Monday, February 2, 2009

Credit cards, data mining, incentives

Two recent stories point to the fact that banks, seeking to control their lending, are selectively suspending credit cards or cutting credit limits, based on data about individuals' credit card use. This introduces some interesting incentive problems, quite different from usual credit card decisions.

The NY Times story, American Express Kept a (Very) Watchful Eye on Charges , reports
"In some instances, if it didn’t like what it was seeing, the company has cut customer credit lines. It laid out this logic in letters that infuriated many of the cardholders who received them. “Other customers who have used their card at establishments where you recently shopped,” one of those letters said, “have a poor repayment history with American Express.”
"It sure sounded as if American Express had developed a blacklist of merchants patronized by troubled cardholders. But late this week, American Express told me that wasn’t the case. The company said it had also decided to stop using what it has called “spending patterns” as a criteria in its credit line reductions. "...

"American Express wouldn’t have been the first company to try cordoning off certain industries. Last year, CompuCredit, a subprime lender, got in trouble with the Federal Trade Commission for failing to disclose that it could reduce customers’ credit lines for using their cards at various establishments.
What was on CompuCredit’s no-go list? Marriage counselors, tire retreading and repair shops, bars and nightclubs, pool halls, pawnshops and massage parlors, among others. "

The Globe story, Lenders abruptly cut lines of credit, focuses on customers who have had their cards suspended.

"Many of the credit lines being taken away or reduced have not been used recently, according to people who track the business. Dennis Moroney of TowerGroup, a Needham research firm, called it the "kitchen drawer" syndrome because some consumers keep cards they don't need or don't use often. Card issuers are trying to rein in such accounts before they get tapped for emergencies in the slumping economy, Moroney said."...

"...if you have a card you haven't used in a while that you want to keep, ... "Buy something inexpensive and pay it off that month." "

1 comment:

krishakumar yadhavan said...

interesting blog. It would be great if you can provide more details about it. Thanks you

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