to pry “sources and methods” type information out of the credit bureaux. They function as private intelligence agencies (and think of themselves as such). Their business model needs to be reverse engineered and exposited. They need to be disassembled.

  8. Luxtexente
    February 11, 2014 at 8:03 am

    Credit Bureaus are just the NSA without the text and phone message snatching. I have been in the credit industry for over 20 years. With a key stroke the Credit Bureaus can destroy a persons life and demolish a family. The Bureaus are as dangerous as the NSA and we need to wake up to that fact. How much data do you think the NSA gets from the Credit Bureaus?

  9. aristogeit
    February 12, 2014 at 4:40 am

    Suzie orman? isnt that the infomercial lady? how can you even go into that?
    she’s of course out of the question

  1. February 11, 2014 at 6:42 am
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