A few days ago, The New York Times ran an article entitled “What Does Your Credit Card Company Know About You?”. When you open a new account with any kind of lender, you have to expect that they will be granted access to your most personal information: anything that’s included on your credit score, including your mother’s maiden name and your home address. It might not have occurred to you, however, that your credit card issuer has open access to a whole other kind of data entirely: to wit, information about how you spend your money.
Do you tend to eat out a lot? Rent lots of movies? Maybe you have a car or sailboat that you are trying to rehab over a long period of time, and you spend piles of money at Auto Zone, or Marine Max. Perhaps you even make, from time to time, some discreet online or mail order purchases that are delivered at your home in plain, brown wrappers. It doesn’t matter, really… it’s your money, right? It might be disconcerting to know that there is someone looking at your account, making judgments about you based on your spending habits. Yet, this goes on every day.
The Times article shed some light on what is apparently a fast-growing trend in the credit card industry – using customer purchase data to try and assess individuals’ risk for defaulting. The practice originated in Canada, in 2002. J.P. Martin was an executive for Canadian Tire, and a real statistics buff. He spent a year analyzing data compiled from statements on consumers holding Canadian Tire credit cards, which can be used anywhere. He wanted to see whether there were actual associations between how folks use their plastic, and whether or not they paid their bills. Turns out that there was a significant connection.
Consumers who bought expensive, frivolous accessories for their cars – a super-thrust exhaust kit, or a chrome skull hood ornament – were found to be a much higher risk for skipping payments. The very worst groups of consumers were those who frequently put their bar tabs on their plastic. Consumers who bought items to protect their investments, like waterproof stain for their hardwood floors, or high-grade motor oil, also seemed to be interested in protecting their credit.
Martin’s discoveries did not round out to a complete science. The Times article mentioned the example of a customer who puts their monthly cable bill on their credit card, revealing a fully-loaded package with all the extra channels and features. In this case, is the consumer wealthy and able to spend money on luxuries, or are they making poor choices? Despite these pitfalls, however, the Times reports that virtually every major credit card company in the nation is using Martin’s method, outlined in his book The Psychology of Collections. Issuers are paying for their representatives to attend seminars based around Martin’s teachings, which also include lessons on how to best probe the psyches of delinquent borrowers, in the interest of collecting the most money back from them.
The Times went inside one such informational seminar, taught to a roomful of new Bank of America collections agents. With so many more Americans in financial crisis than usual, as a result of the recession, banks are taking a much more “touchy-feely” approach to squeezing delinquent borrowers. Issuers are trying to get away from nasty, harassing phone calls – Martin believes that these do not work. He states that collectors need to identify what is motivating their customers, and communicate with them on their level.
One senior account specialist boasted of how she had spent over one hour talking to a divorced mother of two young children whose husband had left her with almost thirty thousand dollars in credit card debt. The woman was being hounded by debt collectors and making no payments, threatening to declare bankruptcy. The savvy agent took the time to listen to the frustrated woman and take an interest in her situation. The woman began making payments on her card every month, and had paid off her balance within three years in full. The customer could have asked for – and probably received – a significant discount on her balance, since banks can and do authorize extreme discounts in the interest of wooing hopeless borrowers into getting back on track. The customer didn’t ask, though: she felt bonded to the representative, and thought such a request would be too forthright.
Most credit cardholders will never realize that the helpful representative on the other end of the phone is actually engaging them in a sophisticated form of psychological manipulation. They are just happy to feel as though someone is listening to them. For card companies, anything that gets more money in their pockets isn’t a bad thing.
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