Forget boring old FICO—the new world of credit scoring wants to know what you buy and where. The FTC filed a suit last week against subprime credit card company CompuCredit, alleging that it engages in deceptive marketing practices. CompuCredit says customers can use their credit card anywhere, but that’s not entirely true:
The FTC claims that CompuCredit didn’t properly disclose that it monitored spending and cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls, and marriage counseling offices. “What they didn’t say was that you could be punished for specific kinds of purchases.”
The FTC has a problem with CompuCredit not disclosing its usage-monitoring policy, but not with how it determines creditworthiness—and this is where it gets a bit creepy.
With competition increasing, databases improving, and technology advancing, companies can include more factors than ever in their models. And industry experts say financial firms increasingly are looking at consumer behavior, as CompuCredit did.
BusinessWeek says the worry is that companies may use race, gender, or sexual orientation to rank borrowers, and since companies never disclose their formulas for determining creditworthiness, consumers will be in the dark on what’s being collected about them and how it’s used.