[Corp. Watch] Big Credit is watching you

[Corporation Watch]

Data Mining Still Targeting Card Users?

 Banks claim they don't profile who's a risk based on purchases

 by Betty Lin-Fisher

(Akron Beacon Journal, Oct 25, 2009) -- Let's say you, like a lot of people, are watching your money closely these days. So while a year or so ago, you might not have shopped at a thrift store or a place that sells things for a dollar, now you decide to stop by and charge what you buy.

	Are you frugal, or are you tightening your belt because you might be losing your job?

	Or you and a friend decide to meet for a beer or glass of wine -- something you don't normally do -- and you charge your tab to your creditcard. Are you just out relaxing or are you stressed because you're in a financial quandary?

	Or let's say your hubby convinces you that you need a well-deserved break. So you treat yourself to a massage at a local spa and charge it. Is your husband a great guy who appreciates you, or are you stressed out because you can't pay the bills?

	Monitoring creditcard purchases is a practice called ''data mining,'' a multi-billion dollar industry that has been around for years. What's different now, says creditcard expert Robert Manning, is that the consultants who used to use the data to tell creditcard issuers how to ''up-sell'' a customer to buy more things have seen business fall off sharply.

	Those consultants are now drawing different conclusions based on the data, lack of credit, and consumers not buying as much. They are looking for changes in someone's usual buying habits that, they argue, might indicate potential financial problems. Creditcard issuers could use that information to decrease your limits or raise your interest rates.

	The practice came under scrutiny this Spring and drew the attention of legislators, who requested a study by federal regulators detailing whether creditcard issuers engaged in the practice and whether it negatively affected minority and low-income card users.

	At least one creditcard issuer at the time, American Express, said it did use the practice, but said it had stopped. Even now, an official with a banking industry association says the practice is no longer used.

	But Manning says he doesn't believe it. Consumers should be aware of the practices in this new world of credit and be careful about where they're using creditcards, he said. ''The reality is, the reason they're not doing it anymore is because they're not loaning any money,'' said Manning, author of 'Credit Card Nation', in a recent phone interview.

	''They're making it sound like a policy change, but it's a business environment shift," said Manning, who is on leave as a professor at Rochester Institute of Technology and director of the Responsible Debt Relief Institute.

	"The industry is spinning it that, 'We don't do it anymore'," he said. "They're not saying that they're not going to do it anymore. They're just not loaning money to risky people.''

	Manning says the practice is unfair. ''That's not what these tools are designed to do. This is quick and dirty, and they're panicked moves to try to quickly identify people who may default, [even] if that means knocking down nine customers to find that 10th that may default. They're essentially turning on their best customers,'' said Manning.

	Here's some possible charges to avoid:

• Going to the dollar store or thrift store: ''Everybody is getting the message to be more prudent of their finances. The key to data profiling is, 'Is there a change in your behavior?' … [The two scenarios are] your finances are fine, but you want to be more cautious, or it's 'Oh my gosh, this person is going to lose his job and [his wife] is trying to cut back'.''

• Speeding tickets: ''Never charge your speeding tickets. It's suggestive of people who are irrational, impulsive or people going through stress. They don't have the money to pay for their finances, so they're charging it.''

• Marriage counseling: ''This is the worst possible thing to charge. If you're not making it on two incomes, you won't make it on one.''

	The problem with the data profilers or computers making these assumptions, Manning argues, is they can't take it literally. A computer program that doesn't know you is taking broad strokes in interpreting what it thinks is a good or bad thing, he said.

	Peter Garuccio, a spokesman for the American Bankers Association, said creditcard issuers have told the association they're not using data mining anymore.

	''Just because consumer advocates are saying they're using this data doesn't make it so,'' Garuccio said. Creditcard issuers do know where consumers are using their cards, he said, because they need to keep track of where purchases are made in case there's potential fraud or consumers want to dispute charges.

	Garuccio said consumers have control over how they use their cards and where. ''If suddenly you're using your card at a place where you normally don't -- a hotel casino, for example -- the bottom line is you're running up debt and you're unable to make payments," he said. "That's clearly going to be a red flag for the issuer."

	Manning's advice? ''Think twice," he said. "I'd never charge anything I wouldn't want to deal with in divorce court.'' In other words, use cash or a check if it's a purchase you think your creditcard issuer could try to use against you.