The Borrowers
Credit card companies are watching you
With credit card defaults rising, some companies are looking for reasons to cut your plastic. To make these decisions, banks rely on data about what you buy, where, and the company you keep. Stacey Vanek-Smith reports.
Visa credit card in wallet (David Paul Morris/Getty Images)
More on Spending
Links
- Audio: FTC's Reilly Dolan on data profiling case
Dolan describes a case the Federal Trade Commission brought Compucredit, regarding the Visa Aspire card's data profiling practices. - Audio: Peter Harvey explains data profiling
Harvey, CEO of marketing company Intellidyn Corp., talks about how data profiling works and how businesses use it. - Top 10 purchases not to charge on credit cards
TEXT OF STORY
Kai Ryssdal: Not all that long ago credit-card companies were looking for reasons to give us credit. As we all know now, it didn't take much to get a shiny new piece of plastic in your wallet. But with credit-card defaults rising, those companies have started looking for reasons to take some of that credit away. To help them figure out how, banks are compiling thousands of bits of data, like what you buy, where you buy it, sometimes even the company you keep. As Marketplace's Stacey Vanek-Smith tell us, your credit card is watching you.
STACEY VANEK-SMITH: So, two guys walk into a bar, have a few drinks and split the bill on their credit cards. One guy's unemployed and in serious debt. The other has a job and pays all his bills on time. The joke is actually on both of them. Those drinks may have just cost them their credit.
Robert Manning is the author of "Credit Card Nation." He says the first problem the card company sees? Booze. Especially if you don't usually put margaritas on your Mastercard.
ROBERT MANNING: Alcohol might be a red flag that you're despondent because you're about ready to get laid off from your job.
And splitting a bill with the unemployed debtor makes the employed guy look bad to his card company. And that's just the beginning. Say Mr. Good Credit rewards himself with a rare trip to the spa?
MANNING: And get a massage, red flag.
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?
MANNING: Oh my gosh, maybe you're about to lose your job. You're starting to downscale to lower-cost stores.
So, if you start splurging, it looks bad, and if you start scrimping it looks bad. Welcome to the post-credit-crisis world of risk management. Where your card company watches everything you do and then tries to figure out how likely you are to pay your bills.
Analyzing that information is called data-profiling, and it's a $25 billion business. One of the biggest players is Equifax. Tom Madison works in the company's mortgage division. He says business is up 50 percent over last year.
TOM MADISON: The general direction that the financial industry is taking is towards a place where the data they use to render their conclusions about credit worthiness is the heart and soul of everything that they do.
Madison says banks want more data and more kinds of data than ever. Peter Harvey is the CEO of Intellidyn. It uses data profiling to help companies market their products.
PETER HARVEY: Twenty years ago, you could get age, income, home ownership. Today, you can get thousands of variables. Now it sounds ominous but think about the amount of transactions that are online today.
Harvey plugs all those bits of information into intricate models, which examine your past actions, figure out what makes you tick and then predict what you will do. He could look at our upstanding bill payer and figure out where he wants to spend his next vacation.
HARVEY: It's knowing that their next trip was going to be a river cruise in France. What type of boat, what type of amenities.
Harvey says banks are some of the most sophisticated data profilers around and, they're very secretive about it. Regulators have brought some things to light. The Federal Trade Commission recently filed a suit against CompuCredit, which marketed the Visa Aspire card. Reilly Dolan was on the litigation team.
REILLY DOLAN: Compucredit was reviewing how consumers used the credit card, and it would lower the available credit to consumers based on their transactional history.
Things that branded card-users as risky: going to a bar, a marriage counselor, getting tires re-treaded, buying something off of an infomercial. That's right: your 2 a.m. Snuggie breakdown could cost you your card. Which sounds pretty heavy-handed, I mean, sometimes a Snuggie is just a Snuggie, right? NYU economist Lawrence White.
LAWRENCE WHITE: For some individuals, it will not be an adequate representation of their true credit worthiness. That's unfortunately just the nature of the statistical exercise.
White says the banks would rather risk cutting the credit of our upstanding bill payer than having another default on their books.
So the next time two guys walk into a bar, they should probably think about walking to an ATM first.
I'm Stacey Vanek-Smith for Marketplace.
Comments
Comment | Refresh
From Los Angeles, CA, 08/19/2009
Ross,
Tying two employees together is simple, really.
a. they both work at the same company
b. they had transactions near the same point in time
c. the transactions were at the same place.
Corporations and law enforcement have been doing this for years to figure out who was in and out of drug and crime syndicate stuff.
Cash is the only answer. The government knows almost everything you do. Including posting here. (see PATRIOT Act).
From Washington, DC, 08/05/2009
By Paul Zink
From Gloucester, MA, 07/08/2009
"Free enterprise" Republicans don't want socialism in the form of government-supported health care. But corporation-run fascism in the form of dictating our behavior, as above? Well, THAT'S just the American way!
————————————————————
The Goddamn banks are trying to take over the country. They couldn't get every sucker to invest in their worthless derivatives so they TOOK THE TREASURY HOSTAGE and extorted money from the TAXPAYERS.
GOD DAMN THESE FASCIST BASTARDS.
USE CASH
SCREW CREDIT. IF YOU CANNOT AFFORD IT NOW YOU SHOULDN'T BE BUYING IT AT ALL.
"I believe that banking institutions are more dangerous to our
liberties than standing armies. If the American people ever allow
private banks to control the issue of their currency, first by
inflation, then by deflation, the banks and corporations that will
grow up around [the banks] will deprive the people of all property
until their children wake-up homeless on the continent their fathers
conquered. The issuing power should be taken from the banks and
restored to the people, to whom it properly belongs."
- Thomas Jefferson (1743 - 1826), Letter to the Secretary of the Treasury
Albert Gallatin (1802)
From Cumming, GA, 07/24/2009
My instincts tell me this story is a load of @#@%. I am not buying it. Selling paranoia is never a good thing to do. There is enough stress out there, guys.
From Washington, DC, 07/21/2009
Are you shieting me? Now the credit card companies are big brother? What about debit cards?
Cash is the only answer.
07/13/2009
It's laughable. I paid CASH for a 2009 Mercury Grand Marquis two months ago, but charged a new mattress and box spring last week, and will pay the card company in full when they send a bill. Do I care what the credit card company knows or thinks they know? Have I ever bothered to check my credit score? One guess. If they're stupid enough to cancel my card, I can pay by cash til the cows come home. Let them profile THAT!
From Austin, TX, 07/13/2009
I always pay cash. The cc companies don't like me, and I don't like them. That wasn't always the case. But about 5 years ago they started changing the terms on their end not for payment history issues, but some computer model some genius created to screw consumers. So the nation decided to change the deal on our end and quit paying them. So now they have an even bigger genius with an even more ridiculous computer model to screw more people. And they can't seem to figure out that it doesn't take a genius to know that if you screw people you'll put yourself out of business. America, ditch the plastic and pay cash. Then we'll be back in control. It's that simple.
From Athens, GA, 07/12/2009
I think you have swallowed a hoax, or at least a wild speculation. You have certainly not given us any reason to believe it, except "some guy says" -- the "guy" being Mr. Manning, who is now promoting "debt relief," which is some scheme for not paying your bills in full. At least read his web page.
As far as I can determine, merchants do not report the details of purchases to credit cards. Please check your facts. Or is it July Fool's Day?
From St. Louis, MO, 07/11/2009
Ross,
I think the point was, credit card companies are starting to invest in complex computer databases (either their own, or paying other firms who specialize in this type of data processing and analysis?), so they CAN start cross-referencing purchase information. If you went to a bar with your unemployed buddy and split the bill, they wouldn't KNOW for sure it happened that way. But it wouldn't be hard to see that both cards were run back-to-back, within a very short time between each other, right? If this went on several times (because you are friends, after all, and presumably hang out together somewhat regularly), a data-mining firm could correlate both of your names with sets of charges made at bars within 5 minutes of each other, and flag it as a pattern.
It's this same technology that they're using to pick up on the other stuff (like customers suddenly shopping at discount stores). It's too labor intensive to have humans pore over all the transactions to figure out these changes in buying habits. All of this comes from computer software.
From Richmond, VA, 07/11/2009
Does all this apply to DEBIT cards as well?
From Richmond, VA, 07/11/2009
Does all this apply to DEBIT cards as well?
From apple valley, CA, 07/11/2009
I am so afraid of my credit score changing that I am scared to call the cc for the months bal or date changes. I am even worried about sites I visit on the net.I am really trying to pay off my 15,000 bal ASAP. I have had very good credit in the past but the banks are getting nit picky lowering limits and hiring rates. No mor great balance transfer offers!
From Sonoma, CA, 07/10/2009
What about using PayPal? Can credit card companies see what you purchase if you use PayPal?
From Cary, NC, 07/10/2009
I always listen with great interest to the stories about banks, credit card companies and the ALMIGHTY FICO score! Though it's now a part of our society, we give it too much CREDIT. Experian, Equifax, TransUnion with their correct and incorrect data should and does not matter. I do NOT live my life by a FICO score and those three corporations. My high was a 750 and lowest a 499. Who cares? I will never look, correct, buy or protect my rating again. There's always a way. The best is by cash only. Life will go on with or without the monitoring of our purchases and habits. Marketplace's constant appetite for FICO stories seems one-sided and should include educated people and instances where the FICO yoke was not even considered in budgeting, investing, and LIVING.
From Irvine, CA, 07/09/2009
The people who haven't been interviewed for these stories are merchants and those on the inside of the banks who make these decisions. As a merchant (one who accepts credit cards), we do NOT report transactional items when we charge someone's card. So go have a few drinks at the bar... just do it at a restaurant, not at a bar. But if you charge your tax bill, it'll show up as a tax authority and the CC company won't like that. Want to get retreaded tires? Go to a "normal" tire company, not Bob's Retreads. The CC company won't know if you bought one tire, retreads, or new tires. That info doesn't go to them. Also, debit cards are NOT credit cards. The info doesn't cross... unless you have both from the same bank.
The best thing about this series, though, would be if everyone became paranoid and started only paying with cash... then businesses wouldn't have to lose the 3% credit card transaction fees. They add up to a lot of $$$! Even at my small business, we pay thousands of dollars per year in fees and percentages to the credit card companies.
From Salt Lake City, UT, 07/09/2009
Lori, Get a credit card from your bank that you have an established history with. It will come with a small limit, so use it occasionally, but only up to a third of the available credit, then pay it off at the end of the month. Between the card, phone bills and other history, you should be able to convince them to raise the balance or get a better card elsewhere in a couple of years.
I use electronic transactions for convenience, safety and personal accounting. I don't carry a balance because it's quite expensive. It's a lot easier just to download my purchases for budgeting, and there needs to be laws about how long these entities can hold onto my personal purchase history and what they do with it.
From GA, 07/09/2009
Now I am the last person to be afraid of “big brother” and the like, but this new insight into data-profiling is downright disturbing. What are we to do? It seems we’re darned if we buy, darned if we don’t buy. So many mistakes were made on creditors’ ends about overextending credit to the financially irresponsible masses, but why should the rest of us have to pay and be judged? Sometimes a margarita is just a margarita, after all.
07/09/2009
Ross: The latest & greatest point of sale systems likely incorporate some kind of "split check" function for convenience -- in fact I believe I've seen waitresses do this on a touchscreen.
It's not inconceivable that the software would then also code the transactions as related and pass that information on to the credit card processors. My Amex statements routinely show tip amounts and sometimes merchandise categories -- who knows how much information is actually being transmitted on the back end.
07/09/2009
Greta, it's happening to everyone -- fixed rate cards are likely to become a thing of the past. See WSJ article from today:
http://online.wsj.com/article/SB10001424052970203577304574276302614628572.html
From CA, 07/09/2009
We are the most prosperous nation, because we support the free flow of capital. What we need to do is add "money management" to reading, writing and arithmetic. Blame the banks all you want but accept some responsibility for believing in the "free lunch" of easy credit... buy now and pay later. Good luck, I have tried to use cash more often.
From CA, 07/09/2009
We are the most prosperous nation, because we support the free flow of capital. What we need to do is add "money management" to reading, writing and arithmetic. Blame the banks all you want but accept some responsibility for believing in the "free lunch" of easy credit... buy now and pay later. Good luck, I have tried to use cash more often.
From Washington, DC, 07/09/2009
It could get worse than just impacting your credit. Imagine if the data were shared with other providers. For example, your health insurance premium goes up, so you call your insurance company to find out why. They tell you that your last physical showed you had high cholesterol and borderline high BP; however, reviewing your CC transactions, you ordered the meat lovers pizza 3 times in the last month. Therefore, they felt it necessary to raise your premium. There is definitely a need for stringent laws on data privacy and how data about your personal spending habits can be used.
07/09/2009
I'm disgusted to hear about this practice. The idea that credit banks have (in addition to gaining the power to impose APRs that can exceed 20% in many cases) gained the power to merely *assume* that their clients are experiencing income difficulties and cancel their accounts is disgraceful. What will I have to worry about in the future if I choose to charge something relatively inexpensive or questionable to they who control my account. Unless we're talking about something illegal, creditors should not have this power.
From Minneapolis, MN, 07/08/2009
THe best thing to happen to America is this profiling business: let's tear up the cards go to cash and debit cards, live within our means and screw the banks!
From Anchorage, AK, 07/08/2009
If there's anything I learned in my introductory economics class, it's this: the party with the most information profits most from the transaction. We consumers demand an economy that allows nearly any person to get nearly any thing at nearly any time. This does not happen in much of the world, but it happens in the U.S, and I can't see how it would be possible without the relatively free flow of credit, all made possible by the handsome profits of creditors.
From Malibu, CA, 07/08/2009
To Greta - no, it happened to me too, and I have been loyal, carried a comfortable balance, and therefore paid interest to my cc company for ten years now. I will still be loyal, but I don't want to carry a balance anymore, it won't be worth it now. Don't they lose out in the end, then, by doing that to someone like me?
From Canton, OH, 07/08/2009
This is exactly the reason why I frequently use my bank card as an ATM card, but very, very rarely use it as a debit or charge card. When I withdraw $50 from the ATM, my bank doesn't know if I spent it on a Margarita, a wild woman, or put it in a Salvation Army red kettle. And I like it that way.
From TX, 07/08/2009
They used some shaky models in the past to extend credit to people who are unable to pay now. And the new model will be equally wrong. But, in the end it will be the American consumers who will get the raw end of the deal always - in the form of higher rate and fees when the new model flops. Alas, we are hooked on to credit and will have to accept the consequences when we live like millionaires on a 40K income!
From Blue Springs, MO, 07/08/2009
Banks are no longer making money by facilitating commerce. They have become parasitic. They suck 6% of every transaction in America, and all they do is shovel money around. No added value, but huge salaries for bloated banks. When institutions become demonic, and these are, the only recourse is to start over, which means they will be ok for a while.
From Scottsdale, AZ, 07/08/2009
I was just notified by chase that my credit limit was lowered. I have been a consistent, reliable credit card user. They said I have too many cards that are less than 2 years old. The audacity!!
From Greensboro, NC, 07/08/2009
American Express use to be guilty of data profiling, but has since stop the practice. I hope with the new credit card legislation due to take effect in Feb.2010, that data profiling be either fully disclosed by the card companies as a methodology used to determine credit worthiness, or make it illegal. I think it is already an illegal practice since the card companies are so clandestine about it, and the FTC is aware of it going on.
Oh, by the way Stacey Vanek-Smith(reporter), ain't no way I'm going use my credit card at an ATM first, when I know it's going to cost me 21.99% APR for withdrawing cash and interest accrues instantly! I hope you meant to say that using a debit card at the ATM is preferable.
From Los Angeles, CA, 07/08/2009
I'd like to know whether my debit card purchases affect my credit score as well -- after all, the Chase and Visa logos are both on my debit card and credit card (or were, until I switched to a credit union). I'd bet yes.
From Oak Park, IL, 07/08/2009
Maybe I should take the credit card companies up on their repeated offers to my 4 year old, thanks, I assume, to her frequent flier status. I wonder what her credit score would be when they see her impulse purchases for ice cream sundaes and TV infomercial hair styling devices.
From Arlington, TX, 07/08/2009
Can Equifax produce any kind of statistics to support their guesses about future consumer behavior?
Please get someone from Equifax on the show.
07/08/2009
Greta - if you in fact carry no balance, your interest rate is meaningless. Also, if you carry no balance, use a debit card. daveramsey.com
From Boston, MA, 07/08/2009
I was just notified by two of my three credit card companies (Fidelity-Visa and Bankamerica-MC) within a couple days of each other that they are changing the terms of my credit to be variable instead of fixed. Neither changed the rate. I'm very unhappy about this as I chose my credit cards BECAUSE they offered fixed, not variable rates and it was the lowest around. I have always paid my bills on time and in full and carry no balance. Is this happening to everyone or just to me?
From Alexandria, VA, 07/08/2009
I have an idea! Why don't the banks look at how someone pays his/her bills to figure out if that person is credit-worthy?!?
From NY, 07/08/2009
I had to share this with my friend who is in over her head, but just went on vacation to Bermuda! LOL her logic- she doesn't care.
Im not surprised though about this. American Express last winter notifed me they were cutting my credit back, because bla bla bla. So I transferred my balance to another card!
From Gloucester, MA, 07/08/2009
"Free enterprise" Republicans don't want socialism in the form of government-supported health care. But corporation-run fascism in the form of dictating our behavior, as above? Well, THAT'S just the American way!
07/08/2009
So the Credit Card Companies, which are also often banks as well, are using Equifax? I wish I had a dime for all the errors that this company put on my credit report. In fact Radio Times with Marty Moss-Coane (WHYY) did a report on their errors and abuse of consumers. And the banks are using them? Great. I hope they are being more careful with our bank balances and deposits!
From Charleston, WV, 07/08/2009
this is why I only use cash, but even then when I try to get a credit card they refuse, saying that I don't have a credit history. Seems like you're damned if you do, and damned if you don't. What gives? Is thiseven FAIR?
From VA, 07/08/2009
Totally understand the entire story, but am baffled as to how my CC company would know if a "split" a booze bill with a deadbeat friend versus I just happened to be buying myself a drink. They can't tie the two transactions to one bill - the waitress enters two separate and independent charges, each for one half the bill. But rest of story makes sense. Can anyone please explain how, in that example, the CC company could possibly tie the two drinkers together?
07/08/2009
WTF?You get punished for being a consumer?They NEED consumers right now!Live by the Bank,Die by the Bank!
07/08/2009
lol - good luck, I use cash a lot (60% of my total transaction)
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