Here’s a simple thought experiment to understand how the use of data has changed America. If The Great Gatsby were written today, it would be a one-page story about a rich guy who lied a lot and threw great parties until someone ran a credit check. That’s what the ability to instantly access and exchange personal data has done: It has reordered the very notion of identity. No one is a stranger anymore, at least not when it comes to credit relationships.
Until relatively recently in American history, you could leave, say, New York and travel to, say, New Mexico to escape your debts. The stranger coming into town is a pretty common archetype in American lore. In the past, it was also ― and this is not often romanticized ― a pain in the ass to engage in commerce far from home. Most people used personal checks or cash; credit cards were reserved for the wealthy. American Express built some of its business on traveler’s checks, a means by which a recognized third party vouched for a stranger.
Today we live enmeshed in a digital financial structure. American identities exist, in part, inside a set of databases designed to track information about them and lubricate the wheels of commerce. This grid is an anonymity-destroying machine. It takes our social bonds, our reputations, and turns them into structured data.
Behind all of this are the credit bureaus (or credit reporting agencies), such as Equifax, where a massive breach recently exposed the personal data of 143 million people. The credit reporting industry behaves as a governor of our credit relations, reputations and identities. In the late 1960s and early 1970s, Congress recognized that power embedded in data is a political matter and created a regulatory regime for these bureaus. What we are seeing now is that this regulatory regime is inadequate and that the regulators ― like the Federal Trade Commission and the Consumer Financial Protection Bureau ― are weak. So the credit-reporting regime to which we’ve entrusted our identities and our commercial lives remains opaque and vulnerable to abuse.
Credit bureaus have been around in some form since the 19th century. The trade was once known as “business intelligence” and had its roots in international commerce, the military and domestic credit. From the early days, the language of the industry ― “bureaus,” “intelligence” ― carried a whiff of government work. As one writer put it, the network of credit bureaus was the National Security Agency of the 19th century.
As with any set of organized commercial relationships, biases and prejudices were and are baked into the credit bureaus’ rules and the kinds of information they gathered. Being black, being gay, being a single woman or having strong political opinions ― prior to 1970, all of these things could make it much harder to get a job, secure credit, get a loan, buy insurance or fend off a police investigation. During World War II, credit reporting agencies sustained their businesses by running loyalty checks for the military ― and that relationship continued after the war. Tens of millions of Americans were subject to background checks for both political and private reasons.
Equifax used to be called the Retail Credit Company. The early credit bureaus were largely local, a sort of old boys’ network of local bankers and local merchants. Retail Credit, founded in 1899, was national. On behalf of insurance companies, banks, employers, government agencies, police or anyone else willing to pay, it would research your medical conditions, your sexual habits, your drinking patterns, your morals.
Writing in the 1960s, journalist Vance Packard noted that credit reports could include things such as the “subject’s college grades or the stability of his marriage.” One report by an investigator assigned to check on a young woman seeking to insure a piece of jewelry said, “This man who plans to marry Subject doesn’t know that she has been playing around with the two other men that I’ve seen her with in recent weeks.”
As Packard reported, investigators looked into such questions as, Did the credit-seeker have “night-club exposure”? Did they associate mainly with their own class? Did they engage in deviant or eccentric behavior? There was a bias against women of childbearing age who owned businesses on the logic that a love affair gone sour might cause them to “become unstable.” Was the subject foreign-born? Foreign-born people “may not yet have become subscribers to the American scheme of life. Sometimes their ideas of ethics may be non-American.” Was the subject an “extreme liberal”? Democrats and Republicans were OK, but did the subject think Communists had as much a right to talk as anyone else? Was he a Southern Democrat or a liberal Democrat? Was she someone who might be active in the fight for integration?
In other words, far into the 20th century, credit bureaus helped to enforce a dense network of social rules by which business institutions understood and manipulated American culture. Meanwhile, the mass of people didn’t know and weren’t allowed to see the contents of their credit files. There was no due process involved.
Credit has always been organized around social norms. Black and white sharecroppers in the 19th century were subjected to unfavorable interest rates and credit conditions to subvert their liberties. The 30-year fixed-rate mortgage was a liberating force for white families in the 1950s at the same time that tight credit conditions for black families were a means of racial control.
From the 1950s onward, politicians would get complaints from people whose lives had been ruined by bad credit reports. A salesman might have gone a decade without getting hired. He’d heard from a sympathetic employee at a credit bureau that his file contained something untoward. It seemed a nosy neighbor had complained to an investigator about excess noise in his apartment, and into his credit file that complaint had gone. All of the McCarthyite biases were baked into the American business community, so credit bureaus tracked them, too. This imposed, as Retail Credit’s CEO put it in 1968, a “discipline” on the American citizen.
What changed in the 1970s was essentially the computerization of money and identity. Americans had seen computerization coming much earlier than they’d predicted the problem of data. There were a host of congressional hearings and books on databanks and American society in the 1960s. In 1974, Congress nearly embedded in the Privacy Act the authority for a federal agency to regulate all databases, but this was pulled out at the last minute (or so I’m told) as a favor to a Republican staffer helping with the conference committee negotiations.
The boom in credit card use in the late 20th century took structured data and turned it into power. It also knitted the country together into one national credit market from a fragmented set of local ones. The emergence of a national mass consumer credit market was not just a technological change, but a political one.
Credit cards were originally just for the fancy set. Think Diners Club and American Express. But in the 1960s, BankAmericard (now Visa), suffering from low adoption rates for its card, mailed millions of unsolicited credit cards to individuals. Not applications for credit cards, but the cards themselves. A crime wave ensued. Trucks full of cards were driven away by organized crime. People who received the cards didn’t know how to use them. Many thought the cards were simply a way to get free stuff; they didn’t realize they’d have to pay the bill later. Bank of America’s IT systems were a mess, and fraud was off the charts. The bank posted massive losses.
This expanding credit card industry obviously needed a way to validate identities instantly. It needed a computer network, and that meant the fragmented credit bureaus, with their long files full of statements from nosy neighbors were useless.
Enter the Fair Credit Reporting Act of 1970 (and a later law regulating debt collection practices). FCRA was the first federal law regulating the use of data, and it was part of the thicket of legislation inspired by the civil rights movement. The Democrat who led the congressional hearings, Rep. Leonor Sullivan of Missouri, was the only woman on the House Banking Committee. (She was kicked out of her position as a subcommittee chair in 1975, along with her patron, Banking Committee Chairman Wright Patman of Texas, by the post-Watergate generation of Democrats.) FCRA essentially treated the consumer credit network as a public utility, embedding a new set of norms. These included anti-discrimination principles, rules on sharing information and rights that people had to their data.
However, after a bitter fight, the new law didn’t place liability for errors ― an enormous data breach, for instance ― on the credit bureaus themselves. That’s how we got the mess we’re in today.
Today, credit cards are in many ways an essential, if informal, part of American citizenship. In 1970, just 16 percent of the country held credit cards. In the early 1990s, fewer than 5 percent of supermarkets took credit cards. Now everyone has them and everyone takes them. As they say in the industry, with a credit card you can buy a car; without a credit card you can’t even rent one. (I have a pet theory that the rise of credit cards in earnest is one reason for the dramatic drop in street crime since the 1990s.)
Visa and Mastercard are not merely businesses; they are for-profit regulators of the payments system, the first real modern platform monopolies built on big data. And so are the credit reporting agencies, which enjoy a cartel arrangement with the credit card companies, verifying and validating and tracking to make sure everyone knows who is paying for what. Visa, for instance, has rules and regulations for its network, which intermediates between millions of businesses and cardholders. It can and does fine merchants and banks for breaking these rules. It handles counterfeiting problems. This really is government work, except that it’s for-profit and not subject to Freedom of Information Act rules and public oversight.
While FCRA is far from perfect, the shift from social relationships to structured data drove a real change in the politics of credit allocation. FCRA was a law written by liberals who wanted to stop discrimination by the business community, and while it didn’t eliminate that, it had a massive impact in stopping overt racism and sexism actualized through credit channels. Equifax is not the same company it once was; it does not ask your neighbors about your morals, your sexual partners or whether you have strong political opinions about Black Lives Matter. A vibrant national and international credit market now exists. We think nothing of traveling abroad and using credit cards to pay for goods and services. The plumbing to manage all the payments and identifications works. Discrimination is not allowed, at least not overtly, and debt collection, while awful, is somewhat regulated.
But the problem was never really the collection of the data itself; the problem was the power to exploit. In a credit economy, we have to track each other. What are the rules for that tracking? What are its uses?
Safeguarding medical information, for instance, matters in any context, but it is critical when insurers are permitted to screw you over pre-existing health conditions. It’s also incredibly dangerous if your doctor can’t easily access your medical information because of onerous privacy rules or badly designed systems.
Usury is another example of abuse. One of the ways that credit card companies compete is in finding people who are impulsive, innumerate and not likely to realize they are racking up big fees. But that’s not a data problem, per se. That’s a market structure problem. A credit card is two products bundled together ― it’s an access point to the payment system tied to your identity, and it’s a revolving credit line or a link to your bank account. There’s no reason to tie those products together.
Indeed, it would probably be a good regulatory model to separate them and force financial services companies to compete over the purveying of credit for low prices rather than over the identifying of customers likely to rack up late fees. If you block the ability to exploit, data protections become less important.
The basis of credit and commerce is discipline: You owe something to your creditors when you borrow money. And you can’t have a commercial society if you can’t identify who is accruing debts. You can’t deposit salaries in people’s accounts if you can’t identity who they are and which accounts are theirs. Merchants, workers and banks can no longer simply engage in cash transactions. Every time you pay for something with a card in a store, every time you order something online, you are subject to rules that make your commercial life easier.
What was creepy about the old version of credit bureaus was not that they tracked people, but that the rules were consistent with a racist, sexist sensibility that we have discarded. It’s not that data was collected; it’s that data was used to exert power and manipulate people in ways we find abhorrent.
So we can’t simply throw up our hands and say, “Blech, credit bureaus are terrible.” Politics flow through commercial institutions like them. Their rules structure our social relationships, touching on class, race, gender, sexual identity and income. It is time to recognize that. We have a due process right over our credit history because political leaders in the 1970s made sure that we did. Let’s honor their legacy, and restart the debate over how our commercial lives are governed.
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