Posted On: May 29, 2008, 1:13 pm CDT

Posted By: Bill Rempel

There is no doubt in my mind of the following:

1. The credit report contains information that, even after adjusting for proper rating of traditional risk variables, is useful;

2. We in the industry do a lousy job of properly rating on traditional risk variables;

3. The credit scores marketed by FICO et al are biased by age and income, and like it or not, income in this country is biased by ethnicity, so that bias transfers;

4. The credit reports COULD HAVE BEEN USED to develop algorithms that were simpler, easy to understand, and were free of the income and age biases;

5. The credit reports WEREN'T used to develop said simple algorithms, because simple doesn't sell, and FICO et al want to sell their scoring models! An illusion of superior ability at data mining, gained through the "optics" of high complexity, sells better than providing simple models with open disclosure, even if it really isn't an better in rating;

(and YES, I have seen inside the "black box")

6. We as an industry knotted our own noose by telling the regulators and the public that the (OVERLY COMPLEX) credit-scoring models were "black boxes" that just worked, darnit!, and you don't DESERVE to see what's in 'em! Oh, yeah, THAT was a strategy that endeared itself to public support!

Further, I don't care particularly much if any individual state allows, or doesn't allow, credit information, any more than I care if they allow or don't allow rating on age, driving record, or gender. The fact of the matter is that, as long as all carriers have the same rules to play by in any given state, the winner will be the one who blocks and tackles better than the losers block and tackle, and when rules change, the most adaptable companies will win.