Shadowy "Fourth Bureau" Mines Consumer Data
Consumers Union, the non-profit publisher of Consumer Reports, called on members of Congress last week to investigate the “fourth bureau,” an obscure corner of the private sector that collects and sells miscellaneous consumer data to potential lenders, landlords, employers, and health-care providers, all with little oversight.
In her letter to lawmakers, the head of the Consumers Union cites an expose by Ylan Q. Mui in the Washington Post.
Mui explains that the three major credit bureaus keep tabs on consumers who are enmeshed in the mainstream financial system through credit cards, mortgages, auto loans, and other debts. But what about people who don’t have that kind of paper trail? How is their creditworthiness reckonned?
The answer increasingly lies in the “fourth bureau” — companies such as L2C that deal in personal data once deemed unreliable. Although these dossiers cover consumers in all walks of life, they carry particular weight for the estimated 30 million people who live on the margins of the banking system. Yet almost no one realizes these files exist until something goes wrong.
Federal regulations do not always require companies to disclose when they share your financial history or with whom, and there is no way to opt out when they do. No standard exists for what types of data should be included in the fourth bureau or how it should be used. No one is even tracking the accuracy of these reports. That has created a virtually impenetrable system in which consumers, particularly the most vulnerable, have little insight into the forces shaping their financial futures. [WaPo]
Mui introduces us to Catherine Taylor, an Arkansas woman who was accidentally blacklisted by a forth bureau firm for someone else’s criminal charges. Her ChoicePoint report falsely stated that she’d been charged with methamphetamine-related offenses. Taylor says a stranger with the same name and birthdate racked up those charges.
The innocent Catherine Taylor only learned of the undeserved blemish on her record after she was turned down for a job at the Red Cross several years ago.
In a sense, Taylor was lucky. The Red Cross sent her a copy of her ChoicePoint record, which alerted her to the error. Otherwise, she might never have found out. Consumers have the legal right to free copies of their Big Three credit reports annually. There are dispute resolution processes to enable consumers to correct erroneous information. Not so with the fourth bureau.
The fourth bureau is a Catch-22 for consumers. There’s no official list of fourth bureau agencies, so you might be a blacklisted by a company you don’t even know about.
Taylor has hired an attorney to help clear her name, but the damage has already been done. Her blemished record has apparently been redistributed to other companies. Gatekeepers are still making decisions about her based on flawed information and there’s no easy way to correct the record once and for all. Years after the original mistake, the error has ravaged her credit rating so badly that she can’t even get financing for a dishwasher.
The fourth bureau’s verdicts are shaping the lives of some of the most vulnerable consumers, without their knowledge or consent.
The verdicts of this unregulated sector can determine whether someone ever gets access to the mainstream financial system in order to build a regular credit rating. Consumers can be stuck with higher interest rates and fees because some fourth bureau company’s secret algorithm deems them sketchy.
This kind of secrecy puts honest businesses at a disadvantage as well. They want to know if prospective applicants are good risks. Without transparency, for all they know, they might be paying for the use of a black box that operates on the Garbage In/Garbage Out principle.
The Consumers Union is right: Congress must investigate the fourth bureau.