Equifax Is Just a Symptom— Experts Say We Need to Cure the Disease

Beyond the obvious, experts say there are a couple of troubling issues regarding the recent Equifax breach, where hackers stole personal information from some 143 million customers, including 100,000 Canadians.

First, for a reason still unbeknownst to us the company reacted slowly — it found out that hackers had compromised its system on July 29, but it took an entire month to make that information public.

Second, Equifax did know about a vulnerability in a piece of software it was using called Apache Struts back in March, but for some strange reason it didn’t see the necessity to adequately and urgently secure its systems — one that contained the names, SIN numbers, birth dates, addresses, and credit card details of tens of millions of people.

Third, and perhaps most disturbing of all, is how the vast might of the credit scoring industry — that essentially acts as the sole arbiter of a person’s ability to borrow — enabled Equifax to accumulate so much personal data to begin with.

“I don’t even call them credit bureaus any longer, I call them data bureaus,” Peter Dunn, a financial wellness coach and columnist for USA Today told VICE Money. “We are led to believe that these bureaus are partners in our financial lives, that they are essential to our financial health. But really, the campaign for healthy credit is a marketing strategy perpetuated by the credit bureaus and banks.”

In many developed countries, but particularly in North America, your credit score determines if you can borrow, and the sum of money you’re eligible to borrow. Ironically, in order to build a healthy credit score you have to basically get yourself into debt. The system rewards people who have numerous credit cards and lines of credit — provided you can pay off your debt on time — and punishes those who would choose to operate on cash, or use a debit card for most of their transactions.

“I have a lower credit score than someone who is $90,000 in debt, because I just don’t have any loans,” says Dunn. “But my bank gave me a call the other day, and they said hey, do you want this line of credit, that credit card… I don’t. We’re just giving them [financial firms] ammunition to get and sell all our data, while we get further into debt.”

The idea behind assigning someone a score to measure his or her ability to pay back a loan is not necessarily a bad one. After all, if you apply for a mortgage, rent an apartment, buy a car, or open an account with a utility, the provider of the service needs to be assured that you can pay your bills on time.

But credit bureaus are for-profit companies. In order to remain profitable, they need you to keep building a credit history, that they can then use to sell to lenders. This is on top of selling personal consumer data to advertisers, which is a billion-dollar industry in of itself. Companies like TransUnion and Equifax are existentially dependent on the frequency of one’s borrowing — it is simply not enough to build a credit history for a period of time and then stop when you don’t need to borrow any longer.

“Do you want to be good at borrowing? Probably, most people do. But step back from that question and remove a few words. Do you want to borrow? The correct answer here is no. Unless you’re borrowing money, leveraging it and using it to make more money, the way businesses do, they you don’t really want to borrow,” wrote Dunn in a 2015 blog post.

In 2016, Equifax, collected personal information from more than 800 million people and close to 90 million businesses and brought in an estimated $3.14 billion in revenue. The company is just one of three big credit bureaus in the U.S. and Canada, and tens, possibly hundreds, of credit-scoring apps like Credit Karma, Mogo and Borrowell that make up an industry worth billions of dollars.

A recent New York Times opinion piece raised the idea of turning credit bureaus into government-owned entities. “Why should we continue to allow private companies to make money from us while ignoring our needs? We could follow other countries’ examples and hand the duty of tracking our financial histories over to a public registry instead of a private profiteer,” wrote Bryce Covert.

Credit bureaus, coupled with lending institutions and credit card companies are all part of a system that profit from consumers getting themselves into debt. But getting rid of private credit bureaus, as Covert suggests, is admittedly fraught with political obstacles.

Until then, credit scores will remain the business of a few for-profit institutions.

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Cover image by Flickr user Marco Verch via Creative Commons.