When Sergio Ramirez stepped into the showroom of a Nissan car dealership in Dublin, California back in February 2011, he had no way of knowing he was about to be denied a car loan, labeled as a potential terrorist, and would end up being the lead plaintiff in a case before the United States Supreme Court 10 years later. But thanks to a credit reporting system set up to fail American consumers, with the worst consequences for consumers of color, that’s exactly what happened.
When Mr. Ramirez and his wife applied for a loan to buy a new car that winter day, a dealership employee ran a credit check and informed the shocked and embarrassed Mr. Ramirez that he had been flagged as a potential terrorist or drug trafficker, and so was barred from receiving a loan or otherwise doing business with a U.S. company. Ultimately, the car loan was made in the name of Mr. Ramirez’s wife, with his name excluded from the application.
Sergio Ramirez was neither a drug trafficker nor a terrorist. Yet he had been identified as a probable criminal because a company contracting with the consumer reporting agency TransUnion matched him with suspects on the U.S. Treasury Department’s watchlist of “Specially Designated Nationals” based on his first and last name, without checking any additional information such as his middle names or date of birth, which were clearly listed on the same credit report. After Mr. Ramirez eventually succeeded in getting himself removed from the watchlist, he sued TransUnion for its transparent failure to meet its obligations under the Fair Credit Reporting Act to “follow reasonable procedures to assure maximum possible accuracy.”
Other than the prospect of a massive and costly class action lawsuit [,] TransUnion has little incentive to invest in making its credit reports more accurate and avoiding serious mix-ups like the one he experienced.
The case illustrates a key way that the credit reporting system is tilted against U.S. consumers. Other than the prospect of a massive and costly class action lawsuit such as the one Mr. Ramirez eventually initiated, TransUnion has little incentive to invest in making its credit reports more accurate and avoiding serious mix-ups like the one he experienced. After all, it is lenders—not American consumers—who are the customers of TransUnion and other credit reporting companies. Thus Mr. Ramirez had no leverage as a customer and no choice but to rely on TransUnion when he walked into the dealership seeking to buy a car. The firm had him at its mercy.
By commanding a slice of the nation’s financial infrastructure, determining who gets a loan and who is branded as a terrorist, TransUnion and fellow credit reporting giants Equifax and Experian exercise arbitrary power over Americans’ lives and life chances. Taking back control of this infrastructure is the core reason why I contend that the U.S. needs a public credit registry with consumers’ interest at its heart.
I’ve argued that a public credit registry is especially critical for increasing racial equity in credit reporting, as the current system puts Black and brown consumers at the greatest disadvantage.
I’ve argued that a public credit registry is especially critical for increasing racial equity in credit reporting, as the current system puts Black and brown consumers at the greatest disadvantage. In an amicus brief on the Ramirez case, my Demos colleagues joined UC Berkeley Center for Consumer Law and Economic Justice and the Housing Clinic of Jerome N. Frank Legal Services Organization at Yale Law School to explain how. They argue, among other things, that “name-based matching disproportionately misidentifies people of color,” in part because traditionally Latinx surnames, like Mr. Ramirez’s, predominate on the Office of Foreign Assets Control (OFAC) watchlist. According to the brief, “higher degrees of name clustering among communities of color, coupled with the high frequency of Hispanic surnames in the OFAC list suggests that Hispanic and Arab Americans and immigrants are particularly vulnerable to TransUnion’s practice of using solely name-matching to pair the list with its consumer data. The result is that ethnic minorities in the U.S. are disproportionately vulnerable to being harmed by TransUnion’s practices.”
What’s more, the brief contends, the harm of being mistakenly identified as a terrorist or drug trafficker may be greater for consumers of color because “these accusations implicate stigmatizing stereotypes that have particularly serious psychological and legal implications for consumers of specific ethnic and cultural backgrounds.”
Remedies for racial discrimination in credit reporting often focus on the sources of credit data that are incorporated into or omitted from credit reports or scores. For example, excluding predatory loans that target communities of color might more fairly represent the true creditworthiness of Black and brown consumers, as would allowing consumers to opt-in to including rental or utility payments in their credit reports.
Considering data sources and how they are weighed in credit scoring is indeed vital. But TransUnion v. Ramirez illustrates how the more prosaic mechanics of credit reporting—such as the system used to match consumers to credit files (and in Ramirez’s case, a terrorist watch list)—also operate in ways that harm consumers and disproportionately disadvantage Black and brown consumers. The public credit registry must tackle all aspects of the system, putting fairness and equity at the center of credit reporting.