A Jan. 28 article by Good Morning America explores a new and potentially illegal practice by credit card companies called "behavioral analysis" or "behavioral scoring." According to the article, at least one credit card company, American Express, now evaluates its customers' creditworthiness according to the behavior of other people who visit the same shops. That is, an AmEx customer with a clean payment history can now be penalized for shopping at the same stores as people who have trouble making their payments.
This was exactly what happened to Kevin Johnson of Atlanta, who returned from his honeymoon last fall to discover that his card's credit limit had been lowered by $7,000 (about 65%) because "other customers who used their card at establishments where you have recently shopped have a poor repayment history with American Express." Johnson, who said he was appalled and deeply offended by the move, launched consumer activist site NewCreditRules.com after he couldn't get his credit limit restored. Other lenders may also be using this system, but none would discuss it with ABC.
Unfortunately, the trouble with behavioral scoring goes beyond credit limits. Credit scoring organizations use credit limits as part of the equation that determines your credit score -- if your credit limit suddenly dives, your FICO score also dives. This unfairly penalizes people who may be trying to save money by shopping at discount retailers patronized by people who have trouble making their payments. It could be especially tough on people who are trying to rebuild their credit after a bankruptcy, foreclosure or other major financial problem that left them without much credit to spare.
In fact, "behavioral scoring" has already been the subject of a lawsuit by federal regulators. The article noted that the Federal Trade Commission sued Compucredit, a company that issues credit cards for other companies, for not disclosing that it used behavioral scoring to make its decisions. Among other things, the FTC claimed that customers had their credit scores reduced for buying things like marriage counseling and tire retreading, which Compucredit believed could be a sign of financial problems. The company settled with the FTC in December of 2008 for $114 million in customer refunds, but denied any wrongdoing.
At Howard Law, we work closely with credit score issues. In our role as Orange County debt settlement attorneys, we counsel our clients to use credit responsibly to rebuild their credit scores. But when customers are deemed guilty by association by a system with no public accountability, not even an experienced bankruptcy lawyer can tell clients how to get back into good financial standing. If you are a victim of unfair practices by credit card companies and you're ready to fight back, our Southern California unfair debt collection practices lawyers can help. To set up a free consultation, contact our firm online today or call 1-800-872-5925.