Consumer Insights

Fun With Failed Credit Scoring

While payments peeps and financial services fans spend an awful lot of time contemplating the greater mysteries of the credit scoring system in the United States, the average American really doesn’t spend all that much time thinking about it.

Unless, of course, they are in the market for a loan. But put a pin in that thought for just a second.

There is a very good reason for that credit scoring. While it is incredibly important to the financial services system, it is not an incredibly interesting topic.

Most reasonably intelligent people understand that having a reliable rubric by which to combine information about an individual’s past payments history, borrowing capacity and length of time using credit is necessary for any lender to make a decision to extend credit. The point of lending money is to get it paid back. So, no one would argue that having reliable tools by which to assess risk is not central to the financial system.

So, a conversation about a well-run, consistently reliable system that assigns credit scores logically 100 percent of the time is not exactly going to be a barnburner.

That same system running dysfunctionally on the other hand? That is a laugh riot — as long as you are not the victim of the dysfunction.

And though you may find yourself doubting this premise — saying there is nothing funny about credit scoring run amok — we have proof. This conjecture is not simply the weird sense of humor of financial writers; the dysfunctions of the credit scoring system in the U.S. made the headline news spot in Sunday night’s episode of “Last Week Tonight with John Oliver.”

Yes, folks, this week, payments and commerce were cutting edge enough to make the top story on his version of “The Daily Show,” which is so edgy that regular television can only contain it once a week.

So, what about the credit scoring system caught the attention of England’s version of Jon Stewart? Well, remember that pin we asked you to put in the consumer looking for a loan? Well, pull that out now, because, as it turns out, when credit scoring goes wrong, it goes horribly, stupidly and, apparently, irresolvably wrong.


When Things Go Wrong, They Go So, So Wrong

For those that don’t have time to watch, Oliver’s main focus was the big three credit scoring agencies and their various depredations against consumers and common sense itself.

The show notes that the system is designed, sensibly, to screen people for loans and financial products but also quickly notes that the scores are used widely for other purposes. And that is by the design of Experian, Equifax and TransUnion, who very specifically target the services to employers as a screening tool for potential new employees.

And it’s a pitch that has caught on, Oliver noted, since 47 percent of employers are now using credit checks, despite the admission (seen around minute four) by employees of these agencies that there is no demonstrable link between employee performance and credit scoring.

“He’s saying there is no proof of a correlation, but you’re free to imagine there is. That is not a strong argument. I can imagine that eating alphabet soup will increase my vocabulary; that does not make it indubitable.”

But even if it were an appropriate tool, which Oliver notes there are several reasons to doubt, it would only be so if it were an accurate tool. Some estimates say that 25 percent of Americans have errors on their credit reports, and one in 20 have really serious errors that will prevent them from receiving loans at all.

And then, Oliver began giving his viewers a guided tour of those serious issues.

Judy Thomas had the debts of a different person with a different name — Judith Kendall — appear on her credit report. Amit Patel shares a name with someone on the FBI watch list, such that when a potential landlord pulled his credit report, it literally had the word “terrorist” on it. The prize for the worst story went to Helen McGill who was erroneously reported as dead by all three credit bureaus.

To make matters worse, even after hiring a lawyer, Judy Thomas was unable to get the credit bureaus to remove Judith Kendall’s information from her report, and Helen McGill was unable to appeal because the big three credit bureaus do not hear complaints from dead people — even if that dead person is on the phone, has hired a lawyer and is very obviously not dead.


Turnabout Is Fair Play

After noting consumers’ issues with the various credit agencies, Oliver decided to take the kind of surreal revenge that a stand-up comedian takes on a financial services firm. He decided that turnabout is fair play and created three fake companies., and Because we are a serious and safe-for-work publication, we can not explain what the companies do. Feel free to click the NSFW links if you see fit.

Suffice to say, these are horrible companies, with horrible mission statements, that could be easily confused by a poor speller in search of their credit score. Most will understand it is a joke. Oliver notes that. But some won’t.

“It would clearly be an absolute disaster for the credit agencies if they were mistaken for any of these companies but don’t worry, I’m sure that won’t happen 95 percent of the time. And apparently, that’s good enough, right?”


But Better Innovation Is Better Revenge

John Oliver’s approach is certainly funny and will be satisfying to anyone who’s ever fought a long-fraught battle to get their credit report cleared up.

But even though this stunt may annoy the big three credit rating agencies and light up their Twitter feeds in colorful ways for the next several weeks, it doesn’t have the same power to hurt them the way a messed-up credit report hurts a consumer. John Oliver is a well-liked and reasonably widely watched comedian, but markets don’t exactly move on his command.

But less attention-grabbing than revenge as a dish served cold — and really weird — is innovation that runs the risk of capitalizing on a long history of mediocrity among credit agencies and lending products that don’t rely on their scoring systems.

Because consumers and comedians aren’t the only ones who’ve noted that the FICO-based systems that the credit agencies use — even when used perfectly — maybe aren’t all they’re cracked up to be.

“FICO-based underwriting doesn’t do a very good job of answering two questions: ‘Can you pay us back, and if you can, will you pay us back?’ And that’s what we’re really good at seeing, because we look at thousands of small data clues that give us the answer,” Doug Merrill, CEO and founder of ZestFinance (and former CIO of Google), told PYMNTS in a recent interview.

Those innovators noticed the problems with both the underlying logic and the system — and the execution issues of the big three — and have offered as part of their value proposition that they won’t deny you for stupid reasons, because they use their own very smart, proprietary algorithms to assess your creditworthiness.

They may not boast a 100 percent success rating, but all of those services offering real-time data point monitoring by watching eCommerce interactions and social media usage as part of their scoring software can minimally point out that they will never accidentally classify you as dead or someone with a different name who lives in a state you’ve never been in.

So, maybe creating the silly companies was a fun piece of revenge, but getting word out that the credit agencies can’t do the job right, that might just be the more effective thing John Oliver did on Sunday.

Because enough failing confidence creates a space for one of the dozens of risk mitigation innovators to step forward and fill it.



The PYMNTS Cross-Border Merchant Friction Index analyzes the key friction points experienced by consumers browsing, shopping and paying for purchases on international eCommerce sites. PYMNTS examined the checkout processes of 266 B2B and B2C eCommerce sites across 12 industries and operating from locations across Europe and the United States to provide a comprehensive overview of their checkout offerings.

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