Equifax Update

Courtesy of Naked Capitalism. This is an extensive takedown of the systemic problems with the entire credit reporting infrastructure. I will only hit the highlights. Yves Smith quotes The N.Y. Times:

[T]he Federal Trade Commission . . . lacks the authority to impose big fines.

Last month, the commission punished TaxSlayer, a tax preparation website, for a weak security system that allowed hackers to gain access to nearly 9,000 customer accounts. TaxSlayer agreed to strengthen its systems and undergo compliance audits. But it paid no financial penalty, because the commission has no power to levy fines for first-time violations of certain rules.

“Both in terms of resources and authority, what the F.T.C. can do clearly doesn’t measure up to the scale of the problem,” said William McGeveran, a professor at the University of Minnesota Law School who specializes in privacy law.

The essay points out N.Y. Times bullshittery:

“You cannot fire the three credit bureaus,” said Rohit Chopra, a former assistant director at the Consumer Financial Protection Bureau and now a senior fellow at the Consumer Federation of America. “Credit reporting agencies are the plumbing of our financial system but are much less regulated than many banks.” (emphasis added)

Yves Smith corrects the record (original includes multiple links):

This is not correct. Credit bureaus are not “too critical to fail” institutions. And it’s disingenuous to promote this impression, since if this security breach results in large-scale identity theft, Equifax could become an Arthur Andersen, done in by legal liability. It has a net worth of roughly $3 billion. It is exposed to private and government suits. Class action lawyers are already discussing multi-billion dollar litigation, although a complicating factor is that the best causes of action are likely to be under state law.

On the government side, one example is that Equifax violated some states’ data breach notification laws. Vermont, a small state, is contemplating suing on behalf of more than 240,000 citizens, with penalties of up to $10,000 per violation

A summary of pending legal action:

Reuters gives an update:

More than 30 lawsuits have been filed in the United States against Equifax Inc after the credit reporting company said thieves may have stolen personal information for 143 million Americans in one of the largest hackings ever.
At least 25 lawsuits had been filed in federal courts by Sunday, including at least one accusing the company of securities fraud, court records show.

Several more lawsuits were filed against Equifax on Monday. Many of those raising similar claims will likely be combined into a single, nationwide case….

On insurance liability:

And insurance won’t do much to help Equifax. Bloomberg reported over the weekend that Equifax’s policies would cover a mere $100 to $150 million in losses.

While it is true that that it would be extremely disruptive to try to get rid of the credit bureaus quickly, it would be entirely possible to reduce their importance over time. Banks would need to take up activities that they’ve outsourced to the credit bureaus.

Key points in the remainder of the essay:

How US Regulators Promoted Credit Unions Without Making Them Accountable

Bhide explains how regulators promoted the use of FICO scores, and with it, the role of credit bureaus:

Fannie and Freddie jumped on the FICO bandwagon. Bhide again:

Government Sponsored Entities (GSEs), notably Fannie Mae and Freddie Mac, that guarantee over 60% of new residential mortgages in the US.

And why has Bhide chosen to question the role of FICO? He concludes that standardized scoring was a boon for the growth of securitization in the US:

The conclusion:

Equifax is a tiny example of the many problems with our financial system that were papered over rather than fixed. So if were it to fail under the weight of litigation, that might force some overdue changes.

I have just scratched the surface of a lengthy and wonkish essay. Read the full story here:

https://www.nakedcapitalism.com/2017/09/how-us-regulators-created-the-eq...

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Comments

dkmich's picture

Suckling off our taxes, making us pay to clean up their messes, and paying off their gambling debts. Not a GD thing will happen to them - nothing ever does.

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11 users have voted.

*donate *follow us on Twitter *like us on Facebook *dump Google

Citizen Of Earth's picture

Haven't been to Naked Cap in a while. On the main page is shows "Comment Off" on all the articles. Did they make some kind of change on the site to restrict comments?

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5 users have voted.

Donnie The Douchebag. The Douchebag Who Would Be King.

Dhyerwolf's picture

@Citizen Of Earth Apparently they got a rash of really nasty comments that were bad enough that they've disabled comments for now (I didn't see the comments in question myself). It was recently mentioned that they were considering reinstating comments (but they said they would post something about it yesterday).

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5 users have voted.
Citizen Of Earth's picture

@Dhyerwolf Thanks.

Wow it must have been pretty bad. That was over a month ago. Too bad, the comments on NakedCap are really good when it comes to financial stuff. Great insights.

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4 users have voted.

Donnie The Douchebag. The Douchebag Who Would Be King.

Raggedy Ann's picture

You can’t promise the modern version of a chicken in every pot unless consumers can spend more. The preferred economic model since the Reagan era has been to let them borrow more rather than increase wages.

^^^^^THIS^^^^^
is what I tell people all the time when they whine that they cannot afford their lives. Raggedy Andy asks me why we're just making it even though we've cut the cable, cut the land line, cut the electric bill (with solar), cut cut cut, yet we're going down down down.

I refuse to borrow, but if something catastrophic occurs, I will be forced to because even with three paychecks, we're not able to save much at all.

I'm disgusted with America.

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9 users have voted.

"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

@Raggedy Ann

The people at the top are too high up to get sufficient oxygen to their brains for adequate cognitive function and are simply incapable of running an economy or anything else. (The untold reason why policy must be ground-based to serve the general population of reality-breathers.)

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1 user has voted.

Psychopathy is not a political position, whether labeled 'conservatism', 'centrism' or 'left'.

A tin labeled 'coffee' may be a can of worms or pathology identified by a lack of empathy/willingness to harm others to achieve personal desires.