DEL.ICIO.USCard companies adjusting credit limits
For some, lowering based on where they shop
The Atlanta Journal-Constitution
Sunday, December 21, 2008
Kevin D. Johnson returned from a dreamy Jamaican honeymoon in October eager to check out wedding photos and help his new wife open stacks of beautifully wrapped wedding gifts.
Before getting distracted by the fun stuff, the 29-year-old entrepreneur opened the mail. Johnson’s mood soured when he got to a letter from American Express, saying it had slashed the credit limit on his account.
Elissa Eubanks/eeubanks@ajc.com
Kevin Johnson, 29, sits in his Peachtree Street office. After returning from his honeymoon, American Express informed him it was lowering his credit limit.
Johnson was surprised, since he has a perfect payment history and a high credit score. And he was floored by one of the reasons American Express cited: It didn’t like where he shopped.
“Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express,” the letter said. Johnson complained to American Express by phone and letter.
“That doesn’t have anything to do with whether I’m a paying customer or not,” he said in an interview.
Johnson checked his charges to try to figure out what might have raised a red flag in the American Express data-mining model. He didn’t see anything but typical transactions, including purchases at Amazon, Ruby Tuesday, Wal-Mart, Starbucks and Federal Express.
“I understand the need for and the power of predictive analytics,” Johnson said, “But I think they have crossed the line.”
American Express declined to discuss Johnson’s account. But it confirmed that it examines spending patterns. It’s just one of many tactics that credit card companies are using to try to keep default rates from growing higher. Along with studying shopping habits, American Express considers which mortgage lender a customer uses and whether the customer owns a home in an area where housing prices are declining.
These factors are combined with a review of other details to decide whether to adjust a credit limit.
“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.”
“It’s not a fair practice,” said Travis Plunkett, legislative director at Consumer Federation of America, a consumer advocacy group. “I imagine this person feels this is guilt by association. It doesn’t work in the justice system, and it shouldn’t work when it comes to credit card charges.”
Ed Mierzwinski, consumer program director at U.S. PIRG, a Washington-based consumer organization, said companies are telling consumers that “everything you have known for years is no longer true.”
The companies no longer guarantee customers will be considered low risk if they pay their bills on time and never exceed their credit limits.
“Now you have to watch where you shop, because if you shop where deadbeats shop or live where deadbeats live, we’re going to use that as a reason to lower your limits or increase your rates,” Mierzwinski said. He also questions whether the models are valid. “I just am not convinced that it’s a legitimate use of data mining,” he said.
American Express said it studies shopping patterns to set credit limits, not to set interest rates. But a dramatic reduction in a credit limit can have deeper repercussions. Credit scores are based in part on the portion of available credit a consumer uses. If a lowered credit limit means a customer’s account balance exceeds 50 percent of the limit, the customer’s credit score may decline.
It’s unclear how many banks that issue credit cards are studying shopping patterns and mortgages to rate customers. But all banks are working aggressively to stem losses.
“Credit card issuers are experiencing very high losses and are cutting back on credit availability,” Plunkett said. “They are searching for information and data that will allow them to make judgments about how they should restrict access to credit.”
The credit card delinquency rate hit 4.9 percent at the end of the third quarter — the highest since 2002, according to Federal Reserve Board statistics. Most credit card companies are lowering limits for many customers.
The industry said it may tighten available credit further due to new consumer protection rules adopted last week by the Federal Reserve Board.
The new protections include limiting the circumstances in which banks can increase interest rates on outstanding balances on credit card accounts — something the banks can do now even for a customer who has never missed a payment. One analyst has predicted that factors including the recession and new regulations will prompt companies to cut available credit by more than $2 trillion over the next 18 months.
American Express said a shopping profile would never be the only factor used in adjusting an account. Overall debt level is the primary factor, Gonzalez said.
When it cut Johnson’s credit limit, American Express said in its letter that his debt level, repayment history and length of credit history each played a role.
“None of the reasons given applied to me,” Johnson said. “They were all hogwash.”
He said he keeps charges below 30 percent of his limit and always pays on time. Plus, he has a high credit score.
Johnson is the chief executive of Johnson Media, a marketing and communications company he started while he was in college at Morehouse.
Johnson said the decision by American Express probably won’t have a significant impact on him. He’ll have other options since he has such a strong credit history.
But he’s not happy — especially about the company’s decision to use shopping patterns to assess risk. He said it sounds like “consumer profiling of the worst kind.”
Consumer advocates say fairness questions also arise when consumers with perfect payment histories are penalized.
“The argument can legitimately be made by any sensible person that this gets very close to redlining,” said Linda Sherry, a spokeswoman for Consumer Action, a national consumer education and advocacy organization.
Redlining was an issue in the 1960s, when consumers in certain neighborhoods — usually those with high minority concentrations — were not offered loans or insurance policies, or were charged more for the products.
American Express said it doesn’t discriminate and complies with all fair lending laws.
“We do not collect information about race, nor do we incorporate it into any of our risk models,” Gonzalez said. “It’s purely math.”
Johnson isn’t satisfied. He thinks Congress should examine the issue and that credit card holders should continue to question the practices, too.
“It’s our job as consumers to challenge them.”
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Comments
By Diane Sheridan
Jun 26, 2009 11:36 AM | Link to this
Like so many here, my credit limit was slashed from $21,000 to $1000 !!! I have been paying off my balance every month in full, on time for years. My credit report shows no negative accounts and have scores from 700 to 780. The letter I received also lists bogus reasons which are totally inaccurate - too much debt - I have a small mortgage and a small car payment - that's it. I'm through with American Express but I'd be more than happy to participate in a class action suit. Let's see how long they last with no cash flow from their good customers!
By Tiffany Huffman
May 13, 2009 5:10 PM | Link to this
Today I recieved a call from AMEX. They reduced my credit limit for the second time. I have not been late on a payment and pay at least double my minimum payement every month. I just did a credit check and my score is 740. When I called AMEX back today they said they examined my account and other accounts I have through creditors and that my debt is to high, (SO THEY SAY). Also, that I have not been sending enough of a payment they would like to see. Like I said before I always send double or more above my minimum amount due. The lady said, "I understand but they would like to see more." Including my car I have 7,500 of debt total. I am not having any problems with any other creditors harrassing me. I have went from a 6000 credit limit to 4600 in a six month period. It is frustrating being ontime and never going over on my credit limits and getting harrassing calls and letters. Are they allowed to do this??? They set my new available balance very close to what I already owe to them. I feel AMEX is trying to take advantage of innocent people in this already stressfull economy.
By Michael
Apr 25, 2009 12:49 AM | Link to this
Same here.....never late, always paid more than minimum. The second I paid to zero, they closed. I live in an area with high minority concentration. Class Action Suit!!
By Pattie
Mar 22, 2009 11:35 AM | Link to this
I have the same problem with AMEX...I have never been late etc. I also pay more than the minimum. Four months ago they cut my limit by 5K which I figured with this economy so what. I just got a letter they cut it again putting me maxed out on my card!! Saying something about my ability to pay...what the hell is that? I have never been late and paid...have a job that is not in danger etc. Are they trying to force people into default so they can ask for TARP money for the ones that are not paying!
Well...needless to say this will be paid off quickly....I will NOT close it but see what their next move is! This should be illegal....they are screwing up peoples credit ratings and for what?
I know someone who has a business AMEX and when he went to pay for his supplies it was denied...never got the freaking' letter! He pays his bill EVERY month off completely! Now what the heck is this?
By Lisa
Mar 20, 2009 8:30 PM | Link to this
Please somebody tell me where to sign up for a class action lawsuit against AMEX and these practices. I have four cards, and all of the same issues as everybody above. I was declined for a purchase with them because the purchase " was out of my normal spending habits???" whatever that means. They have lowered the limits on the two cards that I pay interest on....and decline charges on the platinum and gold cards that don't really have a limit.
By betrayed
Mar 4, 2009 4:00 PM | Link to this
I feel so betrayed by Amex! This has always been my most used and most trusted card. Whenever I had a problem, they took care of it immediately and efficiently. Now, I go to the store only to find my card declined. Concerned, I called them up and was told my account has been canceled. They supposedly sent me a letter 2 days before this incident (a letter I never received). As someone with a high limit, high credit score, and who always pays the bill the day it arrives, I was floored. I kept asking why and they gave me such a run around. They said I had some sort of loan (a car and student loans which I pay in monthly installments like everyone else in the world). 3 people and 30 min later, I'm still not sure why they dropped my with no notice and told me I had bad credit. The card I trusted the most dumped me along with every other loyal customer. I'm done with amex and thus done with costco. :(
By Richard
Mar 2, 2009 7:25 PM | Link to this
IT'S NOT JUST AMEX....
I fell victim last week when Amex lowered my credit to $1000, less than 25% of the original credit line.
Today I found my Barclay's Bank Platinum Visa had gone from $7500 to FIVE HUNDRED DOLLARS.
I was met with the same overseas BS answers. I called Transunion, where they claimed they got their "derogatory information" Transunion said there hasn't been anythign derogatory on my reports in over 15 years!!!
WE GAVE THESE SOB BANKS TRILLIONS OF DOLLARS IN BAILOUTS AND WE - THE ONES WHO PAY OUR BILLS AND HAVE EXCELLENT CREDIT ARE BEING PUNISHED...WHAT A BUNCH OF CRAP
I always have zero balances - pay them off in full each month - I was told by a nice AMERICAN man on the phone that if "you're smart, run up your highest card to a high balance and LEAVE IT for at least 3 months - in the next 90 days, we expect 80% of ALL BANKS to slash their credit limits without warning. However they will only slash it to within a few hundred of your balance. If you've got a $15K card with only a few hundred on it, you can wake up and find yourself with a $500 balance."
This man had no reason to lie to me...his company (Amex) had already screwed me over and he said he fields these calls all day.
I'm taking his advice after my Visa just got slashed (before all this I HAD a 750 credit score - with all this lowered credit - it may have dropped as much as 50-75 points) I am going to put at least $5k on my high limit Visa and leave it there until this crap passes.
BUT ABSOLUTELY - THERE SHOULD BE A CLASS ACTION SUIT. BAIL OUT THE LOSERS AND PUNISH THE GOOD CLIENTS BY LOWERING THEIR FICO. Why? BECAUSE WE PAY OUR BILLS OFF OR ON TIME.
SOMEONE - GET A LAWYER!!!!!!!
Signed,
STEAMING MAD
By Robert
Mar 2, 2009 7:24 PM | Link to this
IT'S NOT JUST AMEX....
I fell victim last week when Amex lowered my credit to $1000, less than 25% of the original credit line.
Today I found my Barclay's Bank Platinum Visa had gone from $7500 to FIVE HUNDRED DOLLARS.
I was met with the same overseas BS answers. I called Transunion, where they claimed they got their "derogatory information" Transunion said there hasn't been anythign derogatory on my reports in over 15 years!!!
WE GAVE THESE SOB BANKS TRILLIONS OF DOLLARS IN BAILOUTS AND WE - THE ONES WHO PAY OUR BILLS AND HAVE EXCELLENT CREDIT ARE BEING PUNISHED...WHAT A BUNCH OF CRAP
I always have zero balances - pay them off in full each month - I was told by a nice AMERICAN man on the phone that if "you're smart, run up your highest card to a high balance and LEAVE IT for at least 3 months - in the next 90 days, we expect 80% of ALL BANKS to slash their credit limits without warning. However they will only slash it to within a few hundred of your balance. If you've got a $15K card with only a few hundred on it, you can wake up and find yourself with a $500 balance."
This man had no reason to lie to me...his company (Amex) had already screwed me over and he said he fields these calls all day.
I'm taking his advice after my Visa just got slashed (before all this I HAD a 750 credit score - with all this lowered credit - it may have dropped as much as 50-75 points) I am going to put at least $5k on my high limit Visa and leave it there until this crap passes.
BUT ABSOLUTELY - THERE SHOULD BE A CLASS ACTION SUIT. BAIL OUT THE LOSERS AND PUNISH THE GOOD CLIENTS BY LOWERING THEIR FICO. Why? BECAUSE WE PAY OUR BILLS OFF OR ON TIME.
SOMEONE - GET A LAWYER!!!!!!!
Signed,
STEAMING MAD
By Robert
Mar 2, 2009 7:24 PM | Link to this
IT'S NOT JUST AMEX....
I fell victim last week when Amex lowered my credit to $1000, less than 25% of the original credit line.
Today I found my Barclay's Bank Platinum Visa had gone from $7500 to FIVE HUNDRED DOLLARS.
I was met with the same overseas BS answers. I called Transunion, where they claimed they got their "derogatory information" Transunion said there hasn't been anythign derogatory on my reports in over 15 years!!!
WE GAVE THESE SOB BANKS TRILLIONS OF DOLLARS IN BAILOUTS AND WE - THE ONES WHO PAY OUR BILLS AND HAVE EXCELLENT CREDIT ARE BEING PUNISHED...WHAT A BUNCH OF CRAP
I always have zero balances - pay them off in full each month - I was told by a nice AMERICAN man on the phone that if "you're smart, run up your highest card to a high balance and LEAVE IT for at least 3 months - in the next 90 days, we expect 80% of ALL BANKS to slash their credit limits without warning. However they will only slash it to within a few hundred of your balance. If you've got a $15K card with only a few hundred on it, you can wake up and find yourself with a $500 balance."
This man had no reason to lie to me...his company (Amex) had already screwed me over and he said he fields these calls all day.
I'm taking his advice after my Visa just got slashed (before all this I HAD a 750 credit score - with all this lowered credit - it may have dropped as much as 50-75 points) I am going to put at least $5k on my high limit Visa and leave it there until this crap passes.
BUT ABSOLUTELY - THERE SHOULD BE A CLASS ACTION SUIT. BAIL OUT THE LOSERS AND PUNISH THE GOOD CLIENTS BY LOWERING THEIR FICO. Why? BECAUSE WE PAY OUR BILLS OFF OR ON TIME.
SOMEONE - GET A LAWYER!!!!!!!
Signed,
STEAMING MAD
By Suzanne
Feb 28, 2009 2:44 PM | Link to this
I own a small business and our Amex card is with Costco. American Express just reduced our credit limit for the second time. I have written to Costco and informed them that we cannot continue doing business with Costco (who only accept cash or Amex) without a decent line of credit. We have an excellent credit score, always paid our bill in a timely manner and are looking at 2 years of steady government contract work.
I am appalled that as a small business owner (LLC) I pay disproportionately high taxes, a high interest rate at Amex,in addition to having contribute to bailing them out.
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