Equifax manages 1,200 times more data than the Library of Congress. That’s why people are so worried.
The target of many of these complaints was one company, Atlanta-based Retail Credit Co. — now known as Equifax.
Among the company’s critics was an insurance executive named James T. Baker, who told a Senate committee in 1968 that he was having trouble finding a job after the company put a derogatory note in his file, alleging he had been fired for breaking the rules at his former employer. The note was incorrect, but the company refused to change it, Baker told the committee, according to media reports at the time.
The backlash against the industry led to landmark legislation, the Fair Credit Reporting Act of 1970, that now governs the way credit-rating agencies operate. But it did little to restrain Equifax’s ambition.
Nearly 50 years later, the company has grown into a data-mining behemoth that uses artificial intelligence and other sophisticated tools to help companies determine whether to extend credit to nearly 1 billion people around the world. It is a leader among a number of information giants that play a critical role in financial markets, operating largely behind the scenes.
“Look at them as sleeping giants. They make the financial industry tick,” said Keith Snyder, an industry analyst at CFRA Research. “They’re the rails that the financial train runs on. Without them, everything would grind to a halt.”
That role is suddenly in question again over the company’s handling of personal data. Earlier this month, Equifax announced that a massive data breach had exposed sensitive information, including Social Security numbers, of 143 million people to hackers, setting off complaints it has grown too big and waited too long to alert consumers.
Equifax has apologized and said it moved as quickly as it could once it understood the severity of the problem. But the scrutiny comes at a time when credit-rating companies had hoped the Trump administration would roll back regulations, including limiting the powers one of its major watchdogs, the Consumer Financial Protection Bureau. Instead, the industry is facing its biggest challenge in decades.
‘The Merchant’s Guide’
Equifax traces its roots to 1899, when two Atlanta grocery store owners, Cator and Guy Woolford, started what was then known as Retail Credit Co. by going door-to-door to collect information about people in their community. Their $25 book, “The Merchant’s Guide,” noted who in the neighborhood typically paid promptly or who shouldn’t be trusted with credit.
The guide served as a key reference to local businesses that were grappling with rapid urbanization, said Josh Lauer, associate professor of media studies at the University of New Hampshire. Traditionally, local owners knew their customers, but as people flooded into the city, that had become more difficult, he said. “They were providing a service, trying to make lending safer,” he said.
But it also set up an adversarial relationship with consumers that survives today. “Their whole history is about skepticism toward consumers, believing that consumers are trying to get over on the local businesses,” said Lauer, author of “Creditworthy: A History of Consumer Surveillance and Financial Identity in America.”
Over time, credit bureaus, such as Retail Credit, would often align themselves with law enforcement, Lauer said. Some had desks set aside in their offices for the Internal Revenue Service or Federal Bureau of Investigation, he said. “There was no firewall, no protection for consumers at all.”
By the late 1960s, the country’s thousands of credit bureaus were under scrutiny by Congress. The public was beginning to become aware of the massive amounts of data they housed, and many questioned the accuracy of the information.
Retail Credit drew particular scrutiny because of its history of working with health and life insurance companies. When building reports about whether someone should be extended policies, the company would collect information from neighbors and family members about that person’s health, reputation, and sometimes note if they were homosexual, Lauer said.
“Credit worthiness was tied to character,” he said.
After a series of congressional hearings, lawmakers adopted the Fair Credit Reporting Act, giving consumers access to their reports for the first time and requiring the companies to change incorrect data.
But even after the legislation, Retail Credit continued to see itself portrayed as a villain on Capitol Hill and in the media. In 1974, four former employees of the company told a Senate subcommittee that they were forced to falsify credit reports and meet unrealistic goals to keep their jobs, including ensuring there was adverse information about 6 percent to 10 percent of consumers to prove to their business customers that they were being thorough.
That same year, a woman sued for invasion of privacy after her auto insurance company canceled her policy because Retail Credit reported that she was living with a man “without benefit of wedlock.”
In 1975, in the wake of the controversy, the company changed its name to Equifax. The change was to “better portray a company in the ‘equitable’ distribution of facts,” according to a company statement.