John Oliver on the ugly state of credit reporting and background checks
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The above process occasionally lead to split credit reports as well, which could be a nightmare to resolve.
To give a specific example: Work in a fast food place handling small amounts of cash and they'll background check you. Work in a company handling SSNs, Credit Cards, and medical records and they didn't even ask me if I had a criminal record (I don't).
So I cannot help but wonder if ex-convicts are going to suffer more while getting a low end job than they would if they were applying for high end positions. I guess the assumption is if you have a degree that you are somehow above crime...
I guess that's why so called "white collar crime" often goes undetected for longer and is often more successful overall.
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Of course, a much more charitable explanation would be that there's an "efficiency wage" effect behind background checks. For good jobs, the job itself is good enough that employers assume you'd be stupid to somehow jeopardize it by stealing or committing a crime. In contrast, shitty retail jobs are bad and everybody knows it—the company assumes that your loss from the job wouldn't be big enough to offset the gains you might make from stealing. This could be a similar explanation for why immigrants commit fewer crimes: they have more to lose.
All it can be said to do is to weed out poor people or conversely allow terrible employers to pinpoint candidates that they can easily abuse because they are so far in debt.
That is very different from being proven useless.
This seems overly-dramatic. The reality is that there is a lot of petty crime with people who handle cash, compared to those on a white collar career path. Petty crime happens so often its not even reported, and white collar crime is so rare it makes the news, so you may be skewed to think that casual stealing from retail employers is rare, but it certainly is not.
On top of it, the kinds of people most likely to work with a cash register are those who are largely unknowns. Yes, I do trust the guy with 15 years experience in finance more compared to the teen getting his first or second job to better handle money. Also criminality goes down with age. Experience tells me 15 year career guy has made it this far without getting arrested and has a lot of skin the in the game. Its not "classist" to think so. Its basic risk analysis. Just because something seems distasteful to you doesn't mean its wrong. I wish more people understood this simple concept.
That said, I've gotten background checked at every white collar job I've had. Companies need a CYA for new hires and that's how its typically done. This has been the standard in my field for decades. Not sure where the idea that white collar people are immune from background checks comes from. It certainly isn't common in my peer group.
It may also be that a lot of entry level retail jobs are mostly from large corporate employers who have top-down policies regarding background checks. Sure, Walmart did a check on you but your uncle didn't for a summer job filling out TPS reports at his company. That's not a sign of a conspiracy, but different values/risk assumption from two different organizations.
You are making a strong claim about the frequency of unreported events. Where does your data come from?
> Experience tells me 15 year career guy has made it this far without getting arrested and has a lot of skin the in the game
What experience are you talking about? It sounds more like you are making a logical argument, rather than an experiential one: the while collar must be more trustworthy because he has more money to lose. It is obvious to you that the more money you are making, the more honest you must be. That's a logical conclusion at best, not an experience.
She asked what I meant so I spelled it out more directly "Why does a file clerk role require a background check, credit check and drug screen but this role here, a Senior accounting role asks only for relevant job history?" She admitted she didn't know.
I wish I could say this was limited to that company, but I saw it so much over the course of about 3 months that I started to really wonder what the hell is going on..
There's probably no conspiracy, just generalized classism.
It takes a lot of empathy (something that is actively selected against in our corporation dominated workforce) to bypass that.
Add into that the gravity of money (ie, rich get richer) and political corruption (money buys power) and you have a basic framework for classism.
If I want to farm your labor, I need to find you, make sure you are going to work long enough at a site for me to make money, and I have to hope that you wont do something that will sour the relationship I have with "my" customer (the business I am renting you to.)
The margins for staffing places are actually pretty small per person, so its not so much unjustifiable as it is dehumanizing.
I worked temp out of college in the dot com bust. I lived out of a borrowed car. I was desperate for work and had relevant skills, but many temp agencies wouldn't touch me. It was stupid and dehumanizing, but it was also pretty unjustifiable.
So maybe that is the logic, but it's specious logic.
I've gone through tons of background checks / drug screens for federal and state governments, and financial companies. But I've never had a Facebook search...
Is that even legal?
"I'm sorry, I don't use Facebook as it seems an invasion of personal privacy"
or
"Ok, here's my Facebook account" and then give them some uber-sanitized account that just has photos of kittens and messages on your mom's wall about her cookies.
It works best if you're actually in California, but even if not, it might give them pause.
Later, I worked on some of their creepy background checking software. Essentially, without the login, they can still get all the information about me they need.
4. You will not share your password (or in the case of developers, your secret key), let anyone else access your account, or do anything else that might jeopardize the security of your account.
It's not iron-clad, but it may dissuade the nosy.
I have to check my Facebook every few months to find out what sort of content is now visible to a new group of people that was hidden by me in the past.
Work with military data was by far the most extensive (required approved clearance). Government positions were the most varied, with one being very thorough (not quite as bad as the military), and an other being the least intensive. Financial institution were middle of the road.
But everywhere where I had database access required a background check and only one place didn't require a drug test. The lower income positions I worked required neither.
One thing I did notice from my friends is that smaller shops are less likely to have institutionalize policies. A small startup is less likely to background check you than a fast food chain likely has a policy requiring it. But this applies to any large organizations, not just lower income positions.
I have no contract with any of these agencies, yet they say bad things about me to other people that are inaccurate.
In fact, I've been monetarily harmed. I tried to refinance my mortgage, which would have saved me over $1000 a month, but was denied due to bad credit. When I looked, it was all inaccuracies. That was two years ago, so I can say for a fact that they caused me $24,000 of direct harm so far. I finally just got all the inaccuracies cleared up.
I suspect that I've signed contracts with creditors that allow them to send info to these people, but I know that isn't necessary, because I can file a derogatory mark about anyone I want to as long as I have their SSN.
So, what stops a class action suit against these guys?
The logic goes something like this: the credit reporting agencies simply provided facts (reported to them by others) to the mortgage company, who made their own decision about your creditworthiness.
Who is at fault in your situation? The mortgage company? No, they took your report at face value and then made their own decision. The reporting agencies? No, they just barf back data fed to them by individual creditors and run it through their arbitrary algorithm. The individual creditors? Perhaps, or maybe they sent an accurate report but somewhere along the line two numbers in an SS# got flipped (innocent mistake) and now you're carrying someone else's bad credit.
Scores of companies each have these tiny slices of responsibility, making it really hard to pin one actor with all of it (ie, to name a defendant).
The incentives are perverse. The worse your score the more expensive to borrow. Best case for a lender is to have a customer who should have a high credit score but doesn't because of mistakes like these -- you get the credit risk of a AAA borrower, but can charge subprime rates. Best of both worlds.
That's not true. They reported the information, and a number they came up with on their own. That's new information they created. It is their responsibility to verify any data they use to create that rating.
I'm the first in line to say the system is horribly broken. I spent years cleaning up inaccuracies on my reports in order to buy a house. Credit reporting is opaque, unfair, and inaccuracies are nearly impossible to correct. It's what makes me wary of automation controlling everything -- manual underwriting used to be a thing, but now almost all of it is automated based on arbitrary numbers and reports that may or may not be true, with no good way to ensure accuracy.
SoFi doesn't.
Your FICO score costs money to pull, which is why it's not an actual part of the credit report.
The credit agency. If they're reporting inaccurate information, that they haven't verified, that's libel.
This is something the CFPB [+] needs to clamp down on hard.
No it's not, even a little. They are under no legal obligation to independently verify every piece of data sent to them.
In fact, the #1 easiest way to remove a negative mark on your credit is simply to request documentation validating the debt. Even with legitimate debts it's not a foregone conclusion that they will provide any verifying documentation within the required time frame.
Verify what they receive about you? Sure, don't verify all of the data. Verify the data they're publishing about you? Yes, they do.
I mean, come on -- they're aggregators. They can't go investigate every single report they get; they have to depend on reporters to tell the truth.
Importantly, the reporting agencies do not make claims of creditworthiness about you. They present your "credit history" (accurate or not) and the lenders themselves make their own determination. It's an awful catch-22.
Which is a load of crap. They present a number and even say "above 750 is excellent". It's in their own marketing materials. How is that not making a claim of creditworthiness?
The number itself typically comes from Fair Issac -- who traditionally sold a black box algorithm to project a multidimensional vector onto a single scalar.
The data itself comes from a Credit Reporting Agency, who lumps together payment histories and public records.
That data in turn came from creditors and public sources.
I'll happily agree, though: the entire keiretsu benefits from the general public thinking it all sort of just happens and is authoritative and predictive in that single scalar.
Even so, lenders still decide what to do with that information. Some credit cards may approve you at a 500 score. Others may not. Many lenders will tier your rate based on score. Ultimately the decision of whether or not to extend credit and what rate you get is up to the lender.
If you're providing factually incorrect information on a person, that someone is then going to make a financial decision around, you should be held liable if your business is to provide factual information on someone regarding the credit worthiness.
Unless we're just going to say that credit agencies have no requirement to verify the data they collect. In that case, let's just rule them illegal through legislation and allow them to dissolve (most of the first world does not have credit agencies for consumers).
Conceptually I have no disagreement with you, and I'm certainly no reporting agency apologist. I spent a lot of time on my own report correcting an unfortunate combination of youthful indiscretion and erroneous reporting and I guess I realized that the rage is wasted. There's just no one place to pin the blame, the whole thing is a complex system (intentionally) with perverse incentives (intentionally) and you can either play the game or resign yourself to a life of credit denials.
I hate it too, but I can't see a better way that serves the same scope and scale at the same price. The only place to fight, I think, is 1) for better corrections process, and 2) penalties for companies that incorrectly report.
Interesting, I didn't realize that. How does credit work where they don't have the agencies? Like if I want to buy a house in Germany or get a credit card in France, does the bank just do all their own research?
I don't know what US banks do apart from getting a credit score if somebody applies for a loan but I don't assume it's much less than banks do here: Assessing your income stability and looking at your large fixed expenses.
I also don't think there are any, say, OECD countries without such credit scoring agencies.
I'm not aware of any cases where the agencies themselves have been sued.
Possibly legally too? IANAL
http://www.nbcnews.com/technology/exclusive-your-employer-ma...
http://www.bankrate.com/financing/credit-cards/your-salary-i...
That's true, but they don't calculate a number about my creditworthiness. It's the number that would be the problem.
If the agencies only passed information on I could see them maybe being allowed to pass, but since they calculate a number, they are now presenting new, inaccurate, information. They have a responsibility to verify the accuracy of their data if they are going to create new data from it.
Please cite the legal statute indicating this.
You can't just throw the word "responsibility" into the air and expect people to take it at fact value. In fact, they have no legal responsibility to verify any of the data they receive from anyone. Consumers have multiple opportunities to dispute invalid items on their credit:
1. Free credit reports from all major reporting agencies once a year from annualcreditreport.com
2. The same credit reports more often for a fee
3. At any point where they are denied financing due to negative items on their credit report, regardless of the last time they accessed their free report
Their responsibility is to their paying client, the lender, not you. I'm sure the lender would have a civil case if they were getting a lot of false reports and it was causing damages to their bottom line in missed loan opportunities.
Google functions as an index that points you to another source. They don't actually have control over the source.
The credit bureaus are the source.
At least that's what they claim.
All of this could have been easily prevented if I were required to reply via a text message sent from the credit bureaus when an inquiry was made.
Credit cards already have two-step, why not apply it to potentially life-ruining inquiries? Is there too much money in mafia-like companies who will keep the bad guys away if you just pay them a monthly fee like LifeLock?
The credit system infuriates me to no end.
Edit: see https://www.consumer.ftc.gov/articles/0497-credit-freeze-faq... and https://www.consumer.ftc.gov/articles/0279-extended-fraud-al...
It's not free in all states:
>The cost to place and lift a freeze, and how long the freeze lasts, depend on state law: In many states, identity theft victims can place a freeze for free, but in others, victims must pay a fee, which is usually about $10.
Although an alert is free, and lasts for 7 years.
Then you've got to sort it all out, and _then_ do the thing you first thought of.
Freezing is not opting out of data collection, it's a control over who can get that data.
1. Set up an account at Credit Karma.
2. Review your Credit Card Utilization. If it's under 30%, you should be doing ok. If not, pay off those balances.
3. Look for derogatory marks. If you see any that are older than 7 years, file a dispute to have them removed (you can do this through CK directly).
Generally, I found that, if an account is closed and older than 5 years, if you file a dispute, the creditor won't care and will either ignore the request (resolving in your favor) or mark it as resolved in your favor.
If you have outstanding balances open in collections, call the collection agency. Here's how that went for me... "Hi, I'm interested in discussing an open collection on my credit. I see you are the owner of the debt." After they pull up the information, ask them "How much are you willing to accept to purge this from my credit?" (They are going to tell you they can't do that. But, they most certainly can!)
If you receive an offer for 20% less (with removal from your credit), take it. Use a credit card (responsibly!) if you don't have the funds immediately available.
If not, make sure they have your phone number on file, hang up and wait. Come the end of the month, I guarantee you they will call with an offer. :)
Tip: Use a Google Voice number, so you can field their phone calls, if they go rogue. When you're negotiating, make sure you write down names, case numbers, account numbers, etc.
4. If you have old accounts on your credit report, don't close them! Closing your accounts hurts your score. Instead, keep them open. If you have a credit card that you never use, set up Netflix to bill to that card, then set up recurring bill pay to pay off the balance every month. This will keep the creditor from closing the account due to inactivity. That credit history will keep your "Age of Credit History" up.
Lastly, if Credit Card Utilization is constantly hurting your score. Contact your existing credit card companies and request a credit line increase (don't open a new card!). A credit line increase will not hurt your Age of Credit History, but a new card will.
With an old debt, the bottom feeder collections agencies pay like $0.05 on the dollar. Once you make contact, you reanimate the debt for 7 years, and the collector can sell it for $0.40-50 on the dollar.
Note that settling debt for less than what was borrowed can also result in additional tax burden because the difference between the loan amount and the amount paid is income.[0][1]
[0] - https://www.irs.gov/pub/irs-pdf/f1099c.pdf
[1] - http://www.nolo.com/legal-encyclopedia/tax-consequences-sett...
Then fed and state collectors both delay addressing this until about 2 years before the statute of limitations. You have a ton of interest, fees, and interest on the fees, at which point they slam you with notices and judgements, and wage garnering.
For me they timed it perfectly, getting their last cent about a week before the statute of limitations was up. In the end, a little less than $5000 in debt forgiveness cost me around $18,000.
I had had an internship in another state, went to a clinic with a case of strep throat, they took my information, made a copy of my insurance card, I paid a co-pay, and I thought that was it. Unfortunately, the clinic lost (according to them) the copy of my insurance card, the address they had was entered incorrectly, and no one bothered to call me...
Anyway, I called up the collections agency listed on my credit report, the guy seemed reasonable, I got his name and employee number, paid the bill on the spot, and it completely disappeared from my report the next week. It took just a few minutes on the phone -- poof!
I would be careful about making sure you really owe the money in the first place. In my case, this really should have been paid by insurance four years ago, and a call to the clinic confirmed my suspicions that it was staffed by apathetic morons. The collections agency, on the other hand -- a pleasure to deal with! Much easier to just pay it and move on with my life.
And, yes, there's always the "chargeback" option, although, technically, I'm not sure that would be allowed under your credit card contract. You need to pay the debt because you owe it, and showing that you can take the money back if it doesn't disappear from your report might be tricky, if push came to shove. In hindsight, I probably should have gotten something in writing, but collections agencies don't really have a motivation to be assholes for no reason -- if you pay them, they probably don't want trouble later on.
Note, this isn't saying anything about whether you owe or do not owe the money - that's an important distinction. You agreed to make a payment for money you owed in exchange for a positive credit record. You can debate the ethics or morality thereof (especially if you're negotiating to pay less than owed, and still have it recorded as paid in full), but it is demonstrable that you did not receive what you asked for. The fact that you owed that money is tangential.
Also, "improving" your credit score by paying off debt with a credit card seems to be proof that the credit report system is broken.
But, "credit," meaning the business of telling you whom you can trust (like a bureau), is very very weird indeed.
Without pre-aggregated or nearly-instantly-compiled predictions about trust, it can only spread out in a personal way. But impersonal relations are crucial to trade, to fairness, to the open society (that is, you shouldn't be constrained to trade only with your family/tribe/neighbors).
Hence, a credit bureau, in the ideal, is a trust-promoting mechanism -- something meant to facilitate the best in mankind. And it rewards faithfulness to promises.
Furthermore, in most commerce we can use a default assumption of "trust." Most people will return the rental car, will repay the loan, will queue up to pay for the groceries, etc.
Here's the rub: with the assumption of trust, then the target outcome to model (the labels you're looking for in ML terms) are the defaults or "don't trust" outcomes.
Which means that the best credit bureaus will hungrily look for all labels of, and all features which can be predictive of, defaults. And it must do so opaquely so as to avoid being gamed by adversaries.
So now the institution which is meant to facilitate trust and reward cooperation ... is a secretive digger for dirty laundry.
Just a reflection. It's weird.
(Background: I spent the last five years starting a fairly successful alternative lender, and a less successful alternative credit bureau.)
Do you have anything resembling evidence to back up that assertion?
Admittedly, that only defers the question to, "Does credit scoring accomplish its primary motivation?" But you could become a loanshark millionaire if it turned out that people with low credit score were equal or better borrowers than people with high credit score, since the existing financial industry isn't serving them as well.
Even if you start making good money again it can take a long time to right that boat. And the whole time your credit score is swirling the drain, making it even more difficult to get the funds you need to balance everything or weather future emergencies, and you're too afraid to move, because you don't know how you'll pass the credit check, even though you haven't ever missed a rent payment (it's the highest priority bill).
I really wish there was a little more flexibility in payments. Even just a "you can miss a payment if you double pay to catch up next month without us reporting it" would have helped quite a bit.
I also think there needs to be a more universal, centralized place where you can set up online bill pay without it automatically paying (I tell it to pay a particular company a particular amount). I've been locked out of being able to pay my bill on their online sites and it's a nightmare calling or jumping through the hoops to get your account unlocked to be able to pay online again.
I'm not even sure what to do to fix the situation, since I'm not interested in credit cards or a new car right away. Any tips?
First and foremost, your credit report/score is not a measure of how likely you are to pay back a debt, or how much money you have. It's a measure of how well you can manage and maintain multiple lines of credit simultaneously. That's why you get higher scores for higher account age, for number of accounts (to a point), and for a mix of multiple accounts (revolving, installment, etc).
So by definition if you are not showing that you can maintain and management multiple lines of credit simultaneously, you are higher risk.
And rbobby is wrong, getting a card and cutting it up will do you very little good.
To start you will probably need to get a standard credit card with no rewards, likely one with a small yearly fee. Buy your gas and your groceries and pay off the statement balance in full before the due date every month. Let your credit build slowly. When you can, get a card that offers rewards. Cash back cards are typically best, I have a Chase Freedom card that gives 5% back on rotating categories (gas, groceries, book stores, Amazon, etc). I have a Capital One Venture as well but I rarely use it because the miles accumulated on it (2 miles/year for a $60 annual fee or 1.5 miles/year for no fee) are roughly equivalent to 0.5% cash back if you attempt to do an account credit, and you need 60k+ miles for any flight I would be interested in.
You will still not have top tier credit unless you have some sort of installment loan like a mortgage or car/student loans.
Do you have a relative or friend who would cosign for a relatively small loan for the same purpose?
In fact there's an older banker's maxim that says "never lend money to someone who needs it."
My recommendation: As long as you are disciplined then start using a credit card for your purchases. Google around and find one from a mainstream providers that provides lots of points and no annual fee. At least 1% back on all your purchases. My Citibank card gets me about 2% back on everything I purchase. So basically I get a little discount on all my purchases for having good credit.
Start using it immediately to build up credit. Like it or not, you're only going to encounter more situations like you did with the apartment. And the older you get, the more suspicious it looks.
If you don't feel you can be disciplined enough to pay it off every month, then just use it for handful of recurring purchases and nothing else, then at least you'll start building a credit history.
Unfortunately, the agencies have specific immunity from libel laws. It's probably going to take another trip to the SCOTUS to fix that example of institutional corruption.
That system (FCRA, FDCPA etc.) is of course the product of major lobbying and regulatory capture -- "don't throw me in that briar patch, bre'r fox." But it also does have at least the fig leaf of support by consumer-focused NGOs and populist legislative rhetoricians.
So, no, if you went to the courts you wouldn't even make it to an appeal, much less to SCOTUS.
Many protected classes have lower average credit scores, so I'm not really seeing the difference here between IQ tests and credit checks in this situation.
Personally I don't think anyone who isn't extending you credit should have access to your report, but that will probably require a legislative change.
That's true but the reason Employers don't use IQ tests doesn't have anything to do with false negatives or them caring about fairness. They don't IQ tests because several protected classes score lower on average on IQ tests, so employers have to prove that an IQ test correlates positively with job performance in order to use them. Most employers don't want to deal with this, so they don't use IQ tests.
Several protected classes also have lower average credit scores. It doesn't matter why, just that they do. Therefore it is likely also discriminatory, and and employer should have to support the assertion that a credit score is an indicator of job performance.
My guess is that there haven't been enough lawsuits to scare employers out of using them yet.
The end result is that you'll have business process driven by the national ID, and people will get cut off.
There are a lot of ways to flesh out the details of such a system. The essence of all of them, though, is that each person has a public key which is known to everyone and simultaneously serves as a unique identifier to that person and a private key that is known only to the individual. Additionally, either the public key is derivable from the private key or both keys are derivable simultaneously via some process, but importantly, the private key is not derivable from the public key. And, depending on the system, messages can be encrypted with the private key and only decrypted with the public key, or vice-versa, messages can be encrypted with the public key and decrypted with the private key. The name for this broad category of cryptographic systems that have these properties is called "asymmetric cryptography".
To give a specific example of how it could work, each person creates a public-private RSA keypair, and publishes the public key. If I want to apply for a credit line with my bank, my bank can read the publicly available public key and use it to encrypt a nonce (secret token) and send me the encrypted nonce. I decrypt it using my private key and send the original nonce back to my bank, proving that I am the person in control of the private key, without ever revealing what that key is. Thus, if a malicious employee at my bank wanted to impersonate me to some other company, he wouldn't be able to (which is a huge flaw with the current system of handing over secrets to prove identity).
To tie public-private keypairs to real humans, you'd go to the DMV and give the government all the proof of identification that is required to receive a driver's license along with your public key, and the government could then publish that you're really the person associated with your public key, and all this still without the government having the knowledge required to impersonate you.
But it's not going to happen because the costs of fraud in the current system are less than the costs of rejigging the whole whole thing.
Let citizens approve specific authentication requests via a secure channel to a government website or with government issue smart cards or something.
But you know what? It's not a difficult game to play. It's an arbitrary benchmark of responsibility. If you're loaning money to someone or entering a contract you'd want to do so with someone who is dependable and responsible. Someone you can trust to hold up their end of the bargain. If they can't successfully play the credit score game then that's a pretty clear warning flag.
I kinda view high school/college the same way. They're another dumb game. But everyone knows credit scores and degrees make a difference. So if someone can identify and successfully navigate the game that's a very good indicator. Not the only indicator. And certainly not the end all to be all. But a good, solid one.
#UnpopularOpinionBear
I agree with the rest of your comment, but how exactly do degrees make a difference?
The same line of logic from employers that credit = job-worthiness can be applied to degree = job-worthiness. Perhaps less so in the tech industry, but I have friends who are at the ceiling of where they work (non-tech) because they do not have degrees.