How Vast Error-Prone Databases Are Trashing Our Economic Lives

Our personal information is compiled, traded, analyzed, and sold off as never before. Not only do business and government track us online, but retailers trace our cell phones through stores, and vast, little-known databases can keep us from getting jobs, qualifying for loans, and opening bank accounts. Three news reports this week highlight the growing impact of these databases on our daily lives—and the critical need for oversight to ensure that information is compiled accurately, that errors can be fixed, and that the resulting data is used fairly rather than becoming a new means of discrimination against already-disadvantaged citizens. The Consumer Financial Protection Bureau, whose director was finally confirmed by Congress after more than two years of delay, will have its work cut out for it.

Consider the report in today’s New York Times finding that more than a million low-income Americans have been denied the opportunity to open bank accounts because of little-known databases that penalize them for sometimes minor banking mistakes in their past, including bouncing checks, overdrawing bank accounts, and accumulating fees. Blacklisted from opening bank accounts, many consumers turn to high-cost check cashing operations, wire services, and prepaid cards, which drain their paychecks and make it difficult to save money. While banks have a legitimate interest in deterring fraud, a lack of proportionality and the challenge many consumers face in correcting errors can cripple access to a fair marketplace for basic financial services.

The Times recounts the story of Brooklyn resident Tiffany Murrell, who was locked out of the banking system because she overdrew her bank account by “roughly $40 in June 2010.” Although she repaid the amount—plus interest and fees—before applying for a new account, Murrell was repeatedly turned down for a new account.

And what if the alleged financial transgression wasn’t even yours? Julie Miller of Oregon worked for years to get credit-reporting giant Equifax to correct a mistake in its vast database that resulted from the company mixing up her file with the records of a different Julie Miller. The consequences were serious: "There was damage to her reputation, a breach of her privacy and the lost opportunity to seek credit. She has a brother who is disabled and who can't get credit on his own and she wasn't able to help him," explained Justin Baxter, the lawyer she ultimately retained to sue the company. This week Miller won $18.6 million in damages against Equifax, as the U.S. District Court ruled that the corporation had violated the Fair Credit Reporting Act’s requirement that credit-reporting companies assure maximum possible accuracy of the information in consumer reports and other requirements.

As I have noted previously, errors in credit reports are all too common. A recent study by the Federal Trade Commission found that 21 percent of credit reports contain material errors and that as 10 million Americans have errors in their credit reports so serious that they would likely pay more for auto loans or other credit, or could be shut out entirely. The ruling in Miller v. Equifax suggests what advocates have been saying for a long time: the major credit-reporting companies have been grossly violating their obligations under the Fair Credit Reporting Act for decades and the CFPB cannot act quickly enough to clean up the industry.

At least the FBI’s criminal records database should be the gold standard of accuracy. After all, as The Washington Post points out, employers rely on it to ensure that child sex offenders do not get hired to work at day-care centers, for example. Yet a new report from the National Employment Law Project finds that half of the FBI’s records are faulty. The study, conducted by Madeline Neighly and Maurice Emsellem, concludes that “1.8 million workers a year are subject to FBI background checks that contain faulty or incomplete information, and 600,000 of those workers may be prejudiced in their job search because the positive outcome of their case is not reflected in the FBI record.” African Americans, who account for a disproportionate percentage of the nation’s arrests (many of which never lead to conviction) are particularly harmed by the flawed records. In this case, Congress must step in to ensure more accurate background checks.

The increased collection and parsing of personal information may be a fact of life, but inaccuracies, hard-to-correct files, and misuse of data is not inevitable. Americans have a right to expect that Congress and the CFPB take action to ensure they are treated fairly.

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