Experian’s Financial “Myths” vs Real Ways to Enhance Support for Underserved Communities

I read an editorial authored by Sandy Anderson, Executive Vice President of Data Governance / Data Privacy and Operations within North America for Experian Information Solutions, Inc. The editorial, “Three Myths Blocking the Way to Greater Financial Inclusion,” was published on July 23, 2024, on Experian’s website and some news-aggregating sites. It is available here.

As the managing partner of America’s largest consumer reporting law firm, one devoted to consumer protection and advocacy, I should tell you that Experian is one of our perpetual nemeses. Like Dorothy and the Wicked Witch of the West, Luke Skywalker and Darth Vader, Regina George and the students of North Shore High, and Felonius Gru and Maxime Le Mal. Fortunately, our conflicts revolve less around TNT, stolen nuclear weapons, light sabers, and Kӓlteen bars and more around the Fair Credit Reporting Act, the tenets of consumer law, and civil procedure. While a more accurate rivalry analog might be David and Goliath, I am pleased and proud to say that our team of attorneys maintains a strong litigation track record against giants like Experian.

In her editorial, Ms. Anderson attempts to debunk several myths related to financial inclusion and support for underserved communities. I can’t help but apply a higher level of scrutiny to her claims. When I do, it’s clear that Experian’s points miss the mark.

This is not just because the editorial had a Costa Mesa, California dateline. (The city enjoys a median household income of $104,981 versus the national median of about $68,700.) And it’s not just because we are nemeses. And not just because the editorial feels like a fitness trainer advocating for more soda machines around the gym.

It is more the substance.

In its effort to dispel three myths Experian believes block the way to greater financial inclusion, Anderson either relies on and perpetuates more myths or fails to acknowledge reality. These so-called myths are not merely misconceptions, so clarifying them is not enough. Companies (like Experian and others in the financial sector) need to do more.

Experian Myth #1: “Financial institutions have no interest in underserved consumers or credit invisibles.”

Counterpoint: This isn’t a myth. Traditional financial institutions have little to no interest in underserved communities. This is why they are underserved.

Anderson says “banks and credit unions want to say ‘yes’ to more prospective borrowers.”

However, the ongoing need for comprehensive regulatory action requiring financial entities to engage with underserved communities says otherwise. The Community Reinvestment Act (CRA), enacted in 1977, requires banks to meet all communities’ banking needs, including historically underserved areas. This law prevents redlining and encourages banks to provide loans, investments, and services to low and moderate-income neighborhoods. Banks are evaluated on their CRA performance, and these assessments influence their ability to expand or merge.

Despite these regulations, banks and financial institutions in underserved areas exploit the lack of access to mainstream financial services by imposing fees ranging from merely parasitic to downright predatory for basic transactions like money orders, deposits, transfers, and ATM usage. For instance, money orders can cost up to $10 each, while deposits and transfers typically incur fees ranging from $3 to $15. ATM fees are particularly oppressive, with out-of-network charges averaging $4.64 per transaction in 2023.

These excessive fees disproportionately burden low-income individuals, stripping them of hard-earned money and perpetuating financial instability. Banks justify these charges as necessary to cover costs, yet profit margins indicate otherwise. This highlights a systemic issue where financial institutions prioritize profit over providing equitable services, exacerbating economic disparities and undermining efforts to uplift underserved communities.

Similarly, established banks impose disproportionately high interest rates and fees on loans to low-income borrowers, citing higher default risks and risk aversion. Anderson mentions including expanded data sources, such as on-time payments for telecom, utilities, and video streaming services to assess creditworthiness, and this is almost a step in the right direction. But it is insufficient on its own.

Not all financial institutions and lenders recognize these data sources, leading to credit assessment inconsistencies and over-reliance on status quo systems. Moreover, the reliability and accessibility of this data vary significantly and the inherent differences between utility and credit obligations make it difficult to compare the two. Paying utility bills is necessary, whereas credit card payments, while important, are not tied to essential living conditions. Yet missed credit card payments often lead to accrued interest and increased debt, exacerbating financial instability.

Plus, Experian trumpeting its reliance on utility bill payments to assess creditworthiness is fundamentally disingenuous. What voluntary submission of utility bill data does do is supply Experian with more valuable data - which it likely sells. And, in most circumstances, consumers’ voluntary data submission functions as a waiver of legal rights that results in forced arbitration should Experian somehow err.

Even assuming that Experian has an interest, cool. You have an interest. But don’t characterize this interest as altruism. Interest alone is not enough, especially when that interest is overwhelmingly self-interest.

Financial institutions still operate within and rely on a system that has historically marginalized certain communities. Implicit biases in lending practices, even when using expanded data, lead to unequal treatment. For instance, research shows that minority borrowers often face higher interest rates and less favorable loan terms compared to their white counterparts with similar credit profiles.

So, while some financial institutions have evinced increased interest in underserved consumers, mere interest does not translate into tangible benefits for these populations. A concerted effort must be made to dismantle the systematic barriers that prevent equitable access to financial services. (I identify ways Experian can help later in this article.)

Experian Myth #2: “There is a lack of trustworthy financial education resources.”

Counterpoint: Resources are of no value without access.

The availability of financial education resources does not translate to accessibility or effectiveness. We should recognize organizations like Experian that have launched initiatives like the B.A.L.L. for Life program and its partnership with the National Foundation for Credit Counseling (NFCC). But! These efforts too often do not reach the individuals for whom they are designed and who need them most. It is axiomatic that the digital divide disproportionately affects underserved communities, making it difficult for them to benefit from online resources. Many financial education programs rely on digital platforms, still too often inaccessible for those without reliable internet access or digital literacy skills.

Any financial education program must be culturally relevant and tailored to the specific needs of different communities. Generic programs that do not consider cultural nuances and language differences will fail to engage and educate effectively. Additionally, financial education is not a one-time event. Programs must provide ongoing support and follow-up so individuals can apply what they have learned and adapt to changing financial circumstances. And, low-income workers typically have less job security and fewer benefits, making time off a critical financial burden.

So, while financial education resources are available, they are not always accessible or relevant to those who need them most. To be effective, financial education programs must bridge the digital divide, be culturally tailored, and offer sustained engagement.

Experian Myth #3: “Underserved communities have few opportunities to build credit and enter the mainstream financial system.”

Counterpoint: Participation is a good first step. However structural changes are necessary for authentic inclusion.

The introduction of new credit scoring models and microfinancing options are indeed promising. However, these innovations often fail to address the underlying structural issues that keep underserved communities from accessing mainstream financial services.

As discussed previously, traditional financial institutions only exist in underserved communities because of federal regulations, and they are not required to lend money. In addition, exorbitant, predatory fees attach, which affluent communities do not have. So, the proportional cost of credit for people without money is unconscionably higher.

Tools like Experian Boost® primarily serve to provide Experian with greater access to consumer data, which in turn gives Experian greater opportunities to profit from selling that data. However, underserved individuals still face significant barriers to accessing these services, including a lack of awareness, mistrust of financial institutions, and difficulty navigating the financial system.

Broader economic inequalities, such as wage gaps and lack of access to high-paying jobs, also hinder underserved communities' financial stability. Removing the financial barriers that prevent underserved communities from accessing mainstream financial services requires more than just innovative credit scoring models; it requires comprehensive economic reforms.

The Need for Comprehensive Solutions

While the initiatives described by Experian’s Anderson represent steps toward financial inclusion, they are insufficient to dispel the myths about the challenges underserved communities face. Exprian’s effort to dispel the “myth” that banks aren’t interested in the underserved is as self-serving and nonsensical an affront to common sense as such efforts can be.

Companies like Experian and other financial institutions must go beyond the initiatives Anderson describes to serve underserved populations genuinely. Here are some key areas that require attention:

• Vet everybody. You’re Experian. You made $7.097 billion last year. You have clout. Wield it. Are you doing business with lenders, creditors, employers, and landlords who make decisions - including interest rates - based on biased artificial intelligence algorithms?
• Share. If Experian Boost only boosts Experian, then banks can’t get an accurate picture of a consumer’s creditworthiness. Share the Boost product with other credit bureaus to truly provide underserved communities greater access to credit.
• Engage. Engage directly with underserved communities (these so-called “untapped markets”) to understand their unique needs and challenges. Partner with local organizations and community leaders.
• Waive fees. Underserved populations will eagerly subscribe to credit monitoring and identity protection services to build and protect their nascent credit profiles. Why not let them do this for free? Do you really need this revenue stream, Experian? Like really?
• Financial empowerment programs. Develop comprehensive financial empowerment programs that address credit building and other aspects of financial health, such as savings, investments, and financial planning.
• Transparency and accountability. To build trust with underserved communities and increase transparency in the Experian credit reporting and lending processes, you should also regularly report on progress in serving these populations. We will hold you accountable for credit report errors. But you should hold yourself accountable for your envisioned changes.
• Economic reforms. Advocate for broader economic reforms that address the root causes of financial inequality, such as wage disparities and the lack of access to quality education and healthcare.
• Recalibrate perceptions. Experian generates revenue from underserved populations by leveraging alternative data sources to create credit profiles for those without traditional credit histories and creditors make money by extending credit to these populations. However, data from the Consumer Financial Protection Bureau indicate that consumers with subprime or no credit scores often face significantly higher interest rates (5-6 points higher) and mortgage rates (2-3 points higher) than those with established credit. Recalibrate perception to unburden them from oppressive interest rates and fees.
• Recalibrate scoring. One missed mortgage payment can reduce a credit score by 100 points. Has Experian considered the unreliability of mail collection and delivery in some areas? How about requiring lenders to send reminder texts? While we know you’re not solely responsible for FICO scores, we also know that those score calculation methods are not set in stone. How about a more thorough recalibration of credit scoring systems to reward those who participate in financial education programs? Reward savings? Why not adopt personalized and more holistic scoring for long-term housing, employment, and community involvement?
• Do more to prevent credit errors. Improving how Experian compiles and distributes its credit reports will further augment its efforts to foster trust. Experian credit report errors and credit report errors, in general, are far too common, can be financially devastating for anyone, and can be catastrophic for the underserved.

To “build lifelong relationships with a relatively untapped market,” companies must commit to ongoing efforts to understand, engage with, and support underserved communities in meaningful ways to achieve true financial inclusion.

David Chami is an experienced consumer protection lawyer, the Managing Partner of Consumer Attorneys PLLC, Co-Chair of the National Association of Consumer Advocates in Arizona, and a member of the National Consumer Law Center. Consumer Attorneys is a nationwide consumer protection law firm representing clients in lawsuits over errors in credit reports, background check reports, tenant screening reports, identity theft, debt collection harassment, and related concerns under the FCRA, FDCPA, and EFTA. Chami can be reached through the firm’s website: https://consumerattorneys.com.