Home > finance, modeling, open source tools, rant > Proprietary credit score model now embedded in law

Proprietary credit score model now embedded in law

July 23, 2013

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.

  1. July 23, 2013 at 10:33 am

    Yes indeed HHS and CMS seem to have some issues being on the same path here. They are of course building in contingencies as we all know the IT infrastructure for the health insurance exchanges is not done. The Federal Hub by the way is being built by a United Healthcare subsidiary, and I keep telling all that with the truckloads of subsidiaries they own, it’s not all about policies and paying claims anymore and that the action these days is taking place in the subsidiaries. United is a mean company. The work their models and have for years to make money and you can go back to the class action lawsuit that Cuomo initiated to where for 15 years they short paid doctors and patients on out of network services. In addition they made money as we come back to the word proprietary once again licensing their model to the other major insurers and the subsidiary name Ingenix from United got a really bad name. The fix, change the name to Optum after they paid out a few millions to settle and Aetna just a few months ago did their settlement as it came from licensing the United payment model.

    The administration is scrambling right now and you had CMS say thei IRS was going to do the verification process for the exchanges while HHS hands out millions more to Equifax, go figure. I was being a bit sarcastic and said I was waiting for someone to come along and gamify the process like insurers have tried to get to scrape data, like Famville from Humana to mimic Farmville but the idea was to get consumer to play a game to enter their data and have fun, right! What else to insult our intelligence can they think of. Other insurers created other games similar to this as well. It’s a bunch of crap to get data. I included a blog post about it in my Attack of the Killer Algorithm series. Anyway with the exchanges which is it, old COBOL IRS servers via the federal hub or Equifax.

    You can also see the HHS contract given to Serco to handle manual transmission of insurance applications. Serco is a UK company with a branch in the US and the UK just put them on hold for new contracts pending a criminal fraud investigation for over charging. More good stuff:)


    In the meantime you have Nancy DeParle running around saying the IT Infrastructure is all done as a cheerleader (we need those too) telling yet another version. No tech with her background. Being around healthcare software and writing it years ago even though I don’t currently write I aggregated enough data on client/server operations to have seen the back side if you will and it’s not pretty. Actually I sad back in 2009 that DeParle and Sebelius were going to get eaten alive with technology and duped out, and sadly they have. Nothing personal but the wrong folks in the wrong jobs and the insurance industry has had hay day. I wasn’t too bad but basically said these women don’t understand current day business intelligence as relates to technology.


    I keep telling all to open up the SEC “tiered” subsidiary pages and take a look around and you can piece things together a bit. With Equifax it was their “employer” service area that received the contract, but as I say it all goes down to the corporate conglomerate with where the profit dollars go.

    There’s a lot of tired people at the state levels too trying to keep up with all of this so they can connect and for once I agree with Gartner in the fact who knows what’s going to pop up the day the exchanges open, so very complex and a lot of old government COBOL systems to be put to the test, as I said in a post “will it blend” a take off of the guy who does those wonderful funny videos.

    There’s been a lot of bad decisions at HHS over this and again, nothing personal but the insurers have played it to where they want and now they don’t need the money in selling new policies and pick and choose where they want to participate. United sues people, like the DOD to get what they want, and just filed suit against the city of Birmingham over not being awarded a contract. My mother passed away a short while back and I had to find a hospice center and God forbid choosing a hospice for profit company owned by United as at a time when I needed peace and quiet they would be shoving stats and numbers at me, it’s the way they work.


    So now we add the credit folks in here and there are alliances with them with insurance companies too and it’s all about money. I sit and shake my head in watching the data mechanics at work and the snow job government gets as they won’t or can’t model so they can see the other side sadly. It is very scary and I just wrote about the TSA yesterday becoming a Moneyball operation now with giving out contracts to 3rd parties to give you an opportunity for an “express scan” at the airport and wait, this gets worse.

    You have to pay TSA $85 so they can scan and have access to all your data on the web and this will allow you to not remove your shoes before a flight. They can continue to smell my stinking feet:) Basically now they want to cash in and get your data and the contracted companies have more data or data profiles to sell. It’s a rip. I have a good year in writing to the FTC on some of this to one of their lawyers, but again it is not getting anywhere and i really thinks the digital duds making laws are sinking us. Out of 100 senate members 84 still use a complete paper system and digital resources have been available to them for years. John Kerry said earlier this year that we have a right to be stupid and best I can figure 84 Senators cashed in on it…ok my satire coming out:) The credit folks are working their part of this complicated algo flipping for profit system we have for sure.


    The insurance and credit agencies have sadly played the government ignorance well and are getting just about everything they want and we suffer.


  2. Slats Grobnik
    July 23, 2013 at 12:34 pm

    While I agree with you that credit scores are a shady business, they don’t seem to be at issue here.

    The quote that you’ve selected indicates that Equifax will be used for income and employment information. Where do credit scores enter this picture?

    I’m not comfortable with the Federal Government getting into bed with Equifax, but they do seem to be a reasonably valid source for this kind of information.


    • July 23, 2013 at 1:42 pm

      Yes, thanks, someone pointed out my mistake to me also on Twitter. It is different from credit scoring models, although some of the same problems remain – especially the problem that there may be mistakes, and it would be hard for the individual to find them much less correct them.


      • Abe Kohen
        July 23, 2013 at 2:13 pm

        Trying to correct Equifax (and the other agencies) is a nightmare that I had to go through on behalf of someone who gave me power of attorney. It took many months and many faxes to the government offices that entered the wrong data to begin with, as my word and the government issued corrected documents were not acceptable to Equifax. So Cathy I’m with you on this one. I’m also with the person above who had issues with United Healthcare. Extreme frustration dealing with those thieves, but I managed to fight them and win 95% of the time (not accounting for the value of my time 😉 ).


        • July 23, 2013 at 2:42 pm

          Keep fighting United, they are crooks and I write about them all the time. Take a look at the tiered subsidiaries of companies they own..an eye opener…and yes I hammer on all to look at this as it’s a wake up call. When Cathy wrote about “under the radar” I could not find a better example of the exploitation.


          Years ago their former CEO and founder had to leave as it was the biggest derivatives violation around and I think it still is…but former CEO was an MD, this one, a bean counter and I have often wondered if the bean counter set up the MD to get his job..this is pure speculation but based on how the company operates, well it made me start to think as doctors are easy prey sometimes, I have worked with enough of them to tell you that.

          In February of 2013 60 Minutes did a real good story on credit agencies too. Sadly it has not made enough people mad enough yet, but I hope we get there soon:)



        • Abe Kohen
          July 24, 2013 at 1:23 pm

          Our family no longer has medical insurance through United Healthcare.


        • July 24, 2013 at 1:47 pm

          Well today United is continuing to promote their Chinese hearing aid subsidiary too. Seriously we have a too big to fail/jail insurance company here with the tons of companies they own so no matter where you spend a healthcare buck today they get a part of it. Folks in New Mexico might be writing a rent check to them as they are invested in low and middle income housing over there..doesn’t end.


  3. artp
    July 23, 2013 at 10:45 pm

    Note that they are turning to Equifax for income information, despite the fact that they already have that information in a more accurate form in the IRS.

    First rule of control engineering: Always measure the variable of interest, not some substitute for it.


    • Slats Grobnik
      July 23, 2013 at 11:40 pm

      The IRS information comes annually. It’s probably not a good idea to make people who’ve lost their jobs (or move to a lower wage job) wait until April to get the subsidy.

      As a way to allow flexible subsidies and minimize fraud, this doesn’t seem that crazy to me. It’s a shame that it’s Equifax, but there are only so many sources of payroll information, and the credit bureaus do get frequent updates.


      • artp
        July 24, 2013 at 10:21 am

        Income tax returns are annual. 1099s are annual.

        Estimated tax payments are quarterly. Social Security payments and income tax withholding are per pay period. I’m not sure how often the company is required to forward these to the IRS.

        Bank interest statements are usually monthly. Again, I’m not sure how often the company is required to forward these to the IRS.

        In any case, why can’t I sign a release form, as I do with so many other government transactions, that allows the government to ask for information from certain providers?

        Similarly, I have always wondered why I have to carry a proof of insurance paper in my car (state of Iowa requirement) when current information is available from the insurance companies. Insurance companies are some of the most computerized companies on the face of the earth, as they are running all sorts of fraud-detection programs. Seems it would be cheaper to pay the frauds, and catch them later. Less impact on those few honest people out there.

        First law of control engineering – measure the variable of interest where it occurs, not at some removed point that speculates what the variable is. There are ways to make this information available in forms other than paper that would work now, and not enrich third party companies who have no need for access to my information.


  4. albrt
    July 24, 2013 at 1:23 am

    I think this makes perfect sense and is exactly what people should expect from the Obama administration. The only (ONLY!) purpose of Obamacare is to allow the largest possible number of financial parasites to stick their blood funnels into the largest possible number of consumer carcasses. Additional healthcare will occur only in the minimum quantities necessary to provide cover for the financial extractions.

    Before we are done the administration will figure out a way to give the payday lenders a cut. Remember you heard it here first.


  1. July 24, 2013 at 9:05 am
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