Credit card companies lowering limits based on WHERE you shop

[CatWoman]

Kevin D. Johnson returned from a dreamy Jamaican honeymoon in October eager to check out wedding photos and help his new wife open stacks of beautifully wrapped wedding gifts.

Before getting distracted by the fun stuff, the 29-year-old entrepreneur opened the mail. Johnson’s mood soured when he got to a letter from American Express, saying it had slashed the credit limit on his account.

Johnson was surprised, since he has a perfect payment history and a high credit score. And he was floored by one of the reasons American Express cited: It didn’t like where he shopped.

“Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express,” the letter said. Johnson complained to American Express by phone and letter.

“That doesn’t have anything to do with whether I’m a paying customer or not,” he said in an interview.

Johnson checked his charges to try to figure out what might have raised a red flag in the American Express data-mining model. He didn’t see anything but typical transactions, including purchases at Amazon, Ruby Tuesday, Wal-Mart, Starbucks and Federal Express.

“I understand the need for and the power of predictive analytics,” Johnson said, “But I think they have crossed the line.”

American Express declined to discuss Johnson’s account. But it confirmed that it examines spending patterns. It’s just one of many tactics that credit card companies are using to try to keep default rates from growing higher. Along with studying shopping habits, American Express considers which mortgage lender a customer uses and whether the customer owns a home in an area where housing prices are declining.

These factors are combined with a review of other details to decide whether to adjust a credit limit.

“We’re just doing this to manage risk,” said Lisa A. Gonzalez, an American Express spokeswoman. She declined to say which retailers or mortgage companies are associated with consumers with higher default rates. She said it makes sense to examine these factors because “customers who have loans outstanding with certain lenders or customers who make transactions with certain merchants tend to have a higher proportion of credit issues or a higher probability of default.”

“It’s not a fair practice,” said Travis Plunkett, legislative director at Consumer Federation of America, a consumer advocacy group. “I imagine this person feels this is guilt by association. It doesn’t work in the justice system, and it shouldn’t work when it comes to credit card charges.”

http://www.ajc.com/news/content/business/stories//2008/12/21/creditcards_1221.html

[TomInTib]

1. I have been hearing about this.

I have heard this from customers of mine.

But I really do not blame Amex, they have to manage their risks in this crappy economy.

We are doing almost as much cash biz as credit card business.

[guruoo]

7. I just wonder how they expect card holders to go about managing this new risk to their credit.

[TomInTib]

9. I don't think they really care.

Amex has been bombarding us with unsolicited cards. We take them, charge $1500, pay it off and they give us 20,000 free air miles. I'll bet we have eight of those cards right now, in different names.

[Dreamer Tatum]

23. How are you getting them in different names?

They don't send unsolicited plastic in the mail, and it's fraud to obtain credit cards in more than one name.

[sakabatou]

2. Just more BS from these companies

[guruoo]

3. Does this mean I should start paying cash at Goodwill? n/t

[mwooldri]

10. If you have a high end card, YES.

I can't say or comment much publically, but credit card companies have now gone beyond "credit score and income information" when assessing credit risk. Way beyond.

EVERYTHING is looked at. If they can get a hold of it they'll use it.

They'll look at your house value, and compare that with your mortgage. Spending habits are looked at. Who you work for or what industry you work in. Where you live will be a factor - live in a bad neighbourhood? Sorry, lower credit (or no credit or more costly credit) for you. Any financial information besides the regular Experian/Equifax/Transunion records are sought out, and even things such as public records (vehicles owned, prior addresses, other assets owned) are all sought out. I wouldn't be surprised if your relatives aren't even looked at - now they have to comply with the Equal Credit Opportunity Act but I bet you a thin line is being skated on here.

Although I can't say for absolute certainty the collapse of house prices is probably the biggest factor that caused credit card companies to cut lines. Previously house prices were going up and up, credit was easy... people maxed out their credit card, got into difficulty, and saw their home as a way to get them out - they had equity in it because the price was going up. Re-finance the house, and pay off the cards... and back to square one, except lesson not learned here, they run up the cards again, get into difficulties, re-finance the house, all over again. However, this kind of stopped when the house prices stopped going up and started going down... people couldn't re-finance out of the mess and did the right thing - default on the unsecured debt. Credit card companies didn't like that, saw that these defaults were increasing in areas where house prices went down quickest, and in their own interests decided to start slashing lines to prevent people running up debts in the hope of being able to refinance out of it later on. However I think the line reductions have gone a little too far, and maybe the person in the news article in the original post had too much of a swingeing cut - I don't know...

But if you have a high line credit card that's considered a high end card, keep it to your quality purchases. Keep Wallyworld and Goodwill and RentACenter and places of that calibre on your debit card.

Mark.

[pipi_k]

26. My local Goodwill

won't take anything but cash...

:mad:



Aside from that, though... sometimes I wonder if one or both of my credit card companies will end up lowering my limit or closing my account completely because I don't charge more than a third of my limit on one, and less than 1/10th of my limit on the other one, and I pay the entire balance off each month (on both cards).

They must be pretty pissed off not to be making loads of interest off me...

[davidwparker]

4. I had my AMEX credit limit lowered by multiple thousands of dollars. When

I've paid off the balance, I will be canceling my card.

I'm now done with credit and if I use plastic, it will be with my bank's debit card.

[DoctorMyEyes]

16. Me too

Always paid on time and always more than the minimum and the statement AFTER I paid off a balance I'd been working down for about six months they cut my limit to one third of what it was previously. I considered complaining and then thought better of it. Fuck 'em if that's how they want to play.

[bliss_eternal]

5. Google "ge money bank complaints..."

They are lowering many accounts based on balances carried with OTHER company accounts, regardless of whether or not the accnt. holder has a good record w/them. :( They handle Lowes, Robbins Bros., The Gap, Old Navy, Banana Republic, Best Buy, etc.

There are many complaints of having great records with the card holding company, but feeling they were punished based on behavior with other accounts(not GE Money bank). :crazy: Lots of unhappy card holders out there.

[Aviation Pro]

6. Actually, if the sound and fury rises to an appropriate level....

...a tipping point will be reached and a large percentage of consumers will say say, "fuck it, it's an unsecured debt, it's their fucking problem," declare self-bankruptcy, and stop payments to the usurus credit card industry. (Of course then the industry will cry for a bailout at which point the Obama presidency and the Democratic congress will say, "go pound sand, assholes.").

[Loge23]

8. It's no picnic for merchants either

Credit cards have become as ubiquitous as cash - probably even more so - when it comes to normal everyday business.
This is not only true in retail, but also in B-to-B industries such as wholesale distribution where the margins are considerably thinner.
C.C. companies screw their users with prohibitive interest rates and, at the same time, screw their merchant acceptors with exorbitant transaction fees - anywhere from 2% to 5% in most cases.
For a wholesaler, this can add considerably to their expenses and shave what little remains of their after tax profit.
Eventually, merchants will rebel and begin to charge for C.C. transactions. "Free miles" and rewards aren't free at all - the C.C. companies actually charge a higher transaction fee for "reward" cards to merchants.
It's just another example of a greed-based business that encourages recklessness on the part of their users and passes off their losses on the very merchants that keep the C.C companies in business.

[marybourg]

11. "Eventually, merchants will rebel and begin to charge for C.C. transactions."

The credit card companies anticipated this possibility and arranged, many years ago, for such a practice to be a violation of federal law. You'll notice that no legitimate retail business gives a discount for cash. This is the reason why.

[dixiegrrrrl]

15. About half the merchants in our Mayberry will not take CC. Cash or checks only.

[SoCalDem]

21. Discount for cash..How you get one..

I bought carpeting with cash & saved a bundle.. I got the quote for the upgraded pad & the carpeting I wanted, and then told the owner of the carpet store that I had the cash on me, but I wanted to shop around, since thwe price was a few hundred more than I planned to spend.. He said "You can use your credit card".. I said I did not want to use the card, and planned to spend the money I had.. he took $250 off... right on the spot, took my cash & delivered & installed the carpet the very next day..

Shop local..deal with the business owners and you can get a cash "discount".

[Statistical]

12. Not legal under the contract that EVERY merchants signs with the big3

Any merchant that offers lower rate for cash or charges a fee to use credit card is in violation of their merchant agreement.

Fines are pretty severe; usually 10% of monthly transaction volume on first offense. Eventually the card carrier will simply cancel the contract and that merchant will be unable to accept plastic. The big 4 (Via, Mastercard, Amex, Discover) share merchant data so a loss of one likely means a loss of all 4. Any business that can't accept plastic in today's economy will quickly die.

The CC have the merchants more by the balls than they do the consumers (if that is even possible). Don't expect any relief to come from a merchant backlash.

Now some stores have charged a credit card fee or a cash discount but usually they are small businesses that either don't understand it is violation of contract and/or think they are small enough to get away with it.

You won't see any major store try to force the issue. Walmart actually did rebel against the CC couple years ago but rather than force a cash discount/cc fee option they locked in a sweetheart deal on CC fees. While most in-store merchants pay $0.35 + 2%-3% (online or mail order can be as high as 5%) Walmart is guaranteed $0.15 + 1.15% for the next 10 years.

[NutmegYankee]

13. Legal in Conn. for Gas.

State law allows gas stations to charge 10 cents less for Cash. The CC companies can't do a thing about it.

[Statistical]

18. Interesting. Do you know the statute?

Reason I ask it could be something that is lobbied to be more universal.

i.e not just in one state and not just on gas.

Likely the contract has some provision like "unless prohibited by law".

If consumers were forced to pay more for using CC they might use them less.

Just as banks & companies needed to deleverage consumers need to deleverage also.

Americans sitting on $1 TRILLION in consumer debt and most paying the minimum isn't good for the country long term.

[NutmegYankee]

20. I don't have the exact statute. No one publishes it.

http://www.ct.gov/governorrell/cwp/view.asp?A=3293&Q=417386


But there is a press release. It was passed back in June.

[MadHound]

14. As I say again and again, cut your cards up, pay your debt off, and go to a cash economy

Go with cash, check, debit card. Your own personal budget will be all the better for it, and you can tell the CC companies to fuck off.

[Pithlet]

17. My Amex limit just got cut, too.

Haven't paid late. Haven't changed my habits. Just cut it. Just a month after they'd raised it. It's madness.

[EnviroBat]

19. Just one more week.

and i pay off my two credit cards. Probably won't use them again. I'll wait for them to call me and try to raise my limit, or any other games they will try to play. I will tell them that I will start using the cards again if they agree to lower my rate to 9%. I'm not playing their fucking games anymore...

[Dreamer Tatum]

22. This is a interesting problem for predictive analytics

The problem for American Express is an example of something called the Curse of Dimensionality. Basically, it means that
there are too many parameters for them to estimate; in this application, they have too many merchants to assess for their
incremental addition to risk. Not only that, the merchants that add to risk also add outsized portions of their receivables.

AmEx has tens of thousands of merchants. Someone there had the idea of looking at merchant codes to see if they could model
whether the receivables booked from debits at those merchants had higher loss rates than receivables booked elsewhere. If they
rank the booked receivables from most to least, places like WalMart, Target, Amazon, Home Depot, and so forth would be on top.
After the first, oh, 200 merchants or so, the sample would get small and therefore negligible. They probably did some
simple analytics and cooked up a treatment where people in certain FICO bands would get their lines cut if they bought at, say, two or more of the top merchants within a certain time period.

So the attempt to look at large datasets, in order to avoid "nonrobustness," probably created some hamfisted rules that might work in aggregate, but probably don't work very well at the margin. There's no way to fix this definitively, but there is probably a way to get sharper about it: build more sophisticated probability models. Microsoft and Apple do it to sharpen their help databases; financial services lag far behind.

In any case, the time to limit exposure to bad credits is to manage lines ahead of chargeoffs, not after.

[McCamy Taylor]

24. If you get cancer, will they cut your limit figuring you will die and not pay?

[McCamy Taylor]

25. Madoff could hurt them big. Rich folks with $100 k limit could max card then file bankruptcy

and since these would be thousand year old retirees who lost their savings with Madoff, the bankruptcy court would never in a million years make them repay American Express. I will bet that there are a bunch of gray hairs in furs out there right now spending on their AMEX Ultra-Titanium Cards buying gold bars or whatever else they can get their hands on. It's what any sensible person would do, right?

J/k. But they could use the cards to pay all their bills, with the intention of filling bankruptcy, knowing that as non workers they will not be forced to repay the way that ordinary working slobs have to.

[Statistical]

27. Don't worry Joe "Mastercard" Bidden made sure that won't happen

Anyone "rich" enough to be above the 50% mark (i.e $32,000 in VA) for your state can't file Ch 7.

Even if you are poor enough if the courts can determine you have a sufficient % of your income left after essentials you are forced to use Ch 13 then anything beyond what is needed for survival will go to pay debts for 5 years.

So maybe the rich who are old enough can just try to ride it out until they die. There is still the "death loophole". Maybe the CC can rig it so if you parents die with debt then that debt passes on to you.

[Belial]

28. Sorry Travis Plunkett doesn't like it..

but its not his ass paying the bill or should I say.. covering the NON PAID bills that have screwed us all so much lately..