FC: Why credit bureaus protect privacy, help society, by D.Klein

[Declan McCullagh <declan () well com>]

[I recently was asked to read a forthcoming financial privacy book for the 
purposes of, if appropriate, writing a cover blurb. One of the chapters in 
it is by Dan Klein, an associate professor of economics at Santa Clara 
University. A longer version of that chapter is available on the web; the 
conclusion follows. --Declan]


http://lsb.scu.edu/faculty/creditreporting.html

                       Credit Information Reporting:

                        Why Free Speech is Vital to

               Social Accountability and Consumer Opportunity

                                     by

                              Daniel B. Klein

                               dklein () scu edu



                            Concluding Comments

The norms and culture of our society are rooted in and dependent upon
information about our doings. Our communities exist in large part by
generating, managing, and utilizing information. The stories of our
lives are forms of information. We can find meaning in those stories
only if they are shared with and engaged by others.

In a vast society like the United States, opportunity depends
critically on strangers. But strangers will trust each other only if
they can find indications of trustworthiness. Credit bureaus evolved
in this country upon the principles of free speech and free
enterprise. In the early days the bureaus were run as cooperative
organizations. As they developed into for-profit enterprises, they
continued to be discreet and professional in the sharing of consumer
information. Credit bureaus have a strong incentive to maintain
exclusive control of the information and have developed neat ways of
achieving that goal. An understanding of how the institutions actually
work reveals that credit bureaus rarely make errors and impinge only
trivially on privacy.

Credit reporting is akin to gossip in that it gathers, interprets,
formats, stores, retrieves, and transmits information. It generates
reputations on individuals and provides the assurance necessary to get
strangers to cooperate. It is a social accountability mechanism, and
all social accountability mechanisms necessarily collide with privacy.

But as a social accountability mechanism, credit reporting is
remarkably discreet. Compared to the sensational tactics of the press,
the entrapment and wiretapping practiced by police, the public
disclosure of legal testimony, and the taintedness of gossip, credit
reporting should be deemed a remarkably unintrusive and dignified
means of promoting responsible behavior in society.

Activist groups like U.S. Public Interest Research Group and Consumers
Union smear credit bureaus for being irresponsible gossipers, but they
pay no attention to the social accountability function that that
accusation would imply. In other words, they liken credit reporting to
gossip only to underscore the unfavorable likeness, which is rather
remote, while ignoring the favorable likeness, which is significant
and of critical importance. Their criticisms show little sense of
fairness or proportion. The role of Consumers Union is particularly
ironic. In their advocacy wing they attack credit bureaus as
irresponsible gossipers, yet in their product reporting wing they
engage in a very similar activity. Consumer Reports "gossips" at great
length about manufacturers and their products -- basing their
statements to a great extent upon unverified "hearsay" from their
subscribers -- and often with flare and a touch of invective. God
bless Consumer Reports and free speech. Notice that Consumers Union
does not stand up for liabilities for magazine errors and "privacy
rights" when it comes to gossiping about the makers, rather than the
buyers, of products.

The activists are promoting slogans and agendas that do not provide
coherent principles for law, expectations and social interaction.
Privacy is not a coherent legal maxim. The appropriateness of privacy
claims is dependent on the particular situation and context of
communication. Hence, privacy can scarcely be "protected" by
regulations issued by remote government agencies and legislatures. The
attempt to do so creates red tape, kills opportunity and breeds
litigation. As activists make headway in imposing restrictions, the
coherent and highly beneficial principles of freedom of contract,
confidentiality agreements, and freedom of speech become ever more
eroded. The impact on consumer opportunity and well-being has been
indicated in this essay. The impact on the culture and the polity goes
further.

###




-------------------------------------------------------------------------
POLITECH -- the moderated mailing list of politics and technology
You may redistribute this message freely if it remains intact.
To subscribe, visit http://www.politechbot.com/info/subscribe.html
This message is archived at http://www.politechbot.com/
-------------------------------------------------------------------------