Debt collection is a problem for many.
Current practices involving using a social security number for identification have proved both inadequate to stop defaults and dangerous.
I believe simple changes that I will discuss could help the lender, borrower, and debt collector.
Social security numbers being stored in any database other than the one at the SSA should be made illegal. It is too easily stolen and not setup as something that can be changed.
Credit agencies can come up with a new primary identifier. There are good practices here, so writing a law that restricts how this identifier may be generated and assigned would be needed. It should not be managed further by the government, as that creates both restrictions to the industry and cost to the tax payer.
The fear would then be that criminals with nothing more than your home address and name could take out a loan. This could be mitigated by requiring verification to create an ID in the form of being able to provide a letter that is received that required signature at home. Further, you could have more automated verification through association with a bank account and using small deposits and having the borrower know those amounts.
Since this new identifier has more potential to be discarded, hard assets like a home would make sense to have as collateral. Being able to force a borrower who skips on one debt to take a loan against the equity in their home to repay it may be needed. This means the new lender would be able to put a lien on the home if they failed to pay.
I believe this “home as collateral” solution solves the problem of lending to home owners with equity that can cover debts. They will not be able to abandon debt even with a more easily discarded identifier. The debt is effectively backed by their home equity.
For borrowers without a hard asset that can be associated with the ID, you would need to provide a law that makes it illegal to seek a new credit identifier when you knowingly have another credit identifier assigned to you already.
Those without a hard asset become a larger risk which would result in a higher interest rate. Since this disproportionately impacts poorer populations, it may be relevant to make it so that the government backs these loans up to a certain point and has the legal ability to collect or force someone to declare bankruptcy after repaying the borrower’s debts.
I haven’t thought through all aspects of this, and there may be severe flaws.
I enjoy this style of thought experiment and thinking of how to make one small change and then mitigate the impacts of it. Changing from social security numbers to other identifiers may be needed.
This rabbit hole goes further, and thinking of all impacts and outcomes is most likely impossible. Getting the low hanging fruit is possible, though.