5 ms·

I don't agree with trying to create a public government-run institution to track how "reliable" each citizen is. The solution to all of this is clear. Credit ag

I don't agree with trying to create a public government-run institution to track how "reliable" each citizen is. The solution to all of this is clear. Credit agencies provide a service primarily to lenders. These lenders count on the agencies' ratings to be a reliable predictor of the reliability of its potential customers. If those companies' products are no longer a reliable predictor, they shouldn't use them.

cmiles74 9y ago
> If those companies' products are no longer a reliable predictor, they shouldn't use them. I think this is very optimistic. It's hard for me to imagine a situation in which lenders are questioning the reliability of these credit reports and the only scenario I can come up with is one in which the reporting agency are over-estimating people's ability to reliably repay debt to the point where the lenders are losing so much money that they actually notice. Given that most consumers complain that these reports include erroneous /negative/ information, this scenario seems unlikely. Lenders will continue to use these reporting companies, no matter how poor their product, because there is no measure against which to judge their product except each other. They'll continue to use them out of inertia, out of erring on the side of caution, and because this is the way they have always done business.
- stult 9y ago
  Well, I guess the sticking point is that no one has found a better way to measure loan risk. If they had, lenders would work with the agency that more accurately assesses their risk because otherwise they are leaving money on the table by not lending to creditworthy individuals.
  - cmiles74 9y ago
    Agreed. As long as credit reporting companies report conservative numbers and lenders err on the side of minimizing risk, all of the potential lost dollars will fall into the "loans I could've made money on but decided not to loan out" category and that is difficult to gauge.
  - rectang 9y ago
    > no one has found a better way to measure loan risk. Or rather, that the system which measures loan risk is feasible only because the parasitical entities which run it push the massive negative externalities onto the general population. If the loan risk system actually had to pay for all the harm it does, it would be a loser.
Tinned_Tuna 9y ago
I am equally suspicious of creating a government agency for tracking all citizens. However, I worry that your proposed solution has three significant caveats. Firstly, reliability tends to change slowly. Banks might not be tracking this, so it would take a long time for this problem to surface. The article indicates that they're already unreliable, and banks continue to rely on them. Secondly, there's too little competition. There's no realistic alternative; especially when all three seem to be roughly equivalent in terms of reliability. Finally, any single bank dropping a credit agency will cause that credit agency problems, but will likely cause themselves more problems. Individual banks have little incentive to act on their own. Some form of banking cartel would probably be needed to put sufficient pressure on the credit reporting agencies to effect change.
- thegayngler 9y ago
  I’d argue that it should be a system where any number of companies can compete in the credit reporting industry. Why should it be only 3 companies competing? The laws need more fleshing out. The current iteration of laws is insufficient.
ocdtrekkie 9y ago
Yeah, I was thinking "why don't we just nationalize credit bureaus" until I thought about what we would be handing over to the government, and how close it would resemble China's citizenship score-type thing.
- logfromblammo 9y ago
  Credit scores and credit reports are separate products. It would be possible to nationalize credit reporting while banning any government involvement in credit scoring. The government could license access to an arbitrary person's full credit report, requiring payment per person per access and compliance with a laundry list of consumer protection clauses, while notifying that person on at least an annual basis about who has been pulling their report. Perhaps more often, if you want to pay for the extra stamps or give permission for e-mail notifications. The FICA folks could pull your report and reduce you to a number every time some creditor wants to check up on your creditworthiness. AirBnB could pull the same data and produce a houseguest score, so people can feel comfortable that you won't trash their place. A background check agency could pull the same data and try to figure out whether you are likely to hurt an employer's business.
sol_remmy 9y ago
> companies' products are no longer a reliable predictor, they shouldn't use them. They really don't have a choice. Every aspect of your "credit score" is governed by law. One particularly egregious example: banks and credit agencies are FORCED to ignore bankruptcy after 10 years when decided whether to grant a loan to someone. Even if a wealthy person default on a 100M loan, even if he has multiple bankruptcies in his past, banks must ignore them if they are >10 years old. Credit agencies are private companies, but they play by the government's rules.
- mfringel 9y ago
  "Egregious" implies that it's unreasonable. Can you say more on that?
  - sol_remmy 9y ago
    Lenders are forced to ignore "red flags" like multiple bankruptcies occuring >10 years ago. Lenders are forced to use the government's criteria to determine when to loan out their money. Someone could be abusing the system and declaring bankruptcy every 10.5 years, like clockwork, and the bank would have to keep taking them back as a customer.
    - mfringel 9y ago
      Is a bankruptcy greater than >10 years ago statistically a red flag? What do you think would be a better term? The government has several interests, beyond lenders. The government enforces the lenders abilities to claim debts. It is also in the government's interest to allow people to get back on their feet if their finances crater, because taking someone out of the financial system indefinitely is not productive. Someone, somewhere, could be abusing any system. That, in and of itself, is not a disqualifying feature of a system.
      - sol_remmy 9y ago
        > Is a bankruptcy greater than >10 years ago statistically a red flag? What do you think would be a better term? I think the banks themselves should be allowed to decide when the risk is worth taking. It will all be determined by actuarial tables like every other similar business decision. If the risk of someone defaulting 15 years after bankruptcy is 20% higher, then banks may charge that person 20% more interest.
rectang 9y ago
> The solution to all of this is clear. Little people aren't able to recoup their losses when disentangling the tremendous inconveniences of identity theft, mistakes in credit reports, and so on. You're only addressing losses by lenders, which are a tiny fraction of the actual problem. You're not offering any practical way for the general population to seek redress.

cmiles74 9y ago

> If those companies' products are no longer a reliable predictor, they shouldn't use them. I think this is very optimistic. It's hard for me to imagine a situation in which lenders are questioning the reliability of these credit reports and the only scenario I can come up with is one in which the reporting agency are over-estimating people's ability to reliably repay debt to the point where the lenders are losing so much money that they actually notice. Given that most consumers complain that these reports include erroneous /negative/ information, this scenario seems unlikely. Lenders will continue to use these reporting companies, no matter how poor their product, because there is no measure against which to judge their product except each other. They'll continue to use them out of inertia, out of erring on the side of caution, and because this is the way they have always done business.

stult 9y ago
Well, I guess the sticking point is that no one has found a better way to measure loan risk. If they had, lenders would work with the agency that more accurately assesses their risk because otherwise they are leaving money on the table by not lending to creditworthy individuals.
- cmiles74 9y ago
  Agreed. As long as credit reporting companies report conservative numbers and lenders err on the side of minimizing risk, all of the potential lost dollars will fall into the "loans I could've made money on but decided not to loan out" category and that is difficult to gauge.
- rectang 9y ago
  > no one has found a better way to measure loan risk. Or rather, that the system which measures loan risk is feasible only because the parasitical entities which run it push the massive negative externalities onto the general population. If the loan risk system actually had to pay for all the harm it does, it would be a loser.

Tinned_Tuna 9y ago

I am equally suspicious of creating a government agency for tracking all citizens. However, I worry that your proposed solution has three significant caveats. Firstly, reliability tends to change slowly. Banks might not be tracking this, so it would take a long time for this problem to surface. The article indicates that they're already unreliable, and banks continue to rely on them. Secondly, there's too little competition. There's no realistic alternative; especially when all three seem to be roughly equivalent in terms of reliability. Finally, any single bank dropping a credit agency will cause that credit agency problems, but will likely cause themselves more problems. Individual banks have little incentive to act on their own. Some form of banking cartel would probably be needed to put sufficient pressure on the credit reporting agencies to effect change.

thegayngler 9y ago
I’d argue that it should be a system where any number of companies can compete in the credit reporting industry. Why should it be only 3 companies competing? The laws need more fleshing out. The current iteration of laws is insufficient.

ocdtrekkie 9y ago

Yeah, I was thinking "why don't we just nationalize credit bureaus" until I thought about what we would be handing over to the government, and how close it would resemble China's citizenship score-type thing.

logfromblammo 9y ago
Credit scores and credit reports are separate products. It would be possible to nationalize credit reporting while banning any government involvement in credit scoring. The government could license access to an arbitrary person's full credit report, requiring payment per person per access and compliance with a laundry list of consumer protection clauses, while notifying that person on at least an annual basis about who has been pulling their report. Perhaps more often, if you want to pay for the extra stamps or give permission for e-mail notifications. The FICA folks could pull your report and reduce you to a number every time some creditor wants to check up on your creditworthiness. AirBnB could pull the same data and produce a houseguest score, so people can feel comfortable that you won't trash their place. A background check agency could pull the same data and try to figure out whether you are likely to hurt an employer's business.

sol_remmy 9y ago

> companies' products are no longer a reliable predictor, they shouldn't use them. They really don't have a choice. Every aspect of your "credit score" is governed by law. One particularly egregious example: banks and credit agencies are FORCED to ignore bankruptcy after 10 years when decided whether to grant a loan to someone. Even if a wealthy person default on a 100M loan, even if he has multiple bankruptcies in his past, banks must ignore them if they are >10 years old. Credit agencies are private companies, but they play by the government's rules.

mfringel 9y ago
"Egregious" implies that it's unreasonable. Can you say more on that?
- sol_remmy 9y ago
  Lenders are forced to ignore "red flags" like multiple bankruptcies occuring >10 years ago. Lenders are forced to use the government's criteria to determine when to loan out their money. Someone could be abusing the system and declaring bankruptcy every 10.5 years, like clockwork, and the bank would have to keep taking them back as a customer.
  - mfringel 9y ago
    Is a bankruptcy greater than >10 years ago statistically a red flag? What do you think would be a better term? The government has several interests, beyond lenders. The government enforces the lenders abilities to claim debts. It is also in the government's interest to allow people to get back on their feet if their finances crater, because taking someone out of the financial system indefinitely is not productive. Someone, somewhere, could be abusing any system. That, in and of itself, is not a disqualifying feature of a system.
    - sol_remmy 9y ago
      > Is a bankruptcy greater than >10 years ago statistically a red flag? What do you think would be a better term? I think the banks themselves should be allowed to decide when the risk is worth taking. It will all be determined by actuarial tables like every other similar business decision. If the risk of someone defaulting 15 years after bankruptcy is 20% higher, then banks may charge that person 20% more interest.

rectang 9y ago

> The solution to all of this is clear. Little people aren't able to recoup their losses when disentangling the tremendous inconveniences of identity theft, mistakes in credit reports, and so on. You're only addressing losses by lenders, which are a tiny fraction of the actual problem. You're not offering any practical way for the general population to seek redress.