Who is Protecting Your Data?

Earlier this year, my identity was stolen.  When I called to report my problem to one of the credit bureaus, I was encouraged to sign up and pay for a credit monitoring service.  Reluctantly, I agreed to pay the monthly fee to have my personal information monitored by one of the same companies that keeps my personal information.  I’m the one that’s the victim and I get rewarded by spending time and money to protect my personal information.  What a system!

Last week, Equifax, one of the major credit bureaus, announced it had been a victim of a data breach.  Equifax estimates the personal information of 143 million Americans might be at risk.  They are offering a one year membership in their credit monitoring service to potential victims.  The conspiracy theorist in me says this is a great way to create demand for their service.  Yes, Equifax has gotten negative publicity.  The reality is, the big three credit bureaus (Equifax, Transunion, and Experian) have a nice oligopoly going.  If you need credit, and the US economy is built on credit, you need them.

But the entire system is fundamentally flawed.  Credit bureaus collect our personal information.  Financial institutions rely on that information to make credit decisions.  Consumers have to pay to access and monitor their personal information.  (Current laws allow for one free credit report per year per credit bureau.  There are also some protections if you can prove your information was compromised.)   It reminds me of one of my favorite lines from The Simpsons.   Lisa asks Homer, “If you’re the police, who will police the police?”  Homer replies, “I don’t know, coast guard?”  A link to a clip of the show is below.  Be warned: it includes other The Simpsons’ clips.  You can waste an awful lot of time on this link.  https://www.youtube.com/watch?v=Tk4yyqXi8Xc

To be fair, there are credit monitoring companies in the US that are independent of the credit bureaus.  Consumers have to pay for their services as well.  An enterprising financial services executive is going to figure out there is money to be made by protecting his clients’ data.  Firms that build this service into their offerings so customers do not see a cost will win.  Protecting data requires scale, even though scale creates a bigger risk with each potential data breach.  Expect this incident to drive more consolidation in the financial services arena.  Also expect much huffing and puffing from Congress with little action as usual.  (If you want to get really irritated, check out Equifax’s lobbying efforts.)

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