Is it time to overhaul the credit reporting system?

Time and again, millions of Canadians’ personal information has been stolen or leaked in data breaches, and the credit reporting agencies that profit by amassing this sensitive data are no exception. With consumers wondering how much of their information is in the wrong hands — or is simply inaccurate — there are calls to review a system that some say is flawed.

One of the loudest is coming from south of the border, where Democratic leadership candidate Bernie Sanders is proposing an end to privately run credit bureaus, and the launch of a public agency that would prioritize the accuracy of individual consumers’ reports.

Sanders pointed to a report by progressive think-tank Demos, which advocates for an overhaul of the current system, saying the U.S. could build on a model already being used in some European countries.

“It would remake a sector of our economy and it would enhance opportunity, and economic stability for millions of people,” says Amy Traub, associate director of policy and research at Demos. “People are ready for a fairer system of credit reporting.”

“It would be set up to serve consumers and also to be giving lenders accurate information,” she says. “The credit reports, the credit scores and the algorithms that are used to determine whether you would get a loan or not, would be free to all of us.”

Mistaken mortgage

In 2018, Kyley Aubin took up an offer from her bank to access her credit history for free, and what she found on her report was baffling.

The biggest surprise: a home mortgage linked to her account, though she’s a lifelong renter. After a closer inspection, she realized that the mortgage and other personal data belonged to another person — her twin sister. Somehow their credit histories had been mixed.

“I’ve been with this bank for my whole life,” Aubin says. “I was shocked that this kind of breach of confidentiality could happen with something so important as your credit score, and with your different credit history being combined with someone else’s.”

Aubin, who lives in Ottawa, is unsure how long her credit history had been compromised, but says it took a few months to resolve the issue with her home branch back in New Brunswick.

When she filed a complaint with the credit agency, she tells CityNews that the company told her they couldn’t provide her with any information and she was instead advised to write a letter asking for an inquiry into the incorrect credit report she received.

“I don’t think they had any idea of what was going on, it was extremely difficult to deal with,” she says. “Just the idea that there had been a breach of confidentiality, and no one wanted to take responsibility and no one wanted to help us.”

While Aubin was able to access her credit history during this time, her twin sister couldn’t, leaving them both concerned over the security of their personal information. It’s a concern that other experts have also expressed, and in this case, Aubin isn’t even sure how her data was mismanaged and what impact it will have in the future.

“It could have a lasting impact on my credit score, because it shows a lot of inquiries into my credit score which negatively impacts my credit score,” Aubin says.

Canada’s credit agencies

Millions of Canadians use Equifax Canada and TransUnion Canada when getting mortgages, buying vehicles or applying for credit cards and loans.

On file is sensitive personal information, including social insurance numbers, details on loans, bills and repayments and a log of who has accessed your file.

Your credit report can be accessed by a wide variety of parties, including lenders, creditors, insurance companies, landlords and even employers.

In many cases, these parties don’t have to ask your permission to access your information. So when there are inaccuracies in someone’s credit history, lenders can get the wrong impression of a person’s creditworthiness, without the person being aware or having the opportunity to correct misconceptions.

Earlier this year, TransUnion said it launched an investigation after the personal data of 37,000 Canadians may have been compromised. A hack on Equifax back in 2017 left 147 million people exposed, including 19,000 Canadians.

CityNews reached out to both credit agencies last week to ask about concerns over data security and the credit reporting system, and neither provided a response.

There has been criticism that the current system not only leaves users vulnerable to hacks, but isn’t responsive to people who report errors, as Aubin did.

“It’s a big deal because the information that’s in a credit report is information that’s also used in credit scores,” says Josh Lauer, a professor at the University of New Hampshire. Lauer has written a book on the history of the credit system.

He cites a recent U.S. government study that found one in five credit reports had errors. The U.S. has three major private credit reporting companies, including Equifax and TransUnion.

Demos says its proposed public registry would prioritize security and accuracy by empowering consumers to dispute false information and introducing more stringent fines on credit reporting agencies. The consumer would also have the power to decide who gets to check their credit history.

Credit Counselling Canada, a not-for-profit organization that helps Canadians navigate their financial options, has had relationships with both Equifax and TransUnion. The company’s CEO, Scott Hannah says both companies have been responsive in resolving matters in a timely basis and have acted responsibly.

“They want to make sure they’re providing accurate information to their customers, who are creditors, banks and credit card companies,” he says.

“We just need to understand that data breaches are going to happen, it’s a matter of being on guard and taking steps to protect ourselves. We’ve got a personal responsibility, because it’s our credit and our name.”

Hannah believes Canadian rules are strong enough to protect consumers from the effects of breaches and hold credit reporting agencies accountable for the information they store. He says while his offices receive upwards of 100,000 complaints from Canadians annually, much of that would be resolved with consumer education.

“Where both of these credit agencies can do a better job, is through consumer education,” he says. “Get behind initiatives to really help Canadians improve their level of financial literacy, and having the confidence to make good decisions.”

Racial bias in credit scores

Demos’s report details how historical and structural racism contributes to higher interest rates and insurance costs for Black and Latinx people, compared to white Americans.

The higher cost of borrowing, in turn, results in higher rates of debt collections in these communities, the report finds.

“As a result of generations of discrimination, black households and other households of color have access to dramatically fewer resources than their white counterparts to fall back on in a time of need,” of the report reads. “As a result, black families are more likely to face financial stress, resorting to unsustainable levels of debt or leaving certain bills unpaid.”

A public registry, Traub argues, could reduce racial biases by changing the way credit scores are calculated. The model would detail what data is included in an individual’s reporting history and could exclude items that disproportionally effect communities of colour, such as predatory loans.

Find out more about how to check your credit information here.