Politech mailing list archives
FC: Responses to "Why credit bureaus help society"
From: Declan McCullagh <declan () well com>
Date: Tue, 12 Sep 2000 16:33:14 -0400
[Well, Dan Klein's essay sure drew some heated responses. --Declan] **********
Date: Mon, 11 Sep 2000 19:20:40 -0400 To: declan () well com From: Ed Mierzwinski <ed () pirg org> Subject: klein posting Declan-- Several people have forwarded to me your politech () politechbot com post on "Why credit bureaus protect privacy, help society, by D.Klein." I debated Dan Klein back in the early 90s at the Cato Institute. I have a copy of an article somewhere from back then -- a libertarian journal reprint I think -- that I am sure this chapter is based on. He is certainly entitled to his opinions, which I disagree with pretty much 100%! Of course, after the Klein article came out, Congress saw fit to agree with PIRG and Consumers Union to make major changes to the Fair Credit Reporting Act in an attempt to improve credit bureau accuracy and privacy protections (although we lost ground in a few areas and admitted it at the time). I actually think, as far as it goes, that the FCRA comes closest of any US laws to implement MOST of the Fair Information Practices or FIPs. Where it falls short is mostly in circumstances where exceptions have been carved out by powerful special interests and where technology has made the law obsolete. As an example, credit and underwriting decisions are or will increasingly be made by massive financial conglomerates -- relying only on information generated from their own virtually unregulated in-house databases, not based on info from the highly regulated third party credit bureaus. These decisions will not be subject to the FCRA. This is one reason we need to enact an overarching privacy law that applies FIPs to all uses of sensitive consumer information. Anyway, I now wonder what the other chapters are like. Hope they've got some by people like Rotenberg! Ed Mierzwinski
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>From the credit reporting agencies, this bill is considered a problemDate: Mon, 11 Sep 2000 22:52:04 -0700 To: declan () well com From: "J.D. Abolins" <jda-ir () njcc com> Subject: Re: FC: Why credit bureaus protect privacy, help society, by D.Klein Cc: dklein () scu edu Declan, thank you for providing the URL to this interesting paper.In some ways, the paper reminds me of Stephen Nock's Cost of Privacy where Nock traces the development of credentials including credit cards over the past century or so.First, a quick mention of Nock's main concept for the book: Modern concept of privacy is dependent upon being in a society of strangers. The difficulty is establishing reputations (or trust) in a society of strangers. So teh "cost of privacy" is surveillance in the form of credentials (such as credit cards, credit ratings, degrees, licenses, etc.) and ordeals (such as urinalysis drug tests, polygraphs, etc.).In an early chapter of the book, Nock traces the ancestry of modern credit system to the credential of full membership in some US religious denominations. Unlike most modern religious affiliation, earlier practices in various churches was to require extensive examination and screening of prospective members. The full membership attested to the current trustworthiness of the person and the value of the status coupled with the difficulties in regaining it should it be lost made the person a relatively safe risk even though a clerk of a tavern owner did not know the person directly.To hook a little bit into Mr. Klein's paper, the person lost a good measure of privacy being investigated by the church (and these examinations were far more intrusive than most people today would ever put up with) and in return the person carried a credential of trustworthiness allowed strangers to extend a measure of financial and other trust.To eliminate the initial loss of privacy, a person would either forgo the credit and easier avenues of establishing trust or the person would have to spend time to be know by others in order to establish a reputation. That, too, entails, some loss of privacy.Spinning off to a different view of this subject, a year or so ago, a private investigator on one of the surveillance tech lists I'm on posted an essay on why he "invades" people's financial privacy. His basic point was that the subject of the investigation initiated the process that lead to the "invasion" by seeking another person to provide money or goods on credit. If that trust was abused by not paying for the debt nor making reasonable provisions, then it is fitting for the PI to use all kinds of means to find the person and his assets.On still angle tangent, I might have missed it in the paper but I find the non-directly-financial uses of credit info to establish reputation an interesting borderline topic. Some employers for example use credit and other financial information in hiring decisions. There is an obvious connection with positions involving handling of finances. But there are many other job situations where an employer may consider the info valuable. In intelligence and similar fields, the potential for comprise of the employee via financial inducements is important. Elsewhere, the financial info might point to some questions about the person's character and decision-making abilities. Then there is the stress factor. Can an employee who is fending off creditors concentrate upon the job? Or did the financial blemish come out of a problem such as gambling?In such considerations, the use of credit info can indeed seem like the common notion of gossip. Yes, it can be painful for the person who has difficulty getting a job because of bad credit and finds further financial difficulties. Some people at this point would seek the government to do something via regulations. This is a bad solution. First, there is the freedom of the employer and others regarding speech. Second, the government interventions short circuits some viable options for difficulties that come out of stigmatized credit. For example, the job hunter can work on ways to compensate for the bad credit by presenting skills and assets valued enough to offset the credit; by seeking job positions that are less concerned with the credit info; by working to repair the credit problem. One good thing about modern credit records compared to some older forms of reputations is the limit of so many years for most blemishes. One is not ruined for life.There are some things about credit info handling that I don't like (such as the overuse of the SSNs) but the government regulation in the name of privacy is going to cause more problems. One jumbled situation is Ron Paul's bill to restrict the use and collection of SSNs. I hope it really get applied to the government, one of the major overusers of the SSNs.
because the SSN is considered an very useful identifier. As much as the SSNs are problematic, the restriction on the sharing of the SSNs by private entities once they have them is contrary to freedom of speech. A better solution is to deal with the info on the collection end allow people to refuse to give the SSNs and use other options for info verification, etc. Thus people are free to speak and they free to select what is disclosed. The tricky part is that to maintain freedoms, private parties retain the option of not providing services. Here, the customer demands for options can work by encouraging some vendors to provide optional identifier modes.Again, thank you. J.D. Abolins Meyda Online Infosecurity & Privacy Studies http://www.meydabbs.com
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Date: Mon, 11 Sep 2000 19:00:22 -0400 (EDT)
From: Jonathan Rowe <rowe () essential org>
To: Declan McCullagh <declan () well com>
Subject: Re: FC: Why credit bureaus protect privacy, help society, by D.Klein
Is this guy equating a magazine article which is open to all and
to which subject can respond, to a credit report which the subject may
never see? jr
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>From the credit reporting agencies, this bill is considered a problemDate: Mon, 11 Sep 2000 22:52:04 -0700 To: declan () well com From: "J.D. Abolins" <jda-ir () njcc com> Subject: Re: FC: Why credit bureaus protect privacy, help society, by D.Klein Cc: dklein () scu edu Declan, thank you for providing the URL to this interesting paper.In some ways, the paper reminds me of Stephen Nock's Cost of Privacy where Nock traces the development of credentials including credit cards over the past century or so.First, a quick mention of Nock's main concept for the book: Modern concept of privacy is dependent upon being in a society of strangers. The difficulty is establishing reputations (or trust) in a society of strangers. So teh "cost of privacy" is surveillance in the form of credentials (such as credit cards, credit ratings, degrees, licenses, etc.) and ordeals (such as urinalysis drug tests, polygraphs, etc.).In an early chapter of the book, Nock traces the ancestry of modern credit system to the credential of full membership in some US religious denominations. Unlike most modern religious affiliation, earlier practices in various churches was to require extensive examination and screening of prospective members. The full membership attested to the current trustworthiness of the person and the value of the status coupled with the difficulties in regaining it should it be lost made the person a relatively safe risk even though a clerk of a tavern owner did not know the person directly.To hook a little bit into Mr. Klein's paper, the person lost a good measure of privacy being investigated by the church (and these examinations were far more intrusive than most people today would ever put up with) and in return the person carried a credential of trustworthiness allowed strangers to extend a measure of financial and other trust.To eliminate the initial loss of privacy, a person would either forgo the credit and easier avenues of establishing trust or the person would have to spend time to be know by others in order to establish a reputation. That, too, entails, some loss of privacy.Spinning off to a different view of this subject, a year or so ago, a private investigator on one of the surveillance tech lists I'm on posted an essay on why he "invades" people's financial privacy. His basic point was that the subject of the investigation initiated the process that lead to the "invasion" by seeking another person to provide money or goods on credit. If that trust was abused by not paying for the debt nor making reasonable provisions, then it is fitting for the PI to use all kinds of means to find the person and his assets.On still angle tangent, I might have missed it in the paper but I find the non-directly-financial uses of credit info to establish reputation an interesting borderline topic. Some employers for example use credit and other financial information in hiring decisions. There is an obvious connection with positions involving handling of finances. But there are many other job situations where an employer may consider the info valuable. In intelligence and similar fields, the potential for comprise of the employee via financial inducements is important. Elsewhere, the financial info might point to some questions about the person's character and decision-making abilities. Then there is the stress factor. Can an employee who is fending off creditors concentrate upon the job? Or did the financial blemish come out of a problem such as gambling?In such considerations, the use of credit info can indeed seem like the common notion of gossip. Yes, it can be painful for the person who has difficulty getting a job because of bad credit and finds further financial difficulties. Some people at this point would seek the government to do something via regulations. This is a bad solution. First, there is the freedom of the employer and others regarding speech. Second, the government interventions short circuits some viable options for difficulties that come out of stigmatized credit. For example, the job hunter can work on ways to compensate for the bad credit by presenting skills and assets valued enough to offset the credit; by seeking job positions that are less concerned with the credit info; by working to repair the credit problem. One good thing about modern credit records compared to some older forms of reputations is the limit of so many years for most blemishes. One is not ruined for life.There are some things about credit info handling that I don't like (such as the overuse of the SSNs) but the government regulation in the name of privacy is going to cause more problems. One jumbled situation is Ron Paul's bill to restrict the use and collection of SSNs. I hope it really get applied to the government, one of the major overusers of the SSNs.
because the SSN is considered an very useful identifier. As much as the SSNs are problematic, the restriction on the sharing of the SSNs by private entities once they have them is contrary to freedom of speech. A better solution is to deal with the info on the collection end allow people to refuse to give the SSNs and use other options for info verification, etc. Thus people are free to speak and they free to select what is disclosed. The tricky part is that to maintain freedoms, private parties retain the option of not providing services. Here, the customer demands for options can work by encouraging some vendors to provide optional identifier modes.Again, thank you. J.D. Abolins Meyda Online Infosecurity & Privacy Studies http://www.meydabbs.com
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Date: Mon, 11 Sep 2000 14:04 -0500 From: "Tower, Peter A." <Peter.Tower () fiserv com> Subject: Re: FC: Why credit bureaus protect privacy, help society, by D.Klein To: declan () well com I went looking in vain for the signpost that would tell me when the author ofthis conclusion was done with his tongue-in-cheek statements. Let's see, whereshould I start. Perhaps my credentials would help.I spent 11 years in the collection industry, 8 of those managing disparate data retrieval, data reporting and skip tracing tools for the 9th largest collectionagency in the country. I lectured at seminars at Drexel University on information retrieval and how it affects indivudual privacy. I invented and shopped an information retrieval tool for use in hospitals. On average, it is reliably estimated that 40% of the data reposited in the databanks of the 3 remaining national credit bureaus is either incomplete,incorrect or out-of-date. To their credit, the bureaus spend a lot of time andmoney to try to maintain the integrity of their databases, but concurrency is based on what various companies report to them and when they do so. It costs man hours to assure that the data about your consumer is current and correct, and these days that emphasis has slipped. There are various means of redress that a consumer can utilize to request correction or deletion of the data on their CBR (Credit Bureau Report). If that fails, a note can be addedexplaining, briefly, their side. Too bad that the companies requesting the CBRnever see it these days. Most transmissions of this data are now electronic and utilize sophisticated rating algorithms that provide income to thebureaus. The few people who actually will look at either a paper printout of aCBR or have it on screen, are collection agencies and the like. A bank loan officer will have most of the research done for them by their sophisticated data links in advance, thereby negating any possibility of any human judgment interfering in the loan qualification process. As far as the professor's conclusion that a stranger may gain assurance oftrustworthyness via credit reporting references, they couldn't care less. Most of the time, the institution interested in your financial profile is utilizing rating algorithms and electronically assessing risk, and an individual doesn'thave the means or the access to pull your CBR.In reference to the ratings promulgated by consumer magazines. I would rather learn from a user in the real world how a product functions than use a computermodel. I wonder if a computer model would have had the information that Firestone tires were allegedly (have to be careful here!) underinflated to 26lbs in order to improve the lateral stability of the SUV being tested. A programmers assumption would have been to utilize the standard norms for theindustry (29+lbs) instead of the variance that may have caused the results wenow have. Obviously the professor needs to take a stroll down reality lane and breathe the air there. Perhaps his perspective will change, along with his conclusions.
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From: Paul Sholtz <paul () privacyright com> To: "'declan () well com'" <declan () well com> Cc: "'dklein () scu edu'" <dklein () scu edu> Subject: RE: Why credit bureaus protect privacy, help society, by D.Klein Date: Mon, 11 Sep 2000 15:57:17 -0700 X-Mailer: Internet Mail Service (5.5.2650.21) wow - this is wrong, so wrong.. I have nothing against using personal information as an accountability mechanism. Trust is that which is essential to a communications channel but which cannot be transferred from a source to a destination using that channel. This is why we have open-source review of cryptography software. It is why employers check references on prospective employers.. and, it is why lenders will check the credit history of prospective borrowers - nothing wrong w/ that.. what I have a problem w/, though, is using personal information for economic gain, via marketing, etc, w/o the notice or consent of consumers (and, as Mr. Klein observes, the credit bureaus do precisely this -- in fact, I would wager they get MOST of their profits in this manner). I'm not alone - many consumers have a problem with this. They would prefer that their personal information not be used in this manner; or at least if it IS used in that manner, than they should receive some form of compensation for it... Corporations, in turn, would prefer that personal information be put to profitable, financial use.. so we have a conflict between two parties over their preferences in the use of information.. For resolution of this conflict, I would turn to Dr. Ronald Coase, an economist with the University of Chicago -- Mr. Coase won the 1991 Nobel Prize in Economics for his observations and discovers on the significance of transaction costs and property rights for institutional structures, and the economy at large. Coase argues that in a conflict between the preferences of two parties (like we have between credit bureaus and consumers), the final outcome will be determined by an economic calculus and (assuming reasonably low transaction costs) will result in the same outcome regardless of the allocation of property rights.. So in this case, who should have rights to the property (i.e., personal information?) Coase argues that property rights should belong to party that can resolve the conflict at the lowest possible cost. What is critically important to understand about electronic networks (like the Internet) is that w/ the advent of electronic commerce, a reversal has occurred in which parties are in the position to act as the least cost avoider in the context of personal information. Before the Internet, you could plausibly argue that the transaction costs involved for consumers setting prefernces over the use of thier personal information was high, and that therefore corporate organizations (such as credit bureaus) should keep the property rights to this information.. w/ the Internet, it's no longer economically feasible to maintain this argument... I would also argue that the price of personal information is being held at an artificially low value due to the existence of a monopoly equilibrium in the privacy market, held in check by organizations such as credit bureaus, that have a strangehold on the flow of personal information - that's a story for another time.. I would also like to comment on Mr. Klein's observation that the personally identifying information collected by credit bureaus isn't that "bad", i.e., name, address, SSN, etc, and that it doesn't contain medical histories, or other "sensitive" things, and so that it's OK for credit bureaus to be trading this information.. In general, privacy concerns, and the conflicts in interests over preferneces of its use, will arise whenever ANY personally identifying information is collected and used.. doesn't matter if it's a name or a medical history. Finally, that credit bureaus collect SSNs in the first place is wrong - SSNs are crappy numbers (an estimated 4-12 million are false, invalid or ambiguously assigned) for many reasons, including that the number has no checksum. I wonder which credit bureau "funded" this research?? Paul Sholtz PrivacyRight, Inc. - www.privacyright.com Chief Technology Officer
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