In this day and age of sophisticated telecommunications, online media, and almost constant video surveillance, most consumers are concerned about infringements upon their right to privacy. But now there is mounting evidence that your own credit card company – which is usually on the same side as you when it comes to protection of your identity and financial records – may be intentionally tracking your purchase activity to generate a special consumer credit profile on you. They are doing it whether you like it or not, too, and this has many consumers and consumer advocacy groups upset.
According to a recently released federal report, for example, hundreds of thousands of credit card customers have had their accounts limited or even closed due to this kind of card user surveillance. The credit card companies gathered details about such things as where the consumers shopped – including not just the name of the store or merchant but the geographical location of that particular retail outlet. They found out what particular kinds of products or services that their cardholding customers purchased, and they also kept tabs on what bank or lending company issued their real estate mortgage.
The federal government – as part of the recent Credit Card Act of 2009 – issued the report that investigated these kinds of questionable practices of credit card institutions. The Credit Card Act requires the Fed to look into any shady or potentially questionable credit card company practices, with particular emphasis upon activity that happened during the 36-month period of time before the passage of the credit card reform law.
Among other findings related to tracking of personal consumer information, the investigation also uncovered evidence that about half a dozen of the biggest commercial banks had engaged in at least one type of questionable practice that resulted in a lowering of the cardholders’ credit limits.
Some credit card customers, for example, had the interest rates associated with their cards hiked because of certain cardholder behaviors that were tracked and documented. Meanwhile other card issuing companies went so far as to completely close cardholder accounts based on the questionable policy of profiling customers and keeping track of where they shopped and what they bought.
Members of Congress began to complain when they learned that some cardholders had their credit ceilings lowered and interest rates hiked based on where they lived or because they happened to like to shop a lot in discount stores. Congresswoman Maxine Waters, for example, suggested that this kind of profiling practice could be compared to redlining – an illegal activity that involves denying services to people who live in a particular geographical locations such as low-income neighborhoods.
If you live in a zip code where there are lots of credit defaults and foreclosures, for instance, that might send up a red flag to credit card companies. Or if you begin to shop primarily in discount stores, thrift stores, pawn shops, and other similar establishments that cater to people with less money, they might interpret that behavior to mean that you are having trouble paying your bills. Two credit card companies did, in fact, admit that they would take data about geographic shopping locations and cross reference it against their card customers’ payment history to come up with a profile that indicated credit risk behavior. But just because you happen to change your shopping patterns to save money – or you live in a low income area or one plagued by foreclosures – that may have absolutely nothing to do with whether or not you are a credit liability or you are prone to not pay your obligations on time.
So the Federal Reserve Board checked up on card companies and issued a report that was nearly 75 pages long. This document gives Americans an official inside look at the profiling policies of big credit card companies. The techniques used are technically referred to as “behavioral modeling,” not “profiling.” But that use of fancy psychological terminology does little to assuage the fears and worries of credit card customers who do not like the idea that their shopping is being monitored by anyone, especially a financial institution that has the power to deny them credit. So the Federal Reserve folks who issued the extensive report were eager to point out that the number of times that card users have been denied cards or have had their credit card limits lowered is relatively quite small and infrequent.
In other words, chances are that you have nothing really to worry about in terms of data mining that might also undermine your credit worthiness. The number of average consumers that are affected by behavioral modeling in that significant way is relatively tiny. But if you are still concerned about the expanded role of financial institutions and other agencies that are vigorously and proactively keeping tabs on people then you are not alone. The issue continues to disturb many Americans, but the good news is that the government and some members of Congress also share your concerns.
Participation in the survey was mandatory and included many interviews of bank regulators and credit card company officials, but the report did not reveal which credit card issuers were included. Since the report came out only American Express has come forward to say that it did use info about where its customers shopped to adjust their credit card limits lower. American Express also said that it has decided to stop that practice, and the Fed disclosed that several other card companies would likewise discontinue monitoring practices. It is significant to note that no credit unions that issue plastic were found to be engaged in these kinds of questionable practices.
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