Puffy shirt

Identity theft is, at best, an enormous hassle for the victim. At worst it can be devastating. Victims' "credit rating" can be destroyed, forcing them to pay the PPR (poor person's rate) for everything from credit cards to insurance.

For the life of me, though, I can't imagine a circumstance in which being the victim of identity theft would force one to don a pirate costume and sing for tourists in a bad theme restaurant. That's not how it works.

For those readers fortunate enough or wise enough not to be acquainted with American television, I'm referring to this Freecreditreport.com ad. The song is catchy, the premise is puzzling. (But at least not inhuman, like this similar ad, in which our singing pirate advocates checking your beloved's credit rating and, if it is low, breaking up with them. True love, apparently, must first consult the opinions of Transunion, Equifax and Experian.)

I suppose the idea is that our troubadour's low credit rating has forced him to take a second job in order to pay the premium prices of the PPR, and that the only second job available to him was the pirate gig. Or something like that.

While I applaud the revival of jingle-based advertising, FreeCreditReport.com's campaign is based on an absurd lie: the idea that you are responsible, in any way, for fraud committed against a third party by criminals pretending to be you.

Imagine that I put on a pair of glasses and some fake bushy eyebrows and I walked into Warren Buffet's bank. "Why hello there Mr. Teller at Warren Buffet's Bank," I would say. "As you can see from my glasses and bushy eyebrows, I am Mr. Warren Buffet. Please withdraw $20 million from Mr. Buffet's, which is to say my, account, and give it to me, Mr. Warren Buffet."

That, in its simplest form, is what "identity theft" means. The above scheme is unlikely to succeed, but a related scam -- a kind of protection racket based on that scheme -- has proved immensely successful in extorting money from consumers every day.

This secondary scam isn't run to defraud money from banks, it's run by banks to defraud money from their customers. The name of this racket is "Identity Theft Protection."

In this scam, Warren Buffet's bank tells Mr. B. that they are liable, at any moment, to hand over all of his money to the next person who walks into their lobby wearing glasses and fake bushy eyebrows. The bank, they explain, would be helpless to prevent such an occurence. However, for a small fee -- say $20 or $30 a month -- the bank would be willing to offer him Identity Theft Protection. In exchange for this fee, the bank explains, they won't give Warren Buffet's money to anyone who can't prove he really is Warren Buffet. Otherwise, it seems, they can't be expected to distrust or doublecheck anyone who makes such a claim. So the bank is trying to charge an additional $240 or $360 a year to do what it's supposed to be doing anyway.

The bottom line here is, as Kevin Drum put it, "You Own You": "When identity thieves open an account in your name it should be the bank's problem -- not yours." Kevin neatly summarizes the ID-theft protection racket:

For their part, the major credit-reporting bureaus -- Experian, Equifax and TransUnion -- don't seem to care much about the accuracy of their credit reports. In fact, they actually have a positive incentive to let ID theft flourish. Like mobsters offering "protection" to frightened store owners, credit-reporting agencies have recently begun taking advantage of the identity-theft boom to offer information age protection to frightened consumers. For $9.95 a month, Equifax offers "Credit Watch Gold," a service that alerts you whenever changes are made to your credit report. Experian and TransUnion offer similar services. In effect, customers are being asked to pay credit agencies to protect them from the negligence of those same agencies.

One way to cut down on identity theft would be to require commercial credit-reporting bureaus to offer services like this to all their consumers for free. After all, the credit-reporting agencies are the ones who are failing to ensure that their reports don't unfairly penalize victims of ID theft.

That whole article is worth reading for a sane corrective to the bizarre, upside-down view relentlessly promoted by the moneylenders and credit reporting agencies desperate to blame the victims and to put all of the responsibility for preventing identity theft on consumers. That view -- the official one, not Kevin's -- is simply insane. It makes no more sense than arguing that Ronald Reagan was responsible for the bank robberies in Point Break just because Patrick Swayze was wearing a Reagan mask when he committed them.

One more level down, the infectious jingles sung by FreeCreditReport.com's Beck impersonator are also based on another, even more insidious lie -- the notion that one's "credit score" is a worthwhile, accurate or reliable measure of trustworthiness. Failure to make timely payments is one possible reason for a lower "score," but so is the failure to have large amounts of disposable income. By confusing and falsely equating those two things -- being untrustworthy and being poor -- our current obsession with credit scoring feeds into the mythology that the poor are poor because they are less deserving, less moral, less worthy than the rest of us.

A credit score, in other words, is not just an inaccurate and misleading metric; it's also an evil one.

Comments

[Daniel Martin]

As with most things financial, there's not a lot of point applying moral (or even common-sensical) perspective to the process. It's all cold, hard statistics. They aren't looking for trustworthiness, or responsibility, or reliability. They're looking at a number of factors, comparing them to a massive historical database, and saying that people with similar factors resulted in a certain amount of profit. That's all.

That's the theory, but I don't have nearly as much faith that the credit scoring system is actually that rational. Sure, I agree that they aren't looking for anything other than "maximize profit", but I don't have confidence that the industry is sufficiently competitive to believe that they're actually doing that well. I get the impression that the credit industry is currently in the same state as was option trading in the 1980s, before the advent of financial engineering. That is, they have some rules of thumb which translate into mathematical formulas and which generally do pretty well but the problem is largely undefined and there's no commercial research behind it.

I don't expect - with only three players in the whole market - that the credit score coming from the big three will ever be pushed hard enough to be objectively rational. What might have enough incentive to become rational are credit scores assigned by individual lenders based on their own proprietary formulas using the raw data from the big three. I'd actually be a little surprised if banks aren't doing this already. (To bring this back on topic, I'd love for those formulas to evolve in an environment that penalizes heavily for extending loans to frauds)

Oh, and since it hasn't come up yet in this thread: www.annualcreditreport.com is the site that the three credit reporting agencies set up to answer the government mandate that they let you look the contents of your credit report (but not the score) once a year. That site is in fact completely free. The site whose advertisement has been much maligned is selling you a service which, if you pay for it, will also come with a "free" credit report. (If you ever forget the site name - it deliberately isn't as memorable as the site that results in pulling money from you - google "free credit report by law" and it should be the first search result. Just don't get tricked by the ad links that'll pop up)

[jamoche]

As it happens, I love Bujold but can't stand Weber. Amazon's insistence that I *must* causes me no more harm than a fleeting annoyance, and causes them no more harm than wasting an opportunity to sell me something I like better.

OK, two datapoints to support my annoyance at Amazon in assuming that buying one Baen author means I'm going to like other Baen authors. I get that in general it's true - people who like MilSF do tend to like other MilSF - but you'd think that downgrading every non-Bujold Baen author they recommend might give the algorithm a clue that for me, Bujold is an outlier in the Baen-author group.

Lauren: Car insurance agents, landlords, and employers have taken to using a low credit score to identify untrustworthiness, when really it is a lack of evidence of trustworthiness.

Well put.

[essjay]

The part of that commercial I hate is where he sings that "I should have seen it coming... like an atom bomb". Most eyewitness accounts of Hiroshima describe people seeing the Enola Gay by itself in the sky and, fearing no mass air raid, turning to go on with their lives... for a few minutes anyway.

"Should have seen it coming.."

What a poor choice for a simile.

[Turcano]

Although I don't entirely agree with our new troll, he has the legitimate point that nonpredatory loans to the poor are too high-risk to be profitable--therefore no one really wants to offer them. I've been at least marginally aware of this problem, humorously enough, since I was five or so--my parents divorced, my mother desperately needed money, and of course there was no way for her to get a loan. My response: "Why would rich people need a loan?" It wasn't till much later that I began to understand the system, of course.

That's where regulation comes in, as with all things where quality of service and profitability are contradictory. Yeah, a lot of people have a dim view of regulation, and it can get out of hand sometimes, but it tends to do more good than harm.

[Bugmaster]

A smart lender would much rather deny a loan to a creditworthy consumer than grant a loan to a somebody who defaults...

I think this depends on the amounts of the two loans.

Similarly, high credit scores predict creditworthiness, but low credit scores predict nothing. It may technically be true that somebody with a low credit score is more likely to default, just like it is technically true that a deer without antlers is more likely to be female. But that doesn't mean you can point at a deer without antlers and call it a doe.

I think you're confusing two different issues.

One issue is sensitivity vs. specificity. In metaphorical terms, loan agencies have a big machine with an input slot, two output slots (labeled "accept" and "ba-leted !"), and a tuning knob. Applications are fed into the input slot, and the machine spits them out into the "accepted" pile and the "rejected" pile. The knob controls how prejudiced the machine is. If it is very prejudiced, then it will reject lots of applications that it could've accepted without any trouble -- because it's mortally afraid of letting one bad application slip through. If you turn the knob the other way, it will start letting through more and more bad application, because it becomes mortally afraid of accidentally rejecting someone who doesn't deserve it. You're saying that, right now, the machine is too prejudiced; but keep in mind that the operators of the machine have different goals than you do. Your goal is to make a loan; theirs is to make money. They will twiddle that knob until the machine generates as much profit for them as possible.

Another issue, however, is that probabilistic profiles are not 100% accurate. Sure, this particular deer lacks antlers, but it might be a young male, nonetheless. Or, yeah, maybe this one deer has antlers, but it could still be a female, just with antlers glued on as a joke. All of this is true, but remember that, from the point of view of the lender, you as an individual don't really matter. Their goal is not to give a loan to everyone who deserves it; all they want to do is make sure that they earn as much money on the average as possible. At some point, paying close personal attention to each customer gets more expensive than losing a few customers with unjust credit ratings.

As I said, corporations aren't charities, nor are they the government. They have different goals.

[cjmr]

jamoche,

Call the customer service number on the back of your card, play phone system until you get a real person, and ask for the correspondence address for your account. (That may be on the back of you bill somewhere in fine print but isn't always.) Then send a business letter requesting that they close your account (you don't have to give a reason) AND that they report to the credit bureaus that the account be reported as 'closed by consumer'. (That last bit is important--having accounts 'closed by creditor' is a big black mark.) Keep a copy of your letter and their response for your files, so that if there are questions when you apply for different credit later, you have a paper trail. You can (usually) cancel a credit card over the phone, but I found out the hard way that having a paper trail is critical.

play phone system until you get a real person

Ah. Just in case someone doesn't know about this invaluable resource...

[hapax]

o hai typepad has eated mi handle!

[aunursa]

essjay: The part of that commercial I hate is where he sings that "I should have seen it coming... like an atom bomb". Most eyewitness accounts of Hiroshima describe people seeing the Enola Gay by itself in the sky and, fearing no mass air raid, turning to go on with their lives... for a few minutes anyway.

And even if you were able to see the Enola Gay, and even if you knew that it was about to drop an atomic bomb ... you would be utterly helpless to do anything about it.

Definitely a poor choice.

[Lauren]

Bugmaster: Your goal is to make a loan; theirs is to make money.

My goal is to receive the loan, actually, not to make it. More to the point, my goal is to get a good job, a good apartment, and good car insurance (although my interest is purely academic, since I'm a smart, middle-class, white person with an excellent credit score).

To use the vocabulary you supplied, if I am understanding it correctly, the credit score has a high sensitivity; it is very good at identifying risky borrowers, and it also falsely identifies a lot of people (those with thin or empty credit reports) as risky borrowers. However, many people treat it as a high specificity test; they assume it is good at identifying trustworthy borrowers, and that all the people with low scores are "true negatives."

Actually, I'm sure most people don't have that sophisticated an understanding of statistics. The problem is that the credit bureaus are marketing their credit scores as a high specificity test. They tell employers that a low score identifies an unreliable employee. They tell landlords that a low score identifies a problem renter. They tell insurance companies that a low score identifies a bad driver. But the low score isn't identifying those things, because the credit score isn't a high specificity test, because that's not what it was designed to do.

To go back to your original example, the loan office that rejects black women who eat quiche, my problems with it are two-fold. First, how do I know that your system is actually based on statistical analysis, not racism, sexism, and cuisinism? In order to be sure you are being fair, and that your motives are truly, blindly profit-driven, your system must be transparent. Businesses hate transparency. If your system is transparent, then all your competitors will copy it, and there goes your competitive advantage. If it isn't transparent, you can just use it to cover up your racism, sexism, and cuisinism.

Second, I would need to be assured that your system was only being used for what it was designed for. If you just use it for making loans, fine. If you start using it to grant health insurance, screen employees, and decide who you're letting into college, then you have a responsibility to re-evaluate all the factors that go into your system to make sure they are equally applicable to the new use.

[pepperjackcandy]

What would you do to shift the current balance?

Reestablishing some kind of usury laws wouldn't hurt. Maybe they could do it on a sliding scale, to give the banks time to tighten their belts, since massive layoffs to preserve the banks' profits would be a big step backwards.

Maybe 75% of a big step backwards.

50%?

[Cactus Wren]

After the charisma-impaired spokesperson confidently announces his social security number on air he offers listeners a free two month trial of his company's services ...

That would be Todd Davis of LifeLock, I believe:

Davis gives out his Social Security number — 457-55-5462 — in the company's ads.

Davis states on LifeLock's Web site, "Just like we have with mine, LifeLock will make your personal information useless to a criminal."

But LifeLock couldn't really make it useless. Like other aspects of LifeLock's marketing campaign, Davis' statement just isn't true.

Despite LifeLock's service, the thief found Davis' information plenty useful. The check that the thief used to take out the loan was from his or her own bank, and police found the suspect's home address. So far, no arrest has been made.

[Bugmaster]

The problem is that the credit bureaus are marketing their credit scores as a high specificity test. They tell employers that a low score identifies an unreliable employee. They tell landlords that a low score identifies a problem renter...

And, to be fair, they are often correct. More often than mere chance could account for, and often enough for their test to be useful. Obviously, they aren't correct nearly as often as they claim, but that doesn't mean that their specificity is too low to be usable.

First, how do I know that your system is actually based on statistical analysis, not racism, sexism, and cuisinism?

As a customer, you don't know, and in an ideal world, you wouldn't even care. You'd just go to some other loan company, and ask them for a loan. When they give it to you, and you pay it back in full... That's when the first company takes that one little step closer to bankruptcy.

The problem with our world is that there isn't enough competition in the market. You can't go to a competing loan company, because there aren't any. I believe that the government should remedy this situation.

[Jeff]

No comments on the credit card bill Congress is debating? It fit so perfectly into this post...

It sounds like it addresses many of the complaints listed here: extreme jumps in interest rates, using late (as in a day or two) payment of utilities to jump interest rates, etc. Of course, the banks are protesting; but it's an election year, so the Dems have an interest in beating them back.

[happyapple]

I hate those stupid freecreditreport.com commercials. The jingles are awful, sexist, classist, rude, low-brow, and are constantly stuck in my head. The company's "free credit report" is a scam anyway.

Why can't I view my (actual) free credit report any time I want and as many times as I want? I mean, I know the obvious reason is, "Because then they wouldn't make money off you" but it just doesn't seem right. Besides, it's not like those three companies aren't making hand over fist with "protection" plans and fees to view the actual credit score and that whole "monopoly" thing wherin there are three companies and customers can't exactly take their business elsewhere. The worst part is that two of the three companies don't tell you the last time you viewed your credit report (and I sure don't remember) so I have no idea how long I'm going to be waiting for my actually-free free credit report.

Money and finances are so confusing since most people that offer to "teach" you about it are just providing filler before advertising some can't-live-without-it financial service. Why can't I just take an extra twenty bucks and buy stock in some company I like? Those men, with their pinstriped suits and white collars, are always screaming and shouting on the crowded stockroom floor, waving slips of paper in the air, and then somehow the prices of gas and milk go up the next day and has something to do with the NASDAQ and the DOW. It makes no sense to me. How is that business? Who came up with that?

[forestwalker]

You're also missing the fact that freecreditreport.com is a company that sells a service that the government provides for free. Use https://www.annualcreditreport.com/ instead.

[Ken Slater]

It seems the more you borrow the more the banks like you, at least until the middle of last year. Wonder if we can check the banks credit score! Hmmm

[jake]

maybe we will, and not pay the whole thing off afterwards. So far we have resisted the Hummer-buying temptation