Credit card companies are comparing you to other shoppers…
After sweeping changes to the credit card industry to end deceptive practices, credit card companies have started another questionable practice to help determine consumer credit worthiness – behavioral analysis or scoring. Customer data may be compared to other shoppers at individual retail locations or zip codes to weed out potential problem customers. If the person standing in line behind you has a poor credit history, the result could be a negative reaction to your credit line. By judging the way a cardholders shops, including the fiscal behavior of their fellow shoppers, credit card companies are profiling their customers.
Having a long term relationship with a company with a high credit score and even a meticulous record of paying on-time will not protect you from this new way of assessing credit card customers. According to a statement from one of the credit card companies notifiying customers of the reasons for dropping their credit limit, “Other customers who have used our card at establishments where you recently shopped have a poor repayment history.” If you were to say consumers are offended, that would be an understatement.
“They’ve crossed the ethical line in terms of looking at where you’re spending your money and making a judgement about whether that’s a good or bad decision for you to make given these financial times,” Robert Manning, the director of the Center for Consumer Financial Services at the Rochester Institute of Technology and author of the book “Credit Card Nation”, told ABC News’ Chris Cuomo on Good Morning America. “They are saying, ‘We don’t like the behavior of other people that are shopping in stores that you are currently conducting business. Therefore, that raises questions about your ability to repay the loan.’”
Most people don’t understand that nearly every transaction can trigger an adjustment in banking analysis. The practice is beginning to draw attention from regulators and legistalors. In a lawsuit filed in 2008, the Federal Trade Commission cited Compucredit, a third-party credit card issuer, for failing to disclose to customers the use of behavioral scoring. In solicitations Compucredit advertised its cards could be used anywhere. The Fed accused the company of reducing credit scores of customers who used their card in a way that Compucredit saw as potential financial distress. Though the company never admitted wrongdoing, the case was eventually settled for $114 million in credit to customer accounts.
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