"If we don't feel that they can do the job, then we will obviously look at whether we want to continue to do business with them," said an executive at a large bank who declined to be quoted by name. But a withdrawal of support for Equifax by banks would come at the cost of further reliance on the other two major collectors of US consumer credit and employment histories, Experian plc and TransUnion.
US financial industry practice usually involves collecting credit scores from all three credit agencies before bundling loans made on homes, autos and credit cards and selling the securities in debt markets. Government-backed mortgage finance companies Fannie Mae and Freddie Mac, for example, check with the three credit reporting agencies. The difficulty of ending such a practice could shelter Equifax from a sudden revolt by banks.
"Given the level of interdependence between lenders and these data providers, they have a vested interest in there being more than two and would like Equifax to still exist," said James Thomas, an analyst of corporate credit at Standard & Poor's.
"If there's only two players, then they have less ability to play them against one another" in negotiating prices for credit reports, Thomas said. Rick Smith, CEO of TriCo Bancshares, a Chico, California-based lender with $4.5 billion in assets, said it would be difficult to stop using Equifax. "The reality is we're dependent upon them, as most lenders are."
But the willingness of lenders to support Equifax is being tested by the way the agency has managed the fall out from its disclosure on September 7 that hackers had obtained access to information on 143 million people. "Most of the major financial institutions learned about it through the media," the banker said. "And, their responsiveness to customers has been slow and unclear as well. We would go down to two if we ultimately get to the point where we think that is necessary."
Equifax said in a statement that it was supporting any customers who may have been impacted by the hack. "We value our banking customers and have been in close communication with them." Until the breach was acknowledged, investors in Equifax were confident that the company's business model involved selling products that lenders need and that newcomers cannot duplicate.
The welter of financial information that the credit bureaus hold, including the borrowing practices of millions of consumers, would be difficult for anyone else to gather. Most countries have no more than one or two firms that have collected consumer credit information nationally. "To even come close to replicating them, you would need to go to pretty much every major lender in the credit ecosystem and convince them to include you in their data provisioning," Thomas said.
Because of the hacking banks may now be even more reluctant now to share their customer information with a newcomer to the industry, Thomas added. The US Securities and Exchange Commission's admission this week that it was also hacked last year and the information possibly used for insider trading shows how widespread cyber breaches have become.
But the scope of the Equifax breach has made the company's privileged position appear vulnerable. Not only is there the risk of widespread losses to fraud, but lenders also risk a slowdown in the pace of account openings and credit card approvals as they take longer to check a person's identity.
Copyright Reuters, 2017