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Today's Two Minutes Hate
TODAY'S TWO MINUTES HATE....Here's the latest reason to hate credit card companies: Shop at Wal-Mart, obviously a sign of financial distress, and your credit limit gets lowered. Hallelujah!
This is from American Express, which has now decided to hunker down and simply lie about their habit of doing this. 
Compare and contrast the following news accounts. When Kevin Johnson returned from his honeymoon last year he got a letter from Amex saying, "Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express." Here's what they told the Atlanta Journal Constitution about this in December:
"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."
And here's what they told the New York Times this week:
"The letters were wrong to imply we were looking at specific merchants," said Susan Korchak, a company spokeswoman....Now, the company says that there never was such a list. So what about the language in its letters to cardholders, which calls out particular "establishments" where cardholders had shopped, I asked. Well, apparently that was all just a big misunderstanding, despite the number of people who must have been in on drafting the notes in the first place.
So: a month ago monitoring your transactions with "certain merchants" was a legitimate way of managing risk. This month the story is that they were never doing it in the first place. You betcha.
Bastards. I really hate these guys and their entire sleazy industry. More here. Kevin Johnson's website is here.
Too much credit was part of the problem, and the banks were lambasted for not managing risk. Now, the banks are being lambasted for reducing credit and managing risk. The cardholders agreed to this when they consented to the cardholder agreement, so they have nothing to complain about. Besides, they're not doing this universally-- I shop at K-Mart fairly often and always use a card. It may be because I pay off my balance in full every month; there's no good reason to carry credit card debt.
Did not agree to this
The banks change their rules and send out notifications to inform their customers. They don't ask permission unless it's in those 10 page miniscule font pamphlets.
The banks have done Bin Laden a favor by bringing our country to its financial knees with their rapacious interest rates and fees.
In the 1900's it was the Company store that enslaved its employees and now it's the Credit card store that has enslaved their customers with no hope of paying them off.
They have made it so no one will ever get another credit card and will cause more people to go bankrupt because of their endless greed. To hell with them and you for coming to their defense. Bet you're one of those wealthy aholes that enjoys raping others.
If Amex doesn't want it's card holders to shop at Walmart, why not just revoke Walmart's right to accept Amex?
Curiously, they're the "official" card at Costco. I don't think you can use any other credit card in their stores, but you can on their website.
Your article is aptly named. It's misleading and cuts out a bunch of facts to make it, not factual, but hateful. If anyone wants a bit more, check out the New York Times article from January 30, 2009.
When an unrecognized charge for $9.95 showed up on my Chase Mastercard, Chase showed zero interest in pursuing the issue, even though scads of people seem to have suffered the same fate. Try googling "Sigma" and "888 882 6394" and read all about it. Chase was Johnny on the Spot, though, trying to sell me "fraud protector" service for $7/month.
Good thing we have all these heroic elected representatives protecting our hard earned savings from such sleazeballs. Not!
As the market tightens, it makes sense for the CC banks to lower credit limits and increase rates on future purchases to discourage use of credit.
What makes these people soulless motherfuckers is that they are raising rates on existing balances for consumers who have good credit and no bad behavior. Meanwhile, the rate that the bank itself has to pay to borrow money is at a historic low.
When Citi bumped me from 13 to 22%, I started looking at my options. My credit union offered me 9% fixed guaranteed. I can't wait to call Citi and tell them to take my check and sit and spin.
(Don't forget kiddies, when you cancel a card, it might be bad for your credit if you've had the card for a long time. Check your contract to make sure you won't have to pay a penalty for not using the card and then just let that MFer sit idle. If you really want to hurt the card company, tiny transactions (like $.11 of gas) cost more to process than they collect in fees from the merchant. Compared to the dollars in interest that they were making from you every month, it's barely a scratch, but at least it's something right.)
Jason, on your advice I read the linked NYTimes article, and now feel even more hate for the credit card industry. It sounds like pure data mining with little human input is being used to essentially automatically make changes to relationships between credit card companies and credit card holders. I can understand it, but it is very risky for the companies because customers loath the invasion of privacy and the surprise credit limit and interest rate changes.
I see no specific evidence in the story that Walmart is the store AmEx objected to. The guy presents a list of dozens of "Establishments" where he used his card -- and he says he doesn't know which one(s) raised red flags.
The original letter also said "customers who have loans outstanding with certain lenders or customers who make transactions with certain merchants" -- so it could have been the former of the two possible reasons in this case.
Also, when AmEx is saying "The letters were wrong to imply we were looking at specific merchants", what they are probably saying is that they use data mining algorithms that look at patterns based on many inputs.
I do think Al has a point here. We cannot blame credit card companies for trying to reduce risk. If they are using data mining that seems opaque -- and sometimes produces paradoxical results -- that may be because it's the best they can do. Surely it's not in their interest to reduce the credit of credit-worthy customers, so why would they be doing it?
The credit-card industry is sitting pretty, despite the prospect of a higher default rate. Thanks to the rewritten bankruptcy law, they'll eventually get their money (with usurious interest piling up meantime); and many of their customers will be stuck for a while until they make the transition to all-cash consumption.
Meanwhile, the Obama administration should insist on greater transparency in credit-scoring, which now is opaque and seemingly arbitrary.
Surely it's not in their interest to reduce the credit of credit-worthy customers, so why would they be doing it?
Because, as you say, the algorithms seem to them to work pretty well in aggregate at managing their risk, and they think they can spin the customer stories as customers not understanding the complicated data mining algorithms used to protect both customers and companies. But from the customer perspective, the data mining approach really does seem soulless and inexplicable. (I suspect the decisions really are often rather opaque even to company insiders.)
I was on vacation in Kenya several years ago and watched a traveling companion trying in the middle of nowhere for a couple of hours to contact their credit card company on a cell phone with low battery because the fraud detection had clicked in. I think they withdrew a hoard of cash from an ATM for use on the rest of the trip after this.
I suspect the decisions really are often rather opaque even to company insiders.
Yes, that was my point as well. Of course data mining will produce results that "seem soulless and inexplicable". But I doubt it would be economically feasible to do detailed individual examinations of the risk of each card-holder.
Anonymous at 1:20 PM was me.
The consistency of the two statements depend on the semantics of "list". Amex is noted for its sophisticated statistical analysis. The fact that, as a matter of valid statistical correlation, customers of "certain merchants" pose a higher risk does not imply an a priori targeting of "specific merchants". The actual merchant names could be completely left out of the formula as the objective is predicting the likelihood that the card holder will pay the bill.
The framing distinction is between a plausible risk management technique and snobbish discrimination against those who shop at Walmart. One has to suspect the Amex is more likely to be evil in the "maximize profit" sense rather than in the "maximize our self importance" sense.
Of course profit maximizers can still be evil bastards. They noticed I 'auto pay' through a bill service and offered a great deal on carrying a balance. Good deal, except the electronic bill only presents the amount due as the minimum payment. It requires a manual effort to pay the bill in full. Evil bastards, but rational.
There is, however, a customer upside to such statistical predictors in fraud detection. Many amex card holders have stories of buying some high priced consumer or luxury item after a year of mundane business travel and having to talk to the (very pleasant) amex fraud prevention rep.
More hate, please. I represent a couple pro bono clients repeatedly attacked on baseless grounds by the credit card companies and their collectors. That in addition to my own credit; at one point, AmEx gave me a 22% interest rate for a late payment caused by their own website, which applied two separate payments to the same month.
There cannot be too much hate directed at the credit card companies.
"Bastards. I really hate these guys and their entire sleazy industry."
Meh. Your hate is misplaced.
The sleazy industry is just doing their job.
Your hate should be focused on the federal government that has been unable to correctly regulate the credit card companies due to their campaign contribution.
Petey: Can't I hate both?
Eh, it's easy to hate the credit card companies for a variety of reasons, but this hardly rises to the top of the list. I don't know if this is the most sensible way of trying to weed out bad credit risks, but it doesn't sound that ridiculous.
Of course, I haven't had any of my credit lines cut, so I can't really complain. I guess my feelings on the matter would be different if that were to happen.
I just wonder, why don't any of the people allegedly affected by this call up the companies and start demanding that this stop? Unless there's a very good reason for them to start scaling back on you, such as missed payments, they tend to cede to customer demands fairly easily, as long as they can keep you as a customer. Try not using the card for a few months and then ask for a lowered interest rate, for instance.
Slimy as Amex is, it is comparatively one of the good guys in the industry. The others tend to be worse--much more subprime--much more effort at keeping poor shnooks on the treadmill of perpetual debt.
Regusting.
Most of the major credit card issuers are effectively insolvent. The practice of throwing good money after bad is discouraged at least as early as Acct 101. Don't pay these financial vampires, they're all due for receivership.
I hate the industry as much as anyone, but I have to agree that any snooty patootie that pays extra for the "prestige" of an Amex card, and then ends up schlepping to Walmart, has to have fallen on hard times.
Just further proves my point that data mining, as practiced and applied by most, is no more than superstition. The Amex decision is just one more example.
Surprisingly, Kevin continues to be a fan of data mining.
Rather than a single specific store wouldn't it be more likely to be a pattern of several specific businesses (e.g.saloons and strip clubs) that a search program could pick out?
The only way to win at this credit card game is to die penniless, owing great sums of money and with no estate. The homeless got all you guys beat hands down. Don't like that? Then suck up and pay the bill for your 'good credit rating'.
But I'll bet that republicans in red states get 50 or 100 points just because of who they are and where they live.
Just further proves my point that data mining, as practiced and applied by most, is no more than superstition.
In the small, sure, but in the large they are finding lots of actionable patterns, and acting on these patterns is very likely improving their bottom line. While pissing off a lot of customers because of the very high false positive to real positive ratio, but I suspect they believe they can manage the annoyed customers, preventing them from doing significant bottom-line damage.
These data mining algorithms appear to be sort of like the mind of my cat who gets excited whenever we get a teaspoon out of the drawer, because such a spoon is used to scoop some nice soft food out of a can into his bowl. The cat has noticed that spoon-from-drawer withdrawals are somewhat correlated with food. Since teaspoons are used for other purposes, the cat whining is annoying during all the false positives, i.e. the majority of spoon-from-drawer withdrawals. The cat can't easily affect my credit limit or credit rating, though.
The only way to win at this credit card game is to die penniless, owing great sums of money and with no estate.
There may be some people counting on the Rapture.
There is a logical explanation for the difference between the 2 news releases. When people discovered their credit balances were cut for shopping at Wal-mart, many called Wal-mart to complain. Wal-mart obviously called the CEO of AMEX & promised to shut off all Amex CC business in their stores & widely publicise the reason why. if it didn't stop. Considering that Walmart is the world's largest retailer & also one of the very few still making a profit, the Amex CEO shit his pants & said, "YESSIR!"
A few years ago I worked retail, which required processing purchases for all the major CC companies. Amex was always the biggest PITA for both the retailer & the cardholder.
It entirely escapes me as to why this is worthy of hate. The retroactive changes on balances, certainly, but this is simply rational risk management. Revolving unsecured debt is a luxury and unless actively managed, easily blows up the lender. Watching proactively for changes that signal possible job loss, etc, and reducing debt limits is a good thing.
Amex IS one of the relative good guys. I understand that they in fact look at dozens and dozens of data points in evaluating both specific purchases as well as issuing cards/setting limits.
Amex was one of the first commercial enterprises to buy a Cray super-computer years ago to crunch the massive amount of data they have about cardholders and merchants. There's very little data they don't have and don't use.
Watching proactively for changes that signal possible job loss, etc, and reducing debt limits is a good thing.
It is the false positives that are an issue. Must we really navigate through life worrying that every transaction will be used as input by imperfect (to be charitable) machine-based pattern discoverers and pattern recognizers, resulting in surprising (and in principle frequent) automated credit limit/interest rate shifts?
(Revolving unsecured debt may be a "luxury" but it has been marketed as a necessity.)
Kevin, here's another trick recently pulled by my Citibank AT&T Universal Card. A few months ago, without warning, they stopped accepting ACH (wire) transfers from my checking account when I pay the credit card bill online, and insisted to my bank that payment be sent by paper check. Apparently online payees can instruct banks to do that. Result? It takes at least 5 more days than it used to for my payments to clear - so Citi gets to charge me for a "late fee." Of course, when I called them, they removed the charge because I'm such a great customer - and now I know enough to schedule the payment in time. But I bet enough people don't try, or aren't able, to get the late fee removed that's it's well worth Citi's effort to do this.
The way to screw these bastards is get a card with a smaller more consumer friendly institution. The rates are lower and they don't pull this crap. Plus the profits go to help real people not line the pockets of bankers. Try these - wainright bank, shorebank, self-help credit union.
don't forget, banks don't have any money to lend. that's why all the conflicting bs with their cc's
Since when is a line of credit of a certain size a civil right?
We're in this mess we're in because of too much debt. Now, AmEx started doing something intelligent, like cutting borrowing limits for people going to massage parlors and marriage counselors (because divorce and bankruptcy are so intimately linked) and Kevin is moaning about it. Let's go back to lending everybody whatever they want and then the taxpayers can bail out AmEx.
This doesn't bother me much. Late fee shenanigans and midnight rate increases (if for instance you start shopping at Walmart) ought to be regulated out of existance.
The Lounsbury and Steve Sailer: I think the reason people are bothered by the practice of a credit card company lowering a credit limit on the basis of a customer shopping at a certain retailer is that, from the customer's point of view, if the customer holds the credit card for a number of years, and always plays by the rules, that is, always makes at least the minimum payment and never exceeds the credit limit, that by doing so, the customer is demonstrating creditworthiness that should result in an unchanging or increasing credit limit. It just feels bizarre and perverse that using the credit card in an entirely legitimate manner should result in a decrease in a credit limit, especially if one has worked hard and played by the rules for a long time. It would be like your employer saying, "We found out that you're spending part of your salary on tofu, and we have statistical evidence that tofu eaters don't work as hard as everyone else, so we're cutting your salary." Reducing a credit limit because of actual financial facts about the borrower (late or missed payments) one can understand. Reducing a credit limit because one had the opportunity to get a bargain at a particular retailer, WTF???
I paid off all but one of my cards a long time ago. The Federal Court requires me to keep one open to pay bankruptcy filing fees for clients. No joke.
Sadly I kept a Home Depot card. Today I got a notice from them that my rate was going to 23%. I don't have a balance, so I suspect they are also going to charge me a fee for not using the card.
I hope Home Depot realizes that Lowes just got all my business.
Watch for this downward ratchet:
1.) drop credit limit to 110% of balance
2.) wait a month for FICO score to drop, because card is near (new) limit
3.) bump rate to 22.99% on strength of new FICO score
CITI's been doing this...
Make all further bailout money to these firms available only at credit card rates. I have stopped believing the world will collapse if we lose Citi or Amex.
I guess I don't see what the big deal is. I would *expect* credit card issuers to be doing more rigorous risk analysis these days, considering how over-exposed so much of the rest of the financial industry has been.
Also I kinda feel like Kevin Johnson is probably playing this for publicity--he does own a marketing firm, after all.
Of course profit maximizers can still be evil bastards. They noticed I 'auto pay' through a bill service and offered a great deal on carrying a balance. Good deal, except the electronic bill only presents the amount due as the minimum payment. It requires a manual effort to pay the bill in full. Evil bastards, but rational.
I actually work in that industry and am familiar with bill presentment. There's no conspiracy here--most billpay just gives you the option to auto-pay the minimum because a) that's what most people are concerned with, and b) people would get confused and pick the wrong option, or set it up and forget to turn it off the first time they charged a $6k television planning to pay it off over 3 or 4 months. Also your "current" balance varies from day to day, whereas your minimum payment is more or less fixed until the next bill comes out, so it's a lot easier to relay the minimum payment to your billpay than try to keep it synched w/ your current credit card balance at all times.
Kevin Drum doesn't hate the credit card industry as much as I hate the computer industry, which is constantly forcing me to buy stupid bloatware that doesn't work. If everyone associated with the software industry died, I wouldn't shed a tear.
I don't have any association, other than as a customer, with either industry.
Matt D,
What's wrong with going into debt being the conscious decision? I only pay online after the bill is finalized. The minimum and the full balance are both fixed.
Or you could set it up so people can choose which is the default. Modern internet databases can be sophisticated that way.
Both Citi and Chase sent me a notice this month that due to bad economy they were raising rates on my excisting balance despite always paying my bill on time.
Won't this cause more people to default? I don't understand strategy at all.
What's wrong with going into debt being the conscious decision? I only pay online after the bill is finalized. The minimum and the full balance are both fixed.
There's nothing wrong with going into debt--the problem is that if you set your billpay to auto-pay your full balance and forget about it, you can end up overdrawing your account pretty easily. Likewise, if you had a big payment post after the close of the cycle, you could end up paying it twice. Most people just use the auto pay to ensure the minimum payment is handled and they don't get any late fees/interest hikes. Personally, I would never use the auto-pay for my full balance, just in the event that there's something fraudulent that I don't notice in time to nix the payment.
Or you could set it up so people can choose which is the default. Modern internet databases can be sophisticated that way.
Some products no doubt offer that option. I'm just pointing out that if the original commenter's product doesn't offer that, it's not because they're trying to make it harder to pay the full balance--it's just that they figure people are most likely to use it for paying the minimums. Your bank/bill pay provider also in many cases is making that payment *before* they've secured funds from you, so they prefer to minimize the chances of you accidentally sending out a $20k payment when you have $5 in your account.
@Richard Riley:
I don't use any of the more "prestigious" AMEX cards because I think it's pointless to pay such a high fee, but I do have two different Blue cards. I had two different bank accounts registered on the site to pay my credit card bills online, both for when I was at school and at home. One was an account with Washington Mutual, and after a while, no matter what I did, it would tell me I had the wrong routing number. It got so bad that I received a letter telling me I was barred from using this feature online, but as I was trying to fix this on the phone, some payments may have been late. Was this my fault? Not really, so I fought it, but you're right to say that a lot of people don't. And once they are adding almost $40 a pop at a high interest rate, the financial raping begins.
Companies more worthy of hate than the the credit card industry:
1. Any company making tobacco products.
2. Advertising agencies that make advertisements for tobacco products.
3. Companies that create and abet the creation of housing tracts restrictions on the use of clotheslines, solar panels, tomato gardens, and other energy-saving and useful amenities for the residents and homeowners.
4. Companies that profiteered from the Iraq war, especially Blackwater and Halliburton.
5. Companies that are lobbied Congress to tie up intellectual property rights essentially forever. In the 1960s, a copyright lasted a mere 28 years and could be renewed only once. Books and other artistic creations created over 56 years ago should be in the public domain, but many are orphaned, out of print and out of circulation because nobody can figure out who owns the copyrights now.
6. Fox News and the other lying liars of the right.
Speaking of Amex, some months ago I was going to have my relatively modest line of credit raised. However, Amex works with Experian credit bureau.
Well, TransUnion and Equifax have my information correct (and TransUnion is very easy to deal with-- kudos to them!), but Experian still refuses to even send me the credit report that sank me.
That is in violation of State Law in three different ways-- they owe you one free report a year if you ask; if they diss your credit you have a right for a free report; if there are errors (and there are, according AmEx nice guy who answered when I asked if a certain item was noted there) you have a right to credit report to dispute errors.
Experian is so highhanded and so screwed up, they should not be in charge of ANYBODY's credit.
I googled credit complains about Experian and got not tens of thousands, but hundreds of thousands of hits.
How about an investigation into Experian Credit Bureau? WORSE than AmEx.
Leaving aside the usual Leftist wailing (that is, anything companies doing BAD,), regarding the monitoring, while I am not familiar with what American credit card issuers do specifically, being moderately familiar with similar programmes elsewhere, I believe that both the arty and most comments are misplaced and there is serious misunderstanding of what is going on.
What is likely being done by AMEX and others is dynamic monitoring of changes customer buying patterns; not that buying in specific stores is blacklisted (that would be far too crude), but that significant departures from past history (of usage in terms of amounts, retailers, etc). Thus, if you are a Platinium Card owner who ALWAYS shopped at mass retailers with said card and are more or less in the same buying patterns, the behavioural analysis engine doesn't flag you, you're not changing. However, the Platinium Card owner that typically shopped at High Street merchants and is suddenly going down-market, in general that is a huge red flag. Insofar as it is terribly expensive (and often inaccurate) to have individual analysis, the engine reduces (but of course can also move back up if the pattern is stable...).
I find it bizarre also the complain supra about fraud flagging on the overseas trip; I get fraud flagged constantly insofar as I spend 90% of my spending in emerging markets, on business. And I am damned glad of it, this is a significant tool contra 419 frauds in Africa and MENA, and fraud reduction means cost reduction and more affordable credit. That some behavioural engine flags me and forces an explanation every few months, while annoying, is useful (esp. in African and MENA markets where you're an idiot to walk around with too much cash).
This is a perfectly reasonable credit quality monitoring programme for unsecured credit, and PRECISELY the sort of attention to credit quality evolution - you know good lending standards that most commentators here have wailed on about during the credit crisis. (I shall not try to defend the indefensible retroactive changes in card agreements, post-facto interest charges, etc - all that is clearly abusive and inexcusable) Bank lending systems for unsecured credit - the data mining capacity mentioned - are key to allowing for affordable unsecured credit.
UNSECURED being the key, as I work in emerging markets largely, I can assure you it is a fine luxury, of great utility, but a fragile product. Proactive monitoring of changes, and comparison with historical averages can detect a borrower "going south" and it is prudent for both borrower and bank to reduce credit (yes, of course that borrow may 'need' the extra money, but given likely loss, the bank should not lend it for the borrower's own good and the general quality of credit.)
While yes there may be 'false' positives if a borrower suddenly changes behaviour in a way that suggests statistically they are becoming 'distressed' but is in fact simply moving to a more conservative spending position, well it is hardly the end of the world to have one's unsecured credit line reduced. The same behavioural analysis engines also lead credit lines being increased, and the improved management overall means less losses which means... more stable lending entities. I believe there has been some whinging on of late about losses, yes?
In reading then Drum's complain and the wailing here, it strikes me you all bloody want Magical Ponies. Banks must lend, but they must also be prudent, oh yes, but also Convenient and oh yes, also very cheap.
Again, as someone working in finance (although not consumer) in emerging markets, I see up close that the whinging on is self-contradictory. More prudence, better standards, better risk controls, etc. means ipso facto reductions in credit lines, especially unsecured credit. Whinging on for self contradictory goals... why not ask for Tax Cuts & Spending Increases as well to achieve a balanced budget.
I've had a 7 pennies credit on my AMEX for at least three years, they go through the expense of sending me a statement every month. I wonder if they like me as a customer?
I had a regular Amex card but I got tired of paying their membership fee just to get a few airline miles. So I switched to a Costco Amex card with no fee and some rebates. My limit was cut by a factor of 10!