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Startups Take on Equifax, Experian Over Payroll Data Dominance

Dec. 15, 2022, 10:05 AM

A pair of startups is challenging top credit reporting firms that collect the payroll records of millions of Americans, and they’re urging federal regulators to investigate the incumbents’ influence on competition and consumer data privacy.

Payroll information is valuable to lenders, landlords, and potential employers, who use the data to verify a person’s income and employment history. Rather than confirming such information directly with an employer, they often purchase the data from credit reporting firms likeEquifax Inc. and Experian Plc. These firms act as go-betweens, relying on their data-sharing relationships with employers and human resources software providers to collect the requested information.

Employees may not be aware of how their payroll records are shared, raising concerns for the privacy and security of their information, according to newcomer employment data platforms Certree and Argyle. Data-sharing also tends to be structured in a way that stifles competition, the startups say.

Argyle recently joined Certree in pressing the Federal Trade Commission to investigate how Equifax and Experian gather payroll data, with an eye toward potential anti-competitive practices or the breach of consumer data protections. A spokesperson for the FTC confirmed receipt of the letters and declined to comment on them.

“Certain things are important to consumers regardless of who’s taking in this information,” said Melissa Baal Guidorizzi, a partner at Orrick Herrington & Sutcliffe LLP who previously worked in enforcement at the Consumer Financial Protection Bureau, or CFPB. Consumers are likely to be most concerned about their consent to payroll data collection, the accuracy of the information, and how it is used, she said.

Alternative Models

The current verification system for US workers has dominated for decades because there hasn’t been a clear alternative to Equifax or Experian, Certree’s chief executive officer said in a September letter to the FTC.

Certree is pitching a new model that lets individuals use so-called vaults to hold copies of documents such as proof of employment or education, allowing them to share information with third parties as needed. Employers must partner with Certree for their workers to have access to its platform.

“We’re eliminating the need for those data brokers as middlemen,"said Certree CEO Pavan Kochar. The vaults are password-protected and encrypted so Certree can’t seen what’s inside, she said.

Argyle’s offering, meanwhile, lets consumers connect their payroll records to financial services apps, by logging into their payroll account. Argyle provides the infrastructure for the data-sharing, which is meant to be more secure than if an individual downloaded copies of their pay stubs and shared them over email.

“We’re that plumbing system,” Argyle CEO Shmulik Fishman said.

Argyle got its start with the gig economy, where pay stubs don’t always neatly fit into a traditional income verification model. Different types of income can be added to a single data set using Argyle’s account linkage method.

Consumer Control

The startups argue that giving consumers more control over their payroll records better protects their privacy and reduces the risk of inaccuracies in the data due to issues such as two consumers having similar names.

Payroll records pose a privacy concern because workers have virtually no ability to opt out from the collection and monetization of their data, according to Certree’s letter to the FTC. The letter says this “systemic lack of consent” could represent a violation of Section 5 of the FTC Act, which governs unfair and deceptive business practices.

Certree also raises concerns about the security of payroll records, given a “pattern” of data breaches at credit reporting firms.

Equifax suffered a data breach in 2017 that exposed the personal information of 147 million people and led to a settlement of up to $700 million to resolve federal and state investigations into the incident. Equifax has called the incident a “catalyst” that spurred a revamp of its security program. The company faces frequent security risks, defending against roughly 35 million cyberthreats per day in 2021, according to an Equifax report.

Experian also recently settled with states after a hacker gained access to part of its network that stored personal information on behalf of a client, T-Mobile US Inc.

The startups claim that their technology reduces the risks of mass data breaches and identity theft, though no company is immune to cyberattacks.

“Small companies can be prone to hacks, big companies can be prone to hacks,” Orrick’s Baal Guidorizzi said. “It’s difficult to manage in this environment.”

Credit reporting companies also face complaints over alleged problems with the accuracy of their data. Equifax, Experian, and TransUnion often fail to provide substantive responses to consumers, an analysis by the Consumer Financial Protection Bureau found.

CFPB Director Rohit Chopra has referred to the top credit reporting companies as an “oligopoly” that has little incentive to treat consumers fairly when credit reports have errors in them.

Competition Concerns

Regulatory intervention could “level the playing field” and foster the development of alternative technologies that “stop the unbounded exploitation of worker data by monopolist data brokers,” Argyle’s CEO Fishman said in a November letter to the FTC.

Equifax doesn’t charge a fee to payroll providers or employers to verify employment and income. Employees aren’t charged either. Instead the company charges a verification fee to users of the data, such as banks and background screeners.

Many employers provide employee data to Equifax as part of other HR-related services the credit reporting company offers, like management of tax forms. “The economics of each customer or partner relationship may vary based on a number of factors, including the overall package of services provided,” an Equifax spokesperson said.

Equifax says it doesn’t utilize data provided by employers for anything other than uses specified for the contracted service and under the requirements of the Fair Credit Reporting Act.

Experian didn’t respond to a request for comment.

Argyle and Certree accuse Equifax and Experian of using their established positions in the payroll data market to stamp out competition through exclusivity deals and acquisitions of similar verification services.

“In the payroll space, I could see these new entrants becoming competition,” said Chi Chi Wu, staff attorney at the National Consumer Law Center.

Regulatory Response

The FTC’s powers to regulate employment verification data are limited. The agency likely would need a data-sharing mandate, similar to the CFPB’s pending rules for letting consumers easily transfer banking information to third parties, Wu said.

The CFPB rules are being issued under Section 1033 of the Dodd-Frank financial reform law. “The problem is you don’t have a 1033 for employers,” she said.

The startups’ focus on the accumulation and use of data as a source of market advantage aligns with FTC Chair Lina Khan’s interest in the intersection of competition and consumer protection issues.

“These are the issues the commission has said we want to deal with,” said William Kovacic, a George Washington University law professor and former FTC commissioner. The challenge would be trying to fit the requested payroll data inquiry into the agency’s ambitious agenda on antitrust policy and consumer data protections.

“For this request, the big question is how does it fit within a policy agenda that already is very demanding and consuming a lot of resources,” Kovacic said.

—With assistance by Evan Weinberger

To contact the reporter on this story: Andrea Vittorio in Washington at

To contact the editors responsible for this story: Jay-Anne B. Casuga at; Tonia Moore at