Amex To NY Times: Just Kidding!
Yesterday, I dug into the outrageous practices of American Express’s “consumer profiling”. Today, Ron Lieber of the New York Times is on this story, and it gets even more bizarre.
Amex to Customers: “Don’t Believe Anything We Say”
According to Amex, “The letters were wrong to imply we were looking at specific merchants,” said Susan Korchak, a company spokeswoman. Perhaps Ms. Karchak needs to look up the definition of the word imply, which means to infer or state indirectly. What American Express did in it’s letter to Kevin Johnson was to say explicitly that they were looking at specific merchants. Let me quote Amex’s letter again
“Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express.”
There is no inference or deduction that Amex is looking at where you shop, they said it outright in the clearest possible terms!
Karchak goes on to explain that the main factor in determining credit worthiness “has always been and still is the overall level of debt, relative to the card member’s financial resources.” Now based on that statement, one could easily infer that they are using specific merchants you shop at to compose up to 50% of their decision making, just short of being a “main factor”.
Will Amex Soon Feel The Wrath Of The Feds?
Yesterday I speculated that Amex is risking a class action lawsuit or a federal investigation. Unknown to me at that time was that a Compucredit, a sub prime lender, was forced to pay a fine by the federal trade commission for lowering people’s availible credit rating on their shopping patterns. No wonder that the Amex spokesperson seemingly backed off their statement when pressed by the New York Times. They now say that they are no longer using “spending patterns” as a criteria for reducing credit.
Fessing Up
At least their spokesperson confessed to their other practices, such as restricting credit based on your profession and your mortgage company. Of course, there are no shortage of ways that this kind of analysis could produce false positives. For example, I obtained my last refinance through a mortgage broker. That company then sold my mortgage to another company. I had no controll over that transaction. What if it had been one of their blacklisted companies?
Don’t even get me started on the blacklisted industries that are facing layoffs, of which credit card companies themselves should be at the top of the list!
Conclusions
The article concludes on pretty much the same note as my post. Don’t worry too hard about this. If Amex or some other company upsets you, there is no shortage of other companies that would be happy to earn your business. That said, it is all well and good if you are like me and do not carry a balance or use up most of your credit. If not, it could be inconvenient and or costly to have your credit limit lowered spontaneously.
One More Word On Churning
To follow up on my recent posts on churning here and here, I came across an interesting article over at the Frugal Travel Guy, who follows up on one of his reader’s churning efforts. Apparently, his reader is the type of person to frequently monitor their own credit scores from all three major companies. What is interesting is the before and after snapshots of their credit scores relative to their credit card churning effort:
“Me before starting to churn: 758 Equifax, 742 Experian, 761 TransUnion
Me after starting to churn: 741 Equifax, 751 Experian, 774 TransUnion
Wife before starting to churn: 767 Equifax, 761 Experian, 782 TransUnion
Wife after starting to churn: 772 Equifax, 747 Experian, 778 TransUnion”
In four of the six instances, their credit scores went up following this person’s churning effort. In the two instances where their credit scores suffered, the losses were very small, only 17 points and 6 points. In neither case was it enough to really make a difference in qualifying for a home or auto loan.
This actually makes sense. It is well known that a portion of your credit score is reflective of your credit utilization ratio. If these individuals had a high credit utilization prior to their churning effort, the additional credit apparently helped them rather than hurt them. This experience, corroberating my own, is starting to convert me to the merits of churning.
To tie this all together, if the credit card companies find it morally ok to grant me credit based on where I shop, where I work, and who purchased my mortgage, I don’t think I am going to have an ethical problem exploiting their sign up bonuses.
