credit scores – Techdirt (original) (raw)

Crowdfunded OpenSCHUFA Project Wants To Reverse-Engineer Germany's Main Credit-Scoring Algorithm

from the opening-the-black-boxes dept

We’ve just written about calls for a key legal communications system to be open-sourced as a way of re-building confidence in a project that has been plagued by problems. In many ways, it’s surprising that these moves aren’t more common. Without transparency, there can be little trust that a system is working as claimed. In the past this was just about software, but today there’s another aspect to the problem. As well as the code itself, there are the increasingly-complex algorithms, which the software implements. There is a growing realization that algorithms are ruling important parts of our lives without any public knowledge of how they work or make decisions about us. In Germany, for example, one of the most important algorithms determines a person’s SCHUFA credit rating: the name comes from an abbreviation of its German “Schutzorganisation für Allgemeine Kreditsicherung”, which means “Protection Agency for General Credit Security”. As a site called Algorithm Watch explains:

SCHUFA holds data on round about 70 million people in Germany. That’s nearly everyone in the country aged 18 or older. According to SCHUFA, nearly one in ten of these people living in Germany (some 7 million people) have negative entries in their record. That’s a lot!

SCHUFA gets its data from some 9,000 partners, such as banks and telecommunication companies. Incredibly, SCHUFA doesn’t believe it has a responsibility to check the accuracy of data it receives from its partners.

In addition, the algorithm used by SCHUFA to calculate credit scores is protected as a trade secret so no one knows how the algorithm works and whether there are errors or injustices built into the model or the software.

So basically, if you are an adult living in Germany, it’s a good chance your financial life is affected by a credit score produced by a multimillion euro private company using an automatic process that they do not have to explain and an algorithm based on data that nobody checks for inaccuracies.

A new crowd-sourced project called OpenSCHUFA aims to change that. It’s being run by Algorithm Watch and Open Knowledge Foundation Germany (full disclosure: I am an unpaid member of the Open Knowledge International Advisory Council). As well as asking people for monetary support, OpenSCHUFA wants German citizens to request a copy of their credit record, which they can obtain free of charge from SCHUFA. People can then send the main results — not the full record, and with identifiers removed — to OpenSCHUFA. The project will use the data to try to understand what real-life variables produce good and bad credit scores when fed into the SCHUFA system. Ultimately, the hope is that it will be possible to model, perhaps even reverse-engineer, the underlying algorithm.

This is an important attempt to pry open one of the major black boxes that are starting to rule our lives. Whether or not it manages to understand the SCHUFA algorithm, the exercise will provide useful experience for other projects to build on in the future. And if you are wondering whether it’s worth expending all this money and effort, look no further than SCHUFA’s response to the initiative, reported here by netzpolitik.org (original in German):

SCHUFA considers the project as clearly directed against the overarching interests of the economy, society and the world of business in Germany.

The fact that SCHUFA apparently doesn’t want people to know how its algorithm works is a pretty good reason for trying to find out.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

Filed Under: algorithms, credit scores, germany, open source, schufa

Cable Company Admits It Gives Poor Credit Score Customers — Even Worse Customer Service

from the from-bad-to-worse dept

Fri, Jun 3rd 2016 10:40am - Karl Bode

As I’ve noted a few times, telecom sector investor conferences are amusing for the simple fact that many cable executives — notably those of the old guard — haven’t yet figured out that what they say at them can be heard by the general public. As a result we’ll often see companies make candid statements they’d never say otherwise, forcing PR departments to then try and backpedal away from the comments.

The latest case in point is Phoenix-based cable provider Cable One (formerly owned by the Washington Post), whose CEO crowed to attendees of an investor conference last month that the company has figured out a way to identify poor credit customers and somehow provide them with even worse customer service than the cable sector usually provides:

“According to company CEO Thomas Might, the Phoenix, Ariz.-based MSO has deployed a “very rigorous FICI credit scoring process” on its video customers since 2013. “We don’t turn people away,” Might said, but the cable company’s technicians aren’t going to “spend 15 minutes setting up an iPhone app” for a customer who has a low FICO score.“What we found is that through lifestyle and billing analysis, we could start to pinpoint where churn and bad debt was coming from, and credit scoring started to be a really good test,” Might said.

Again, that’s a cable executive bragging that he’s now identifying you based on your credit score, and then refusing to give you quality support if you score doesn’t meet an entirely non-transparent standard at the company. While the CEO failed to detail just how deep the practice goes at CableONE, there’s several problems with this, not least of which is the fact that many people with bad credit scores may be born into such scores by no fault of their own. And many of those customers may pay their bill every month — yet under such a system would still find themselves being treated as a second-class citizen, refused even a standard level of customer service.

I spoke to several telecom sector lawyers that had mixed opinions on whether or not this is illegal. I came away with the general impression that while you might be able to hold a company to legal account for targeting customers in this way, such a case would be a steep uphill climb. Still, many of them argued that the practice was no less ugly, in that it could tend to unfairly single out communities of color:

“The use of credit score to screen potential customers is already a barrier to home internet adoption that disproportionately impacts communities of color,” says Free Press Research Director S. Derek Turner. “But what Cable ONE is apparently doing takes this to a much more dangerous territory. Because there are systemic biases that impact the credit scores of communities of color, Cable ONE is in essence adopting a policy that will result in inferior service for customers based solely on the biased credit score metric, and as a consequence, people of color will disproportionately receive this inferior service,” he added.”

Consumer advocate and telecom lawyer Harold Feld notes that as the FCC pursues new privacy rules for broadband customers, it’s possible that the rules could cover potential discrimination of this type:

“The FCC has an ongoing proceeding to apply Section 222 (47 U.S.C. 222) to broadband. For those unfamiliar with the statute, Section 222 prohibits a provider of a ?telecommunications service? from either disclosing information collected from a customer without a customer?s consent, or from using the information for something other than providing the telecom service. While most of us think this generally means advertising, it means a heck of a lot more than that ? as illustrated by this tidbit from Cable One.

ISPs opposing the FCC’s broadband privacy push have tried to argue that the FCC is unfairly singling out ISPs while ignoring the data collected by the likes of Google and Facebook, which companies like Verizon and Comcast hope to increasingly compete with on the ad front. However, this (usually quite intentionally) ignores the dramatically different, uncompetitive nature of last-mile broadband versus more competitive internet services markets. Feld argues that the CableONE efforts perfectly illustrate how broadband customers can’t vote with their wallets or flee to less privacy-intrusive companies, often because the cable company will be the only competitor in town:

“While broadband providers want to make this an argument about competition with other advertisers, Cable One shows us how broadband providers can ? and do ? use information obtained from customers for much darker, harmful purposes. Google can certainly obtain enough information about you to get your FICO credit score. That?s certainly bad and a privacy violation. In theory, however, I can use things like encryption and flushing cookies to protect myself from Google ? or even avoid Google entirely. In the case of my broadband provider, I have no choice. I must turn over to my provider information usable in obtaining a FICO credit score to my broadband provider so my provider can actually come out to my house, activate my connection, and bill me on a regular basis.”

So at the end of the day, a cable executive bragging about his company’s plans to use credit scores to provide worse support — may find himself a cornerstone of the FCC’s broadband privacy rulemaking process. If there’s a positive side to the whole affair, it’s that cable customer service is so aggressively abysmal already, it might just be physically impossible for cable companies to do any worse.

Filed Under: broadband, credit scores, customer service, fico scores, thomas might
Companies: cable one

from the not-free-men/women;-just-numbers dept

China’s plan to control the hearts, minds and internet connections of its citizens continues unimpeded. That’s the great thing about authoritarian regimes: rollout of mandatory programs is usually only a problem of logistics, not opposition.

The Chinese government has mandated a rating system for all of its connected citizens. It looks like a credit rating but goes much deeper than just tying a measurement of financial risk to a number. It’s a way of defining who someone in terms of the government’s desires and aims. And its desires aren’t all that honorable.

Everybody is measured by a score between 350 and 950, which is linked to their national identity card. While currently supposedly voluntary, the government has announced that it will be mandatory by 2020…

In addition to measuring your ability to pay, as in the United States, the scores serve as a measure of political compliance. Among the things that will hurt a citizen’s score are posting political opinions without prior permission, or posting information that the regime does not like, such as about the Tiananmen Square massacre that the government carried out to hold on to power, or the Shanghai stock market collapse.

This is where all the government’s moves towards greater control of the internet comes to fruition. To keep “score,” the government needs to tie IDs to online activity. Keeping the internet within the government’s walls makes it that much easier. But it’s not just online activity that will affect “citizen scores.” It’s almost every aspect of their lives.

Also used to calculate scores is information about hobbies, lifestyle, and shopping. Buying certain goods will improve your score, while others (such as video games) will lower it.

Chinese citizens who want to remain in the government’s good graces will need to balance “negative” purchases with offsetting positive purchases, most likely domestic electronics and appliances.

As disturbing this is, the truly horrific aspect of the “citizen score” is that it can be influenced by friends and family members.

It will hurt your score not only if you do these things, but if any of your friends do them. Imagine the social pressure against disobedience or dissent that this will create.

The Chinese government is introducing a caste system — one that will result in the shunning of people who can’t be bothered to keep their dissenting opinions to themselves… or just enjoy certain leisure activities. Certain people will be considered too harmful to hang out with, thanks to the government’s mandatory “citizen score.” And with anyone able to check anyone else’s “score,” the pressure to ostracize low scorers will be greatly magnified.

Most disheartening is the fact that many citizens seem to view higher scores as status symbols.

Sadly, many Chinese appear to be embracing the score as a measure of social worth, with almost 100,000 people bragging about their scores on the Chinese equivalent of Twitter.

The government’s program feeds on the natural competitive desires of human beings. There may be no official leaderboard (YET!) but with millions of easily-accessed “citizen scores,” anyone can enter this unofficial score-measuring contest. The government obviously realizes this, as it has tied perks to certain score tiers.

Those with higher scores are rewarded with concrete benefits. Those who reach 700, for example, get easy access to a Singapore travel permit, while those who hit 750 get an even more valued visa.

Klout, but for controlling the hearts and minds of a large populace.

And just in case anyone wants to feel superior about China’s decision to grade its entire populace on a mandatory curve, let’s not forget that employers and loan providers are using applicants’ social media interactions to determine their worthiness — including who they’re friends with and what those friends are posting to Twitter, Facebook, etc.

The US government may not be calling for a “citizen score,” but there have been pushes for a national ID, and government agencies are certainly using the same hiring “tools” as the private sector when considering job applications. The US government hasn’t made many direct assaults on dissent, but it does perform a lot of this same tracking behavior in the interest of national security — what with the TSA asking for bids on social media mining software and the DHS suggesting retailers voluntarily report “suspicious” purchases.

The Chinese government, however, is sending an implicit message to its citizens with this program: conform or be cast out. The smallest of carrots is dangled and members of the public — in the interest of maintaining their own high scores — will act as the stick.

Filed Under: china, citizen scores, credit scores, national identity, peer pressure, social media, surveillance

Public Citizen Suing On Behalf Of Customers Whose Credit Was Ruined By KlearGear's $3,500 'Bad Review' Fee

from the how's-that-plan-to-eliminate-negative-reviews-working-out-now? dept

KlearGear’s decision to charge a customer $3,500 for writing a negative review has finally paid off for the company. Whoever was in charge of inserting a non-disparagement clause into the site’s Terms of Sale back in June of 2012 set in motion the worst of all possible scenarios.

KlearGear’s reputation is now thoroughly destroyed. Its social media presence has been shuttered. The search results for KlearGear are unflattering, to say the least. The BBB has yanked Kleargear’s rating and opened an investigation into its tactics. Its supposed Truste validation is nothing more than a “sticker” applied to the site without the approval of the validation company. As Ken White at Popehat puts it, KlearGear is reaping the whirlwind.

The company was doing $40+ million in sales per year, if this Inc. profile is to be believed. Without reservation, I can say sales have dropped off appreciably in the wake of its stupidity being exposed.

KlearGear has become even more uncommunicative than it was back in 2010, when it decided to wreck a former customer’s credit in return for her negative review. Even back then, even before the non-disparagement clause, it was in the wrong. Jen Palmer’s (the customer who wrote the review) order never showed up and as she states, it was “impossible” to get ahold of a human being to get this fixed.

The costs of this self-made whirlwind continue to mount. Public Citizen is now suing KlearGear on the Palmers’ behalf, seeking monetary damages for the havoc wreaked on the former customers’ credit by the company’s moronic attempt to extract $3,500 from its detractors.

Public Citizen is representing Jen and John Palmer in seeking redress from KlearGear. Today, we sent this demand letter seeking three actions from KlearGear: first, clearing up John’s credit; second, paying $75,000 in compensation for the Palmers’ ordeal, which has lasted more than a year; and third, agreeing to stop using this non-disparagement clause to extort money from their customers.

As Public Citizen’s blog post points out, efforts to shut down negative reviews are far from rare, even though nearly every incident only garners these censorious entities more negative press.

KlearGear’s conduct is part of a troubling trend of businesses trying to deter negative reviews by muzzling their customers. Another example is Public Citizen’s case against a New York dentist who tried to make her patients agree, as a condition of treatment, that they would not criticize her. And TechDirt has reported about the use of such a clause in vacation rental agreements.

While a settlement would probably be preferable, it would be interesting to see this run through a trial. For one thing, it would uncover who actually runs KlearGear, something that has been carefully obscured.

Kleargear identifies itself as a division of both Chenal Brands Inc., and Havaco Direct Inc., both business entities based in San Antonio, Tex. The website itself is registered through Domains By Proxy, a GoDaddy.com site that sells private domain hosting and administrative services.

Furthermore, it would possibly shed some light on its decision to drop this catastrophic non-disparagement clause into its Terms of Sale back in 2012. That question certainly deserves an answer, considering all possible outcomes of enforcing the clause are completely negative.

Other companies, who are considering ways to curtail negative reviews, would do well to view this as a cautionary tale. If you’re fielding a lot of negative complaints, the issue is very likely with your own company, not the customers airing their grievances on the internet. Fix those problems and save your company. Any attempts to “fix” the complaints will only hurt you more.

Filed Under: credit scores, non-disparagement, reviews
Companies: kleargear

Fair Isaac Doesn't Get To Trademark Its Credit Score Scale

from the you-get-a-653-in-creative-trademark-abuse dept

Eric Goldman has the details on a case involving Fair Isaac and its (failed) attempt to claim a trademark on the infamous credit scores it offers. Obviously, you can’t just trademark numbers, but Fair Isaac tried to make the case that the scale it uses for your credit rating scores, 300-850, is protectable. The jury tossed that out, and the judge summarized:

“the jury returned a verdict finding that the alleged ‘300-850’ mark was not a valid, protectable trademark because the term ‘300-850?’has not acquired secondary meaning.”

Separately, in the meat of the case, the court rejected claims by Fair Isaac that Experian and Trans Union infringed on its trademarks with their Google AdWords advertising, noting that (beyond the fact that 300-850 isn’t trademarkable), there was no confusion on the part of consumers who saw the ads. Fair Isaac had offered up an “expert” witness to claim otherwise, but the court simply said that the expert “lacks credibility.”

Filed Under: credit scores, trademark
Companies: fair isaac