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Danielle Citron Contributor


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The Blacklist's Power

When Myron Brenton published The Privacy Invaders in 1964, the public was in a full-throttled panic about “Big Brother” databases. Brenton exposed the practices of credit investigators, banks, insurance companies, claims adjustors, executives, and corporations compiling and sharing digital dossiers with sensitive, at times inaccurate or distorted, information about millions of individuals. Those “secret dossiers,” he wrote, are too often “collected unnecessarily, excessively–and/or misused.” As one of countless examples, Brenton wrote about credit bureaus’ blacklists of credit risks’ “danger signals.” Among the danger signals were living in a furnished apartment, “not carrying a regular checking account,” and generally unstable, hazardous or transient occupations like bartender, dishwasher, taxi driver, longshoreman, and other.

The panic grew louder in the 1970s. After publishing Privacy and Freedom in 1967, Professor Alan Westin and a team of researchers studied governmental, commercial, and private organizations using databases to amass, use, and share personal information. Their report, Databanks in a Free Society: Computers, Record-Keeping, and Privacy, made clear the extent to which public and private entities had been building computerized dossiers of people’s activities and the risks to economic livelihood, reputation, and self-determination. Professor Arthur Miller, writing in 1971, warned that comprehensive “womb-to-tomb” dossiers locked us in “record prisons” that endangered our basic freedoms.

A relic of the past? Wish it were so.

Information privacy protections were built into legislation enacted in response to the dangers outlined by Brenton, Miller, and the extraordinary Alan Westin. In 1970, Congress passed the Fair Credit Reporting Act (FCRA) because it was rightly worried that “growing databases of personal information could be used in ways that were invisible and harmful to consumers.” FCRA introduced some procedural regularity to credit consumer reports that impact people’s eligibility for credit, jobs, and insurance. It obligated consumer reporting agencies to ensure that credit histories were accurate and relevant. Consumers have the right to inspect their credit records, to demand corrections, and to annotate their records if disputes cannot be resolved. In 2003, Congress required credit bureaus to disclose credit scores to individuals in exchange for a fee capped by the FTC. Under the Equal Credit Opportunity Act (ECOA), lenders cannot discriminate in lending. Regulation B sets forth specific data that cannot be used in credit scoring systems, such as race, color, religion, national origin, sex, public benefits status, likelihood that a person will bear or rear children, and different standards for married and unmarried persons.

This all sounds terrific, but FCRA and ECOA can be an ineffective tool to address today’s digital dossiers and scoring systems. As the New York Times reported yesterday, banks use databases listing individuals who have overdrawn their accounts or bounced checks. When individuals are included in ChexSystems (the most massive of such databases), they are, for all practical purposes, prevented from opening bank accounts even if they paid back the money they owed. ChexSystems is used as a blacklist, preventing individuals from overcoming past mistakes and youthful indiscretions. The New York Attorney General has launched an investigation of how banks use these databases and is expected to announce that Capital One has agreed to change the way it uses ChexSystems. The Consumer Financial Protection Bureau is also checking into banks’ use of speciality consumer reporting agencies.

Why doesn’t FCRA work well to combat these blacklists? Most people don’t know to ask about them to ensure their accuracy. And ultimately it is up to banks to decide if they want to defer to consumers’ inclusion on blacklists. Banks claim that inclusion in the ChexSystems database is only one factor in their decision-making. But as work on automation bias demonstrates humans tend to credit automated recommendations. Banks seemingly are doing just that despite protests to the contrary.

Then too, FCRA and ECOA covers only a small sector of blacklists and scoring systems. As I will describe in a later post, the marketplace is riddled with private sector scoring systems that ultimately have a profound impact on people’s lives even though they don’t directly impact eligibility decisions. The Federal Trade Commission has voiced its concerns about scoring systems under its statutory authority to combat unfair trade practices under Section 5 of the Federal Trade Commission Act. Unfair consumer practices involve conduct that substantially harms consumers, to which consumers cannot reasonably avoid, and whose benefits do not outweigh the harm. FTC Chairwoman Edith Ramirez put in well when she noted that scoring algorithms judge individuals “not because of what they’ve done, or what they will do in the future, but because inferences or correlations drawn by algorithms suggest they may behave in ways that make them poor credit or insurance risks, unsuitable candidates for employment or admission to schools or other institutions, or unlikely to carry out certain functions.” In her view, predictive correlations amount to “arbitrariness-by-algorithm” for mischaracterized consumers. Indeed.




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