You are being graded and given a score based on a multitude of financial details in your life, whether you like it or not. Rent and billing history, loans, credit card purchases… every financial move you make. Of course we’re talking about what’s known as your FICO Credit Score. And all the data you never agreed to have surveilled? It was hacked and stolen back in 2017 due to a data breach of one of the big three credit bureaus, Equifax.
In this episode Maurice lays out the history of credit surveillance, from individual banks handing out loans based on “vibes” more than anything, to trusting the insecure data systems that led to the 2017 Equifax breach. And all along the way, it’s America’s Black population that disproportionately suffers the consequences of these experimental models in credit surveillance and lending.
Joining this episode to discuss why our models of credit scoring for lending have impacted Black and other marginalized populations is Tamara K. Nopper, senior researcher with the Labor Futures initiative at Data & Society and an assistant professor of sociology at Rhode Island College.
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Maurice Weeks 00:08
If you’re listening to this, there’s a good chance we’ve never met before. So what if I told you, I have a great for you? I know who you are. I talked to your landlord, I talk to your bank, I even talk to your spouse. I looked at how old you are, how much you borrowed to go to school even. Based on all of that I give you 547 Don’t ask I have a weird scoring system. Unfortunately for you, I’m going to make this score accessible by 1000s of people so they can judge you. Good luck getting a job or apartment from any of them in the future. You didn’t ask me to do this. You didn’t give me access to this information. You don’t even know where and how I’m storing this info. Well, the good news is I haven’t done this. The bad news is a bunch of corporations have. Welcome to episode four of indebted, a podcast about debt and race in America. I’m your host, Maurice BP weeks a lifelong economic and racial justice organizer. Each episode we tackle a different aspect of debt, exploring how it works, and why it spells bad news for black people and our entire economy. In this episode, we’re uncovering those corporations in the background that are scoring everything we do credit bureaus, is there a chance they even know that you’re listening to this podcast? Probably. Let’s get into it. So in 2017, I was traveling for work and received a strange email that many of you probably also received. It was from Equifax, the second largest credit bureau. Notice of security incident, I believe was the title. It was followed up by some breaking news reports. Massive personal data breach, Equifax, the company
Sound on Tape 02:10
that tracks all your credit cards and mortgages to determine your credit score. The company says that it could affect roughly 143 million Americans, or more than a third of the US population. Between May and July, cyber intruders gained access to everything from customer names to social security numbers to addresses
Maurice Weeks 02:33
kind of a big wipsy moment. What was hacked and stolen Exactly? Well, just my social security number, birth date, every address I’ve ever lived at my driver’s license, credit card numbers and total pass credit information. Well, hey, I’ve been robbed before. I’m not new to this. But here’s the thing. I never actually gave Equifax any of this information. I mean, if someone steals from your bank account, it’s insured and hey, you put the money in the bank, there was at least some kind of consent to the bank having your cash. I don’t remember telling Richard F. Smith, the former Equifax CEO or any of his employees that they could have this info. How on earth did they get it? The answer starts to unfold in the 1950s. Two guys, William fair and Earl Isaac, a mathematician and an engineer met at Stanford and decided to start a company together that could quote, use mathematics and computers to help businesses make better decisions. That business Fair Isaac and Company was founded in 1956, and quickly became the standard for credit decisions after its scoring model was debuted in 1958. Fair, Isaac company fic Oh, FICO score. You’ve probably seen that number between 350 and 850, used by your bank, credit card company, or even auto lender. But there’s still some time after the invention of the FICO score until its dominance. The credit score appears on the scene during what was actually a pretty interesting time in the history of credit decisions. America was still in the throes of Jim Crow in the south and offered way less legal protection for discrimination by race, gender, and honestly everything else. This was also the period of redlining a process where banks and others colluded to create maps of much of the country with red lines separating sections that had significant black populations, marking where these banks should not lend. Safe to say there were no real fair lending standards, people made lending decisions on vibes. Did they get a gut feeling that you were going to pay the loan back? Very little quantitative data? Just fives. Unsurprisingly, this meant all of the biases and racism of the general public shone through and lending decisions, even early attempts to standardize methods of key Big information about potential borrowers used data that led directly to discrimination. Take one company, the retail credit company based in Atlanta, they had a complex system that incorporated data not only about people’s race and financial background and general character, but also their social and political, even sexual lives. To give you a sense of how arbitrary and screwed up this was, there was a story of a Princeton professor who in the late 60s was cited as a morels risk by retail credit company, because she was, quote, living with a man without the benefit of wedlock. The real scandal didn’t take off in earnest until retail credit company announced plans to shift their records to computers. In the late 60s, early 70s computers were not a thing. There was no such thing as a home personal computer before the mid 70s. Even then, who had won. We were at the beginning of businesses or anyone really using computers. So this scared the absolute crap out of everyone. Ralph Nader. Yeah, but you haven’t heard that name in a while, was the leading consumer advocate at the time and a huge critic of computerization and RCCs business model. At an early 70s symposium titled The invasion of privacy in our computerized society. He described the danger of RCC system, saying anyone posing as a prospective employer and willing to pay a $5 or $10 fee can now obtain data on the 72 million Americans whose records are stored in the computerized files of the retail credit company. Nadler was tapping into something many Americans felt RCCs computerization of their records exploded into a scandal. There were hearings in the house in the Senate, countless op eds and national news stories. This all culminated in the passage of the Fair Credit Reporting Act of 1971. This act shaped what is still our relationship to our credit history. You can now access your credit history and it force companies to delete data about race, sexuality and disability. RCCs business model and reputation took a gargantuan hit, they simply could not find a path forward. So they did what any corporation would do. They rebranded the new name they chose Equifax. How’d that turn out? This new standardization of credit reporting had several interesting effects, including massive consolidation of the industry. To the point where today, there are only really three main players TransUnion, Equifax, and Experian. It also opened up an opportunity for a standardized way of describing someone’s credit without the bias narrative a credit officer would have put together in the past. The FICO score created years earlier was the perfect solution. And fast forward to today. It’s the industry standard. Recently, Fico does have some competitors, but it’s still safe to say if you’re buying a house or a car or opening a credit card, more than likely the lender is looking at your FICO score. So problem solved, right? Wrong. If you’ve been listening to past episodes of this podcast, you know exactly where this is going. So credit scores range from 350 to 850. And you can also not have a credit score 54% of eligible black Americans have either no poor or fair credit. In other words, they have scores that are below 640. The average white credit score is 727. The average black credit score 627. Why is that? Well, for one shifting to quantitative data doesn’t remove the biases it obscures them. They’re baked into the inputs. Of course, black people who are by design in worse financial positions than their white counterparts after hundreds of years of economic oppression will have lower credit scores, how could they not. And that has real financial implications. For example, a borrower with a 720 score taking on an auto loan is probably going to be able to get one of those great APR or annual percentage rates you hear about on the commercials like 2.9% or 3.5%. Lower that score to 620 You’re looking at more like 12% or 15%, maybe even higher. That means month after month, you’re paying more money for the same car that your white counterpart is also driving. Expand that same idea to credit cards, housing and everything else that uses a credit score. Bad credit can block you from stable renting it can even make your utility and cellphone bills higher. So to find out more about the racial impact of the credit scoring system, I spoke to a friend who just happens to be an expert on credit scores.
Tamara Nopper 09:51
Hi, my name is Tamra Napper and I’m a sociologist and currently a senior researcher in the labor futures team Dayton society.
Maurice Weeks 10:02
Thanks so much for joining me, Tim writes a chat about credit scores, I wonder if you can start by just describing how the traditional credit scoring system works.
Tamara Nopper 10:16
So the traditional credit scoring system historically, it’s basically a risk assessment tool. And it kind of takes into account different information about your economic history. And it calculates a score to determine kind of how risky of an investment would you be for something like a loan, but increasingly for things like consumer credit. And so back in the day, it was like things like index cards and so forth that different financial institutions used. And it was this idea that it was not kind of as efficient as it could be. And so you had basically, in 1989, the FICO score comes about from Fair Isaac Corporation. And so a lot of times on social media, you’ll see people say things like, we didn’t have credit scores until 1989. And it’s a fairly new invention. But one of the things is that that FICO score was this idea of kind of, it gets, it’s this broad idea of kind of creating a consistent scoring system, which is actually probably not an accurate way to describe it, just because part of as we’ll probably talk about later, is that credit scoring isn’t always really consistent. And that’s a major issue for a lot of people who are dealing with their credit scores and the impact of them. But it’s this idea of kind of taking all this data about somebody, and basically creating producing a score through some type of calculation, that determines their risk in the use of lending or consumer credit decisions.
Maurice Weeks 11:57
I remember reading something from when the FICO score was created, touting that this would be a way to decrease the amount of racism that’s that was used in lending decisions, because before it was just a loan officer deciding, as you walked in the door, whether or not you were credit worthy, or is that accurate? Yeah,
Tamara Nopper 12:18
I mean, this is something where, you know, so one of the things that happens is that we want to kind of can consider that part of the history of the credit score, and FICO kind of getting this legitimacy in society are these very valid concerns about discrimination in terms of credit. So some of those concerns are things like the history and ongoing discrimination in terms of redlining, where different neighborhoods were kind of mapped as high risk neighborhoods in terms of certain maps, literally having a lot of red. And African Americans tended to be the targets of that type of mapping system in terms of discrimination, whereas others were seen as kind of positive targets of inclusion and giving loans. But you also had a lot of white women in terms of in heterosexual marriages, which were at the time in the 1970s. The only marriages that were legal were heterosexual marriages. And so you had things like different civil rights efforts in the 1970s, to push for more equality in terms of access to credit. And so things like Equal Opportunity Act and credit and so forth. And so out of that comes this concern, very valid concern about being discriminated against from financial institutions, and the way that an individual loan officer, right, might both discriminate, but also, you know, what we want to remember is that you can still have discrimination, you know, in a variety of at various levels. So, whatever method they were using, whether it was like these mapping systems or their own index system, or whatever, internal to their bank, this was oftentimes discriminating against people. So part of what FICO like the way they’ve legitimize themselves, and they openly do this as part of kind of promoting the legitimacy of their products today, as they’ll talk about themselves as being a so called scientific way of dealing with discrimination. And so they’re not only claiming to be, you know, anti discriminatory, but they’re using stuff that kind of very much resonates with a lot of people today, people like things like quote unquote, evidence based or having kind of like, you know, data driven results or scientific right. And so they use that language and they promote themselves that way, particularly against more competitors in the credit scoring marketplace. And that’s something I think we always want to remember is that even as credit scoring is so kind of widespread and normalized in the society. It is an industry and there is a profit motive and there you know, our corporation Hands who are part of all this. And so as FICO gets more competitors in the marketplace, to try to kind of knock them off, you know, from the dominant position, they are constantly kind of doubling down on this idea that they are more scientific. And this is a bigger issue, as you know, Maurice, in terms of things like the criminal punishment industry, so you see similar kinds of arguments, just like with the credit scores being made about things like sentencing, right. So, you know, increasingly judges using things like predictive software for sentencing or police forces using predictive software. And it’s this idea that, you know, we’ll have more quote, unquote, scientific way to police people or to sentence people. And therefore, it’s idea that we’ll take the discrimination out of it, if we’re using kind of these data driven, or the software driven, kind of, you know, programs. And so this is a bigger problem is that something like the credit scoring industry, they use very valid concerns about racial and gender discrimination. And the way they respond to it, is by saying, We’ll give you a so called Scientific product, and therefore, we’ve taken the so called discrimination out of it, but yet these products still very much are harmful. And they also speak to a political hold that credit scoring has on the economy.
Maurice Weeks 16:24
Yeah, I was gonna say, I, it seems as if I’m going out on a limb here, that FICO did not solve racism in financial services by creating the FICO score. So I’m wondering, you know, what, historically has been the gap between really black and non black credit scores?
Tamara Nopper 16:46
You know, so there are a couple of ways we want to think about this is that if a credit score is, you know, if it draws from a lot of your kind of existing financial data, in terms of your rotating credit accounts, and so forth, and your some of your payment histories with some of these things, and whatnot, it’s like, it takes existing inequality that already is there in the economy, and the economy is not some abstraction, but manmade existing inequality, whether it is gaps in income, whether it is gaps in wealth, right. And wealth, as we know, is different than income, because wealth includes things like property, you know, different kinds of accounts, retirement, and so forth. And so what happens is, you already have existing inequality between black people and white people, at so many levels of the economy, with some of the things I said about like income and wealth, that already gets kind of filtered into credit scoring in and of itself. But also, you know, we often hear today, people talking about, like, Oh, we don’t want to deal with the culture wars, we, you know, need to have a materialist analysis, but the reality is cultural ideologies about who is a good investment, about just, you know, the cultural ideology about the investor, you know, the role of financial institutions, and what role they should play, the fact that we have to take out loans, a lot of times for housing, right? These are all cultural things, and one of the things that happens is, research is still shown, and there’s many legal cases that have happened. And this especially happened around the subprime crisis. And, you know, 2008, is that there’s all these racist views about who’s seen as a good investment. And that played a role also in lending decisions in terms of like, if you’re given a subprime loan, or if you’re given a prime loan, and what that meant in terms of the difficulty to pay back that loan, right. And so this is something where you have existing racial wealth gaps that already exist. And that can also play a role in just in terms of if you even have what is seen as like being scorable in society. So there’s a discourse in kind of policy work around this idea of like Credit Invisibles, and credit and score bubbles. And so this is something where you see a lot of racial disparities there. So, credit and score troubles and Credit Invisibles, I’ll tell you what the difference is, is that a credit? Invisible is someone who has no credit history with one of the three nationwide credit reporting companies and those three nationwide credit reporting companies are Equifax, Experian, and TransUnion. Credit and scribbles are those who either have a thin credit file, which includes fewer than three sources of payment information or trade lines or steal credit file, and that they have no recent credit history. And so one of the things is to consider is that there are about 26 million adults who are credit invisible and 19 million adults who are credit and scorable. So that’s about 45 million adults and that’s almost 20% the adult pop halation a lot of those adults are African American or Latin X, sometimes also younger people, and then also older people. But there is a racial disparity there. And so what that speaks to and I’m not a proponent of credit scoring, so I’m not trying to, you know, mourn the fact that people don’t have access to a credit score per se, even though we can talk about what the risk of that is. But what it speaks to is that speaks to already existing kind of racial and wealth inequality, and discrimination in the economy, that you’re even kind of don’t even have like some of the kind of payment histories or economic histories that make you even kind of legible within the scoring system.
Maurice Weeks 20:42
Yeah, I know, I know that just from something we discussed earlier on the show that, you know, the, the gap, the the, the median credit score for black folks is somewhere in the mid six hundreds, and the median credit score for white folks is somewhere in the mid seven hundreds, and there’s just like, and that’s been kind of consistently true for the history of the of the credit scoring system. And, yeah, I’m just I’m, I’m wondering if there’s more to why that persists than just sort of existing inequality, or is that just the existing, you know, economic inequality showing up in the scoring?
Tamara Nopper 21:26
I mean, it can be that but it’s also like, part of your credit score is, you know, connected to certain payment histories in terms of, if you get a loan, if you how you deal with certain debt, at what rate you get, like your consumer credit, credit card, right. And so, you know, there’s certain things about what interest rates that you might get offered, what type of loan, if you get a prime loan or a subprime loan, you also sometimes just have higher payments, so you might have less money to actually pay back homes. And so you know, and this is something I know you’re familiar with Maurice, but it’s like if you think about when people talk about the so called Black tax, right. And the language that people use to describe, a lot of times black people being charged higher interest rates, and there’s a lot of research that shows there’s evidence of that, but also, the higher cost of living a lot of times for black people, including middle class black people for a range of things, in terms of like how pricing is done by different companies based on geography and racism. And so one is sometimes you just have, you know, you’re kind of having more money taken out, right, of your communities, or of kind of what you could pay with, but you’re also sometimes being charged higher rates. And so you also had that being baked into the economy, and ways that can also impact, let’s say, payment histories, or being able to kind of pay back something as regular, but you also just have existing wealth gaps in terms of like inheritance, right? So a lot of us inherit our wealth. And usually that was historically in the course of like homeownership. But you also, you know, the racial wealth gap is important to consider. Because if you’re in a situation where you need to pay off something, and you might not have, you know, a safety net to do that, right. In terms of other family members, or in terms of like, you know, some money that you’ve been able to kind of set aside, right, that isn’t for kind of regular, monthly monthly bills, that can also impact, let’s say something like your payment history, and that can also impact things like what ultimately becomes your credit score?
Maurice Weeks 23:47
Yeah, you answered a question that that I feel like a lot of folks will have, which is, you know, if you, we know that if you have too much debt that you’re not paying, that means you have a low credit score, if you have too little debt or no debt, you have a low credit score, what the hell does it matter what my credit score is, like, maybe I can’t buy a house, but I don’t want to buy a house. But you’re saying it impacts so much more than that, and sort of creates just this general tax on on black lives. I mean, to put it really, really bluntly, I know that most most people’s first experience with one of these credit scoring firms is probably a negative one. If you’re looking at your credit for the first time, you probably don’t have the warm and fuzzies especially if you’re a black person. And it might be the first time that you’ve heard of one of these these private companies that have all of your data that you didn’t consent to giving them or anything like that. And I’m wondering like, Why do private companies do this? Like why isn’t this a government function?
Tamara Nopper 24:52
I mean, I think, you know, private companies, they capitalize on things. So I think one is yet Hmm, well, listen, I think they want to make money. But I think also, they, you know, is interesting because during the pandemic, there was all this stuff about whether, you know, some elected officials were calling for it. And we’re still in the pandemic, obviously, but the beginning of the pandemic, some elected officials were calling for certain data to not be included in credit scores to have some type of relief around certain data, including medical debt data, and so forth. And it was actually the credit scoring industry, the credit scoring kind of lobby, but the thing is, is very difficult to actually kind of trace some of those lobbies, right. So we know that there’s like Financial Services Roundtable, we know that those credit scoring round hit, you know, lobbies. But they’re not they act kind of very quietly, but very powerfully, and so you just see sometimes a new stories, oh, the credit scoring lobby oppose this, right. Or didn’t want that part in there, and so forth. And so, you know, you also just have a vested interest in these financial institutions, in terms of what people have described as kind of the increasing financialization of social life. It’s not just, they’re not just trying to play a role and kind of lending to you alone, at a bank, they’re, they’re playing a major role and just kind of the redesign of society. So if you think about something as simple as you know, now increasingly to get your paycheck, you can’t get it in paper form. And you have to do direct deposit, meaning you have to have a relationship with the bank, right. And so part of I would argue that part of what credit scoring is, is, even though credit scoring is a separate industry, from necessarily banks, it works intimately with kind of the power of financialization, because part of it is, it’s this idea that we need a credit score to be able to get certain things, and that if you want to avoid certain types of finances, like a payday loan, or you know of let’s say, your family member, can’t you, you know, or if you want to have the American dream, you got to go through a financial institution. Well, that’s been a that’s a cultural ideology that has been normalized, and that the credit scoring industry has helped to normalize, right? If you think about, for example, you know, when you say like, a lot of people have negative experiences, think about, for example, when I teach about credit scores, my class students, like with Credit Karma, like they talked about some commercials. And if you think about some of these commercials, they’ll show people kind of living in a not so great situation. And then it’s this idea of like, Oh, we’re gonna magically change our lives through these credit scores. So weird recognition, on the credit scoring industry, they want you to think your life is kind of crappy, but that a credit score can kind of solve it, right. But there’s also all this cultural work that they’re doing, to get us to think that this is a good thing. And while they’re also doing all this behind the scenes work, through their lobbies to basically maintain their power and dominance over the economy.
Maurice Weeks 28:02
I mean, I’m actually glad that you mentioned like Credit Karma commercials, because I, I, it sort of adds to the, you know, the maybe mystique of the credit industry that you know, this. I mean, if for folks who haven’t seen the commercials, it would, it’ll be like, you know, someone who’s in their 20s, living with their annoying parents, and then they check their score on Credit Karma, then Mystery Box happens, and all of a sudden, they’re not living with their parents. And it never really explains what happens, you know, what you gain from actually checking your credit score, but the message is really clear that if you don’t do this, you will be in a bad situation. Yeah, so I’ve always found those commercials like, this is really like, like you’re saying, doing more cultural work than explanatory like financial work.
Tamara Nopper 28:56
One of the things that is increasingly happened is our credit reports, and this is important is that we often use the term credit report and credit score interchangeably, they’re not the same thing, but they’re very highly related. So a credit score comes out of kind of the information of your credit report. And a credit report is a statement about your credit activity, current credit situation and your loan payment history, and the status of your credit accounts. And so increasingly, sometimes landlords are using like looking at your credit report, and so forth. And we know that it’s gotten very competitive to just get apartment these days, as well as you know, extremely expensive. And so, a credit score comes from the information of your credit report, but sometimes this gets kind of talked about interchangeably where people say, Oh, the landlord sees your credit score, they don’t always see the credit score. They see it as a credit report. But it is this way that increasingly like your kind of history with credit, and your payment history is increasingly being looked at, to kind of think about things like auto loans. Getting access to kind of rotating credit accounts getting access to, you know, an apartment. And that’s something that I think has shifted for me or that I not just think but that has shifted tremendously is the significance of your credit report in these processes of other parts of your life.
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Maurice Weeks 31:08
yeah, I want to talk a little bit about I mean, we mentioned because of the pandemic, at the beginning of the pandemic, there was lots of conversations, asking to exclude certain things from credit reporting and credit scoring. And I’m wondering about the other side of the coin and including more things. I mean, you mentioned, apartments, and I’ve seen calls for things like your payment of rent every single month to count in the same way that a credit card payment does or your payment of your cell phone bill or payment of your water bill. Is that Is that a good thing? Or a bad thing? Like should we be? Should we be moving towards that for for credit, scoring and reporting if we’re going to have this system.
Tamara Nopper 31:58
So what you’re describing is what is called alternative data. And it’s this idea of kind of going outside of what has traditionally been calculated into credit scores, particularly the FICO score. So alternative data includes some of the things that you’re talking about, where some proponents of alternative data are calling for your rental payment history, or your cell phone bill, payment history. Some, you know, we’re even calling for things like social media activity, even though that was a more controversial kind of thing. It was some of the companies that were calling for social media activity as alternative data, were FinTech companies, financial technology, lenders, who only kind of lend online and don’t have the historical kind of brick and mortar type of banking services offered.
Maurice Weeks 32:51
A credit score would take a huge hit if that was true.
Tamara Nopper 32:54
I don’t know, you know, if you have a lot of friends, then they’re so called upstanding. I mean, this is some of the problems is, you know, or they would say like, alternative data was literally sometimes like, Do you have good ratings on you know, your restaurant or something like that, right. So, but this is something where part of what what it is, is that it was this idea that certain minority groups and certain groups don’t have access to a credit score. So this goes back to the whole issue around credit score bubbles and Credit Invisibles, but it also was this idea in this push that’s, and you know, you actually have a lot of liberals and some progressives who talk about this is the idea of banking the unbanked, and this is where kind of discourses about financial inclusion, overlap between the banking industry and the credit scoring industry. So financial inclusion being this idea that certain groups are discriminated against, or they’re not able to access certain financial services, or access other parts of economic life, because of a lack of certain data or information that would make them kind of legitimate or coherent to these institutions. So you have this push, for example, to kind of bank the unbanked. And then you have this push for getting credit score balls and Credit Invisibles alternative data, a lot of times the targets of both the banking the unbanked and the alternative data proponents. The targets are the same as basically, a lot of times black people and minority groups are seen as kind of disadvantaged in existing kind of banking and credit scoring systems. So the alternative data argument is this idea that we should incorporate more data that would allow people to then be kind of either visible or scorable. And so, again, some of this data being kind of things like your payment histories and so forth. So some people will do these studies and they’ll say, hey, some of these payment history show that You know, so called good signs of character, because at in the end, credit scoring is the so called risk assessment and risk assessment is this assumption about character? What do we think is, you know, looking at your profile, what do we think is the likelihood that you will pay back? Or in the case of like, sentencing? Is the assumption that looking at this data, what is the likelihood that you will commit this crime, quote, unquote, again, right, even though I will say all sentencing is risk assessment, regardless of software? Right. So this is something where you have these proponents and some of the proponents there, you know, across the political spectrum, so you’ve had some proponents of alternative data have been, for example, Vice President Kamala Harris, when she was running for I
Maurice Weeks 35:48
remember this, me touting this as a racial justice reform, yes, she
Tamara Nopper 35:52
told how did this as a way to kind of increase, you know, black wealth you’ve had and this is also where it’s important to think about what do people think alternative data means some people think it means calculating a new score. So for example, Tim Scott, who is a Republican presidential candidate, he’s, you know, thrown his hat into the race for the President of the presidential race for the GOP, he is a proponent of like the Vantage score, and the Vantage score, basically, and this gets to how credit scoring industries, you know, an economic marketplace, it’s, it’s a score that was created by the big three, to try to kind of take on the dominance of the FICO score, right. And so he was proposing kind of that as a so called form of alternative data. So you also have competing ideas of what alternative data is, but ultimately, it’s this idea that, Oh, you know, we need to kind of go beyond so called traditional scoring data, incorporate new forms of data into a calculation that supposedly can get more people into the credit scoring marketplace, and so forth. Part of the risk of that is, one, you’re just, you know, it’s always taught is like, this can get you more access, but what are the also increased penalties, right? Meaning, if you now have more of your economic activity, there, it can also be used against you.
Maurice Weeks 37:23
So if you do screw up a utility payment, let’s say
Tamara Nopper 37:28
is that sometimes, you know, different companies, I mean, it could be your own landlord, right. So you have some landlords that, you know, might be willing to kind of have some arrangement with their tenants where, okay, I’m not going to be portu, right away to, you know, for being delinquent on this thing, or I give you maybe a month grace or whatever it is, right? You have sometimes utility companies that are not going to shut off your utilities, if you’re late on a payment, or, you know, your cell phone, they might shut it off after one non payment or something like that, right. So one of the things that can happen is, you could you’re basically calling for these companies to now create kind of more stringent in some cases, right, some of them are already stringent, but you might be calling from them to have more stringent kind of reporting of your non payment or your late payment. And you’re claiming to do this to help minority groups. And that’s part of the political danger of is they’re taking, again, something that is a valid concern, right? Racial discrimination, gender discrimination, age discrimination with credit, anti immigrant discrimination, right, love immigrants have, you know, poor credit scores, or credit, scorable and credit invisible, and they’re taking valid concerns about discrimination. And they’re saying, Hey, we’re going to financially include you more buying, by paying monitoring more of your activity. And this activity could also possibly be used against you. But also, you know, we’re experiencing just so much economic misery. So, you know, student debt payments are, you know, the pauses over, right, people are experiencing just tons of medical debt, including, you know, COVID related and long COVID related issues, the cost of rent is exponential. And so I’ve always, you know, it’s kind of like, how are you going to argue that, you know, we’re going to incorporate more of your payment history to a landlord, when you’re having all these problems with rent and these numerous evictions, right. And also, you’re not going to regulate financialized real estate. And so this is part of the problem is you want to kind of say, we’re going to give you more options for more of your data, but we’re not going to regulate the rest of the economy.
Maurice Weeks 39:38
Right, right. That’s yeah, that’s that. It’s, it’s seems treacherous, in many, many different ways. So it’s really, really helpful.
Tamara Nopper 39:48
And I’ll just add this to is that what you have is, in this credit scoring marketplace, more of these companies are offering their score. Base Upon claim, like mentioning that they do alternative data, so alternative data has become a selling point for these credit scoring companies, because these credit scoring companies compete with getting kind of, you know, being the ones that this financial institution uses for their company. And again, this is why it’s important to kind of remember is that, you know, again, not to be shady, but people be like, Oh, the fake, they use the FICO score interchangeably. FICO loves that they want to be interchangeably as a credit score, right? Yeah. But the reality is FICO is competing with VantageScore. You know, some of these FinTech companies I mentioned, they’re creating their own credit score. So not only are they experimenting with like a new model of how to do lending for themselves, but they’re also trying to create their own score that can become kind of proprietary information. And so you have these companies increasingly saying, Oh, we, we incorporate alternative data as a selling point for, you know, institutions to use their score. But also FICO has responded by saying, Oh, we’re gonna incorporate some alternatives.
Maurice Weeks 41:04
Right? Yeah. Yeah. I’m glad you mentioned this proprietary thing. I mean, so I was shopping for sneakers, I love sneakers, as you may know, there’s, there’s almost always an option for one of these sort of online lenders to help you pay for like a purchase, like Klarna or afterpay. These by now pay later companies. And they say that they do not one of the ways that they market themselves is that we don’t use any of the traditional credit things, we use something else, and they don’t describe what they use, but they just need your phone number. And then that’s all they needed, you know. And I’m curious how that how that works. But I’m also curious about why these companies are allowed to have their scores be entirely proprietary. I mean, like, if you even if you go and check your scores from the three bureaus, you’ll get three different scores, often, because they’re using three different, you know, algorithms to calculate it. So yeah,
Tamara Nopper 42:18
yeah. And not only that, you know, before I answer your question, going back to kind of the three different scores is, you know, credit scores are like, kind of, you know, iPhones, they have, you know, one company might have different versions, right, we’re introducing kind of like, No 9.0, or something like that, right. So this can create a lot of inconsistency, one, because your score could be different with the same company.
Maurice Weeks 42:42
Yeah, remember this from buying a house? Or they’re like, Oh, actually, no, we didn’t use your TransUnion score, we use your TransUnion three score. And I’m like, What the
Tamara Nopper 42:51
hell is that? Right. And so this has become a real issue for a lot of consumers too. And it’s one that you know, something like the Consumer Financial Protection Bureau, the federal agency, you know, tasked with thinking about, you know, monitoring, the banking institutions impacting consumers, you know, they’ve talked about one of the biggest complaints that they receive at the CFPB is about credit scores, and some of these issues around inconsistency regarding why am I getting a different score from the same, you know, kind of scoring company or, you know, this institution uses a different score versus that and so forth? And again, that shows kind of, you know, the marketplace politics of it all. Yeah. But as far as proprietary stuff, I mean, really, kind of the simple answer is the federal government just doesn’t have the political interest, or, you know, will to regulate the credit scoring industry. And so they allow for these credit scores to be very proprietary. So they will have numerous kind of, you know, hearings or kind of, you know, reports about these very issues about the fact that some of these credit scores is not totally clear how the calculations are actually done. So what you’ll see a lot of times in FICO does this as well. Some other companies is they’ll say, we incorporate these broad kind of areas of your, you know, kind of economic profile. So they’ll give kind of, they’ll sometimes have a lovely table or graph showing kind of like this person, you know, this is some of the stuff that we take into account, but they do not reveal how they calculate because that is the proprietary information. If you go on FICO, they literally have like a trademark thing around their name. Yeah. And so, as I was saying, you know, some of these FinTech companies, when FinTech, you know, you have all these kind of reports and these kind of, you know, hearings that different elected officials were doing on FinTech and one of them even described as like the wild wild west saying isn’t well regulated. Well, you’re the regulators, right like, regulators mount up Right, I mean, people my age, well, hopefully, you know, you’re probably happy, I didn’t do it in the full voice from them. But it’s like, you know, you are actually the regulator. So there’s a strange way where they’ll describe how they don’t know these things, and that these companies, some will even lament that these companies will not hand over the information. But the federal government has allowed that to happen, right. And, and so one of the things that you have is you have this push, you know, Bernie Sanders was pushing for this, some others, like Deimos was pushing for a public credit registry. And it’s, you know, in this idea that we make kind of more transparent how these calculations are done, that will it’ll do better for like, kind of dealing with potential discrimination, right.
Maurice Weeks 45:51
Obviously, this system is broken in a lot of ways. And like many things, and the American economy, it’s broken in a way that has a much bigger impact on black folks than most other folks. What should we be doing? Like? How should we be judging whether someone should get a loan? At what rate? I mean, part of me wants to say, we should just be giving people what they need, so that they don’t need to be taking out these credit cards and loans in the first place. But yeah, like what what’s, what’s the answer here? Like, what’s the what’s the thing that like, needs to be advocated for to make this stop being such a crappy system?
Tamara Nopper 46:35
Yeah. I mean, what I think is, there’s, there’s several things. One is, in the short term, I think that we could, I would say, a public credit registry is probably in the short term, one of the better ways to go. But part of the problem, you know, with public credit registries, is is kind of the bigger problem when people talk about transparency in general, when it comes to kind of data. And software is sometimes it’s just saying the quiet part out loud. But we already know, the quiet part is just awful, right? So it’s kind of like now we know, we, you know, you’re revealing that you score this stuff, but that doesn’t necessarily deal with your dominance in society. Right. Right. And so part of it, I think, is that even though I’ve been, you know, pointing out that people often say, Oh, the FICO credit score started in 1989. And that to me, you know, using that interchangeably with credit scoring, it doesn’t always get it kind of the long history of credit scoring, or how credit scores are so kind of pervasive beyond the FICO score. But what I appreciate about that sentiment, when people are saying, oh, you know, credit scores have just been around since 99, is I believe a lot of those people are saying that are trying to say, this is a fairly new invention, and that we should think about how to kind of dismantle it, right, and that we need to kind of think about why we don’t need it. So I would say, in the short term, a public credit registry can be useful if it’s used to kind of mobilize a bigger political conversation, where it’s not the horizon, right? I don’t want to just be now we have a public credit registry, and we’re done. Right? But it’s really to kind of do more exposure, about how people’s lives are being picked apart, to kind of create the score in society. This is something that Danielle keep Citron and Frank Pasquale talk about. And so the score in society, I think that’s the bigger problem is that we have become a society that uses scores, to kind of calculate the economy and to kind of determine, right, how people participate in the economy. So those scores can be anything from like, the fact that after you have one customer service exchange, you get, you know, notification to score that person. Right, right, or the way that we can use scores to kind of fuck with each other, frankly, right? If you think about teaching evaluations and scores, right, but also, you know, in terms of how, you know, students can try to get back at a professor through a score, right? Or you, you know, you try to kind of mess with somebody’s restaurant, you know, ownership through a score or something like that, right. So there are all these ways that we use scores to kind of deal with bigger issues in the society. I think that is what we need to ultimately also be questioning, why is our economy built upon financialization, a credit scoring industry and scoring that gets a bigger issues regarding just even the reliance on lending. Part of the problem with even the most progressive versions of kind of the credit scoring proposals is that it doesn’t imagine a society without financial institutions playing such a dominant part. It basically kind of competes relates to that vision of financialization, but says how do we try to, at our best get rid of the discrimination that makes it difficult for you to get a loan? Or to get access to kind of consumer credit? Right? What we I think it’s really about reorganizing the economy and really frankly, calling for kind of stronger regulation from the federal government around kind of the cost of living. But also for certain needs to be more seen as public goods, in terms of things like housing, certain items that we have to purchase, right, you know, to, you know, higher education, right. And public education, because as we know, student debt is increasingly student debt, medical, we need, you know, public health care, right, universal health care, because a big part of what people are negotiating with, in terms of their payment histories, but also in terms of just like their debt, and their bills is housing, medicine, or medical care, and education. Yeah, yeah. So to me, this is why I have concerns about the alternative data kind of conversation. But also even the public credit registry is, again, it capitulates to a vision of financialization of life, right, and a predominance of these financial institutions, even as it seeks to kind of regulate the credit scoring industry.
Maurice Weeks 51:31
Tamra, is there anything else we should know about the credit scoring industry and the ways that it impacts black folks?
Tamara Nopper 51:37
What I would say is, I think, you know, this is something where it both impacts black people. But also, you know, I would argue that what happens to black people, and I’m not alone in saying this, but what happens to black people in this society becomes kind of the canary in the coal mine. Right? Yeah. And so we see this with things like the economy. But we also see this with things like the criminal punishment system. And so black people are often the prototypical targets, as Jared Sexton says, of the criminal punishment system, I would say also, black people are the prototypical targets of how this economy is organized. And so black people tend to experience things more punitively, and worse. But they also are the canary in the coal mine, where they become kind of the template for how to organize the rest of society. And so this is something where I think, again, one of the problems I have with when people want to kind of reduce things to kind of what they would call materialism, which sometimes gets away with economic determinism, even the materialism doesn’t have to be economic determinist, right, is that and when people try to say, Oh, this isn’t about culture, wars, or so forth, right, part of I think any kind of real serious challenges, the economy is going to have to deal culturally with anti blackness, and how anti blackness plays a part in structuring our economic lives, even if you’re not black in the way that it allows for black people to be the primary targets and the worst targets, but that it uses that to kind of restructure the entire economy. You know, today, people are using terms like predatory inclusion, there’s a lot of debate about how to use that term, right. And different scholars have used that term differently. But the idea of now getting access to something that historically you were discriminated against, and then now getting access to under very kind of draconian terms or terms that could actually be harmful, and put you at risk of being punished in a harsh way, for getting access to things. This is, you know, something that is happening to a lot of different people. And I think that, to me, any conversation about credit scoring, it has to both deal specifically with how it is impacting black people, but also how anti blackness is structuring the dominance of credit scoring and financialization in through for everybody in the society.
Maurice Weeks 54:13
Tamra, thank you so so, so much for joining me, I feel like you just like totally rocked our world with a bunch of information about credit scores. And I couldn’t think of a better expert to do it. So thanks for being here.
Tamara Nopper 54:25
Oh, thank you so much, Marie.
Maurice Weeks 54:35
Okay, so it’s creepy how much data these companies have and how they’re trying to expand and how much control they have over our daily lives. Oh, credit scores. What do we do with them? How do we stop credit scoring from expanding the racial wealth gap? I’ll admit, in a society where debt is king, it’s unsurprising to have an attempt to standardize a form of assessing people and really up would love it if we were able to create some realistic assessment of whether or not someone can repay their debts. Imagine something that could take into account the history of black people in debt in this country. But I think what I’m describing is literally impossible, even with computers. So what do we do? Well, a simple solution is giving people what they need. We shouldn’t need to take out debt to get to and from work or buy groceries or have stable living conditions. People don’t take out debt for fun. They take it out because they need things. If we give the people the things, we undercut the entire system. In the meantime, I think this is a field that begs for regulation. Even more intense regulation than the last time we tried in earnest in 1971. I don’t trust corporations to operate with black people’s financial well being as their strong motive not even for a second, yet, right now. They entirely run the industry. Let’s change that.
Being the CEO and the chairman of Equifax, a criminal hack happened on my watch. And as CEO, I’m ultimately responsible.
Maurice Weeks 56:22
My thanks again to Tamra nopper for joining me this episode. Indebted is produced and published by convergence magazine for radical insights. You can help support this show and others like it by becoming a Patreon member of convergence for as low as $2 per month at patreon.com/convergence mag. You can find a direct link in the show notes. The show is produced by Josh Elstro. It’s written and hosted by me Maurice BP weeks until next time, let’s keep fighting for the world we all deserve.