Senator Kamala Harris (D-California) wants to increase the rate of black homeownership in the U.S. While her goal is laudable, her proposal would only make the problem worse.
At the Essence Festival in New Orleans last weekend, Sen. Harris said she wanted to increase black homeownership by allowing rent payments, utility payments, and cell phone payments to be factored into credit scores. Harris believes this would allow the approximately 26 million poorer “credit invisible” Americans — and another 19 million Americans considered “unscorable” — who don’t have traditional credit-builders like bank or credit union accounts to bolster their credit scores.
However good Harris’ intent is to help Americans increase their credit scores, her plan shows how profoundly out-of-touch Harris is with the plight of working-class Americans.
First, Harris’ proposal to amend the Fair Credit Reporting Act to include alternative data like rent payments and utility payments already exists. Since 2016, the Fair Isaac Corporation (also known as FICO) has had an alternative data collection system in place for “unscorable” Americans who wish to allow additional financial data to be collected. CoreLogic’s SafeRent score is another system already in place that collects data on rent payments and factors them into an individual’s credit rating.
But more importantly, Harris’ plan to include this additional data into credit ratings would hurt far more Americans than it would help. In 2014, Forbes found that more than one in three Americans have debts that are in collection, whether it’s a medical bill, a utility bill, a credit card bill, or any other type of bill. Earlier this year, The Washington Post reported that more than seven million Americans are at least three months behind on their car payments. And in May, a Federal Reserve report found that approximately 40% of Americans can’t afford a $400 emergency.
Basically, if any of those Americans drowning in debt were to get behind on rent, miss a cellphone payment, or have a late internet bill, creditors would be required to report that to the credit bureaus under Harris’ proposal. This would likely have a significant negative impact on the credit scores of millions of low-income Americans, which can affect anything from a someone’s ability to get an apartment, buy/lease a car, or even get a job.
Sen. Harris’ proposal would also put even more data in the hands of privately run credit bureaus, which have already demonstrated their inability to be trusted with Americans’ sensitive financial data. The Equifax breach in 2017 resulted in roughly 143 million Americans’ data — including Social Security numbers and bank account info — getting leaked on the internet. As of this writing, there has still been no accountability for Equifax or any of its executives.
As Ryan Cooper wrote in The Week, the only real way to prevent Americans from being preyed upon by credit bureaus is to nationalize them. Three credit bureaus — Equifax, Transunion, and Experian — operate with essentially no federal oversight and can punish low-income people by arbitrarily lowering their credit scores with impunity. Even if they get a credit score wrong, there’s no punishment, and no restitution for Americans who were wronged:
These companies conduct non-consensual surveillance, and use a proprietary algorithm to judge people’s creditworthiness. There is no transparency about their methodology, and they have little incentive to get things right… A 2012 Federal Trade Commission study found that one in five people had a mistake on at least one of their three credit reports, and one in 20 had an error that harmed their credit. Nearly a quarter of over 186,000 complaints to the CFPB in 2016 were about credit report mistakes — the largest category of complaint, and divided up fairly equally among the big three agencies.
Harris’ out-of-touch idea to allow credit bureaus to have even more of Americans’ sensitive financial data may be well-intentioned, but it could be spurned by the affinity Wall Street has had for her in the past. According to federal campaign finance records, the securities and investment industry is her fourth-largest industry donor among all of her contributors, giving nearly $1 million to her campaigns since 2015. Harris has also courted Wall Street money for her 2020 presidential campaign.
Given this, it’s no surprise that Joanne Gaskin, FICO’s vice president of scores and analytics, has endorsed Harris’ proposal.
“We applaud Sen. Harris’ proposal to responsibly expand access to credit through the use of alternative data such as telco, utility and rent payments and bringing greater attention to the lack of this information being reported to the three main [Credit Reporting Agencies],” Gaskin said.
Carl Gibson is a politics contributor for Grit Post. His work has previously been published in The Guardian, The Washington Post, The Houston Chronicle, Al-Jazeera America, and NPR, among others. Follow him on Twitter @crgibs or send him an email at carl at gritpost dot com.