Why is the Hack a Big Deal?
Roughly “143 million in US were affected” by the revelation that Equifax, one of the three large credit-ratings agencies, had mishandled security for nearly 40% of Americans and their sensitive and personal data including social security numbers, names, and addresses.
It might as well be everyone. I think Farhad Manjoo from the New York Times sums up exactly how we are all feeling:
This hack is really a big deal for one simple reason, the company whose primary job is to prevent a catastrophic issue, simply failed. The whole business model for Equifax revolves around protecting consumers. Equifax’s stupidity and clear demonstration of lack of corporate responsibility is apparent when they managed to have the ID and PW for an Argentina version of their site set as “admin.” From an IT security perspective, this is inconceivable.
Yet, these are people are the people that determine your credit score.
Why Everyday People on Main Street Should Care?
The US Financial system relies on credit rating agencies to mitigate risk for lenders. The end game is that the customer’s future financial investments all rely on having solid ratings according to the credit agencies. “Main Street” folks are buying a house, renting an apartment, applying for a credit card, financing a car, starting a business and even getting their first cell phone plan. In other words, all basic life events require a credit score, a trustworthy credit score. So what happens when you can trust the company responsible for determining your trust level?
This is why you should care.
Assuming the credit ratings agencies (Equifax, TransUnion, and Experian) get their act together, everyone needs to act. Not out of fear, but out of consumer protection.
In the short term, anyone with a compromised account (you can check on the Equifax site), should freeze their credit accounts with the credit agencies. You can find more information on the FTC website dedicated to the “The Equifax Data Breach: What to Do.” At a minimum, add a fraud alert so you can keep track of your accounts.
The long game is a bit murky. Ordinary folks will now have to spend time checking their credit regularly (though, this is a best practice). Equifax not only failed to keep your data save – data that you did not agree Equifax could have in the first place, but their incompetence now affects your life.
The Credit Reporting industry is “stealing” your time and without any choice. They should be held responsible for their negligence. End of story!
How We Got Here
Quick analysis – I am guessing the problems started as computer systems became more sophisticated, and banks started choosing computers over people. I worked at CitiBank on John Reed’s staff in 1973-74, when one of the first bank office RIFs (Reductions In Force) took place. They “blew up the back office,” and the Executive Officers spent a weekend trying to sort things out. John Reed is the only banker to apologize for any part in the 2008 financial meltdown which brought the world economy to its knees.
Reed may have been wrong in hindsight to agree to merge Citicorp with Travelers back in 1998. But to his credit, he’s clear-eyed enough now to admit how badly the whole thing turned out. He understands why, too. “The core of what was happening was a lack of supervision and structure at the managerial level. . . . Once we got the benefits from the merger in the first two years after the deal, we were not able to sustain a business model that gained traction.”
“The stockholders have not benefited, the employees certainly have not benefited and I don’t think the customers have benefited because our franchises are weaker than they have been.”
From its founding in 1899 to the early ‘70s, crediting reporting was a tool, used by a flesh and blood banker to evaluate your credit and determine if you would get a loan. Even then bankers were overly cautious. My father used to say, you couldn’t get a loan when you really needed one. When you became successful, banks were actively courting your business. My father invited one banker over to help him mow the lawn.
Today banking is a numbers game. You are encouraged to apply online and may never have to meet your banker. Everything is “by the numbers.” over the Internet.
The worst part is that all the big players in banking act as if it doesn’t matter if the consumer is screwed. The Wells Fargo of the world, don’t care about you, the individual. You simply represent a dollar amount that needs to be maximized in order to show higher numbers in annual reporting so that Wall St. raises the share price, thus making the board of directors and executives rich since they get paid in stock options. It’s a farce.
What happened to good old fashioned banking based on a relationship. Bankers need to be out in the community – attending Rotary, Lions, and other service organizations, networking clubs, taking leadership roles in their tribes and religious organizations, serving on community boards, etc. The bankers will know their customers, their borrowers personally. Good relationships can resolve many issues before they become problems with no good solution.
Call to Action
In my opinion, the time has come to “sunset” all the Credit Agencies – Equifax, TransUnion and Experian. The functions that the credit reporting agencies are in business to perform are being handed in other ways and their services are redundant and cause more problems than they solve. Credit reporting agencies are on the downward slope and fall into “hospice” on The Two Loop diagram by Deborah Frieze