Credit cards (part three): use â€™em … and lose â€™em anyway
It was a brief segment on NPR’s Marketplace last month that alerted me to the newest scary thing about credit cards: banks have begun to curtail or withdraw credit based on where you shop and what you buy.
Here’s one example: consumer Kevin Johnson had his credit line slashed by two-thirds despite a stellar credit score (764) and a flawless history of on-time payments. Why? Because “… other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express.”
Analyzing his recent purchase history, Kevin came to suspect that Wal-Mart was the ‘establishment’ in question, but couldn’t get anyone at American Express to confirm, deny, or elaborate on their message.
A May article in the New York Times entitled “What Does Your Credit-Card Company Know About You?” shows just how absurd this has become (emphasis mine):
Most of the major credit-card companies have set up systems to comb through cardholders’ data for signs that someone is going to stop making payments. Are cardholders suddenly logging in at 1 in the morning? It might signal sleeplessness due to anxiety. Are they using their cards for groceries? It might mean they are trying to conserve their cash. Have they started using their cards for therapy sessions? Do they call the card company in the middle of the day, when they should be at work? What do they say when a customer-service representative asks how they’re feeling? Are their sighs long or short?
Information about exactly what businesses and purchases count against you is a closely guarded secret. The only specific data I have been able to find was in a single lawsuit filed by the Federal Trade Commission last year which cites one Visa card issuer for “an undisclosed ‘behavioral’ scoring model that penalized consumers for … cash advances and transactions with the following types of merchants”:
- Direct marketing merchants
- Marriage counselors
- Personal counselors
- Automobile tire retreading and repair shops
- Bars and night clubs
- Pool and billiard establishments
- Pawn shops
- Massage parlors
According to Marketplace, “splurging looks bad, and … scrimping looks bad”:
“Say Mr. Good Credit rewards himself with a rare trip to the spa? His card company might think he’s trying to relax because he’s stressed about money. And what if he decides to go bargain hunting? ‘Oh my gosh, maybe you’re about to lose your job. You’re starting to downscale to lower-cost stores.’”
Yes, even frugality can be considered a warning sign; one analysis found that “people who bought cheap, generic automotive oil were much more likely to miss a credit-card payment than someone who got the expensive, name-brand stuff.”*
What can you do? Not much. You can avoid or pay cash for suspected red-flag items like alcohol or therapy. But we are playing a game where the rules are not just secret but constantly shifting, and a behavior that’s innocuous today may be blacklisted tomorrow. “Many people don’t understand how almost every transaction they make today could trigger a readjustment in bank analytics,” says credit-card expert and consumer advocate Dr. Robert Manning.
At left: a six-minute segment on Good Morning America that aired this past January, profiling Kevin Johnson’s situation and the growing data-profiling problem.
Next, in part four, I’ll cover the good news and the bad news about the recently passed CARD legislation. And finally, in part five: my personal response to the mess.
*(An aside: I buy a lot of generic groceries, and know that it only rarely makes a difference in quality, but I know very little about generic as applied to motor oil. I called my brother-in-law Bill, who owns and runs a car repair shop, to find out whether expensive name-brand oil is actually any better than cheap generic oil. His answer, in brief: it’s a gamble; 9 times out of 10 generic is the exact same oil, rebranded. That tenth time, though, you’re getting crap, and your car can suffer. Interestingly, in that brief conversation I learned enough for two whole posts on automobile frugality. Expect to see a lot more about cars on Pocketmint in the future as I tap this familial resource!)
(Photo by mjb84.)