Creditworthy

A history of credit bureaus in America

Wednesday, November 1, 2017
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photo of Josh Lauer

Josh Lauer, associate professor of communication and author of "Creditworthy: A History of Consumer Surveillance and Financial Identity in America."

When Josh Lauer, associate professor of communication, finished his book, “Creditworthy: A History of Consumer Surveillance and Financial Identity in America,” earlier this year, he had no idea Equifax soon would be under fire for compromising the identities of more than 145 million people.

In the past few months, he’s been busy fielding questions about the credit bureaus from media outlets such as The Washington Post and The Wall Street Journal and making guest appearances on radio shows such as National Public Radio’s Marketplace about his research into the history of credit bureaus — and how this could have happened. The latest breach served as a reminder about just how vulnerable the public is to identify theft and other privacy concerns related to income and personal debt.

“If you can’t trust the credit bureaus with your information, you can’t trust anyone,” Lauer says. “They do hold the keys to our financial reputations, and with those keys, thieves can wreak all kinds of havoc.”

The Equifax breach also reminded Americans that they are not the customers of the credit bureaus — but are the data, or the product of them, he says.

“People were worried when they would try to contact Equifax and they were not able to get help,” Lauer says. “It reinforced the message: You are the thing that we are selling to businesses. Your satisfaction is not our priority. You can’t opt out and they are not there to help or protect you — this was offensive.”

Published in July 2017 by Columbia University Press and part of the Columbia Studies in the History of U.S. Capitalism series, “Creditworthy” chronicles the history of the first consumer credit bureaus, which popped up in the late 1800s as a way to determine trustworthiness as the nation became industrialized. Lauer, who teaches media history and a seminar on media surveillance, says he wrote the book because he was interested in business history and the culture and history of technology.

In the past, if you had a stolen checkbook and someone wrote a few bad checks, you could shut it down and no one would open another account in your name or buy a car with your information — the inefficiencies of the system gave the consumer some protections.”

“I was interested in how personal identities and reputations that existed only in our minds and relationships were then converted into text, written credit files, data and algorithms — and how you convert reputations and personal information into a commodity,” he says. “When you do that, you strip away all kinds of other information about who a person is and think of them only in terms of a risk or a customer, or an opportunity for profit rather than as a fully formed human being.”

Lauer explains that it was difficult to research the history of credit bureaus, because no central archive of credit bureau history existed anywhere. By looking through corporate records, trade publications, instructional manuals, news articles and U.S. Congressional Hearing files, Lauer says he was then able to piece together the story.

“The first credit bureaus sprouted up in New York City and published a rating book, like a city directory, that included everyone’s name, address, occupation and then a letter code which gave them a reputation credit rating,” Lauer explained, as well as a key to codes, which they kept separate from the actual rating book. Some of the ratings indicated that a customer paid promptly, paid in cash, or did not pay on time but was not a risk. One rating indicated someone should “come to office because the information is too controversial to publish,” he says.

At the beginning of the 20th century, there were hundreds of credit bureaus. They ballooned to more than 2,000 in the late 1960s, Lauer explained. Only a few bureaus had the necessary capital to invest in computers and convert paper files to digital files during the 1970s and 1980s, which shrunk the credit bureaus down to the big three — Equifax, Experian and TransUnion.

In the mid-1960s, credit bureaus began to include Social Security numbers on credit reports. Also during this period, Congress investigated the types of information that credit bureaus were collecting and passed the Fair Credit Reporting Act in 1970, which regulated the collection of credit information and access to one’s credit report.

“The problem is the convenience of having all of this data in one place. There are only three places where you can get that information,” Lauer says. “The other problem with having all of this information in one place is if someone gets the keys, your data is unlocked. In the past, if you had a stolen checkbook and someone wrote a few bad checks, you could shut it down and no one would open another account in your name or buy a car with your information — the inefficiencies of the system gave the consumer some protections.”

Despite the publicity surrounding the Equifax breach, many Americans still don’t understand how deeply their credit reports affect them — or how much they are judged based on a number assigned to them by the credit bureaus. The industry is not transparent, nor does it adequately tell the story behind a person’s ability or inability to manage debt.

“Even though credit scores are numerically objective and neutral, they are still a moral gauge,” Lauer says. “They serve as a marker not just of financial ability, but of moral dimension — people with poor credit scores are not seen as credible people. The truth is that people often struggle for legitimate reasons and their credit information is affected by that.”

slice of book cover with title and women working in file room
Image courtesy of Columbia University Press

Photographer: 
Perry Smith | Freelance Photographer