Use Your Credit Card At A Marriage Counselor, See Your Limit Get Reduced

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.

“Your Lifestyle May Hurt Your Credit” [BusinessWeek]
(Photo: Getty)

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  1. modenastradale says:

    Uh, why are tire shops so taboo? Am I missing something?

  2. weakdome says:

    Alright, I can understand Massage Parlors, and maybe even Bars.
    But Tire Retreading? WTF?

  3. GavinEstecado says:

    @modenastradale:

    Agreed, that make no sense to me. Get a flat and your interest rate goes up?

  4. AustinTXProgrammer says:

    Tires were the only one that surprised me too. I am under the impression that since they said retread they are targeting truckers.

  5. failurate says:

    22″ rims.

  6. ianmac47 says:

    @modenastradale:
    It means you are too cheap to buy new tires.

  7. ffmariners says:

    or maybe people who race their cars around? i was confused too….

  8. modenastradale says:

    @ianmac47: But the article said “tire AND retreading shops.” I can’t figure why they’d want to penalize me for buying some Michelins from Pep Boys.

  9. MissTicklebritches says:

    Tires are obviously an expensive impulse buy. How many times have you woken up after a 3 day shopping bender and found your home full of new white walls? Seriously.

  10. ffmariners says:

    @modenastradale: I am sure it was more advanced that… not just like WTF this guy bought $x in tires today… PENALTY. It probably factored in how often as well… I would say buying 4 new tires every month would be quite friggen excessive… so they might consider a ricer someone who is less financially sound (whether right or wrong)

  11. ffmariners says:

    @MissTicklebritches: Haha… I lol’d

  12. tdatl says:

    I think AMEX is doing this, as well. I’ve read on fatwallet that using their cards with some vendors can play a role in triggering financial reviews & limit decreases. They apparently don’t like PayPal, among others.

  13. bobpence says:

    @modenastradale: No, buying from Pep Boys is its own punishment.

    Given that the guidelines were not revealed, is there evidence that CompuCredit really judged people based on where they bought, or might the correlation be explained by the people being losers?

  14. jerros says:

    Billiard Halls? You suddenly become a greater credit risk if one of your past times happens to be playing in a Pool League each week?

    I could see perhaps if there were large bets going on, but that isn’t the norm for most pool halls. 9/10 times you enter a pool hall your not going to meet up with some Tom Cruise hustler wanna be.

    The tire thing is rather silly as well. God forbid you have a flat & need a quick fix to get to work for an important meeting.

    The problem with these generalizations is that they simply don’t place things in context.

  15. Murph1908 says:

    Now that is really stupid.

    Cash only at the massage parlors, people! That paper trail is not something you want out there.

  16. buckfutt says:

    What was it Charles Barkley said after Alabama’s football coach got caught taking a stripper back to his hotel room? “Credit cards are for gas. CASH is for strippers!”

  17. Gopher bond says:

    I’m sure it’s not just a one time flag before your credit is cut. But if your carryover balance increases every month and they see you’re spending $1000 a month at the massage parlor and another $1000 a the bar and only making the minimum payment, then yeah, I might cut your credit too.

  18. hellinmyeyes says:

    Oh, come ON! This is getting out of hand. It’s amazing what these creditors get away with these days. These agencies should throw the book at the companies further trying to scam subprime borrowers.

  19. legwork says:

    I could see people at a risk meeting all agreeing on strip clubs, bars, etc, but “tire shops?” But it probably has real if not-so-obvious data behind it.

    Businesses that accept cards fit a classification system. Tire shops and retread shops are certainly part of the same class, and even if there isn’t some mass-chargeback problem dealing with the shops themselves, there may be something about lower profit due to lawsuits (tire related injuries and disputes, etc.)

    Just wait. Next story will be from someone who charged a group lunch at the local steak-house and it triggered a bump in interest rate and health insurance premiums.

  20. ThomFabian says:

    Gotta love penalizing the person who seeks counseling to strengthen their marriage.

    Good plan.

  21. Sudonum says:

    @tdatl:
    I’ve used AMEX as my sole payment form on PayPal for years. Never had any issues. And FYI, AMEX advertises that most of cards have “no preset spending limit”.

  22. samson says:

    Basically corporations that are legally people can do whatever they want with almost no consequences BUT they want to see HOW I live my life.

    With the information in the marketplace intentionally skewed to manipulate the people with the least ability to that gather information, then buyer beware means less.

    How can you be aware. Somebody wants to give you $ so they can get $ based on faulty logic and bad math.

    rant rant rant

  23. samson says:

    arrarrrh rant rant

  24. MissTicklebritches says:

    @ThomFabian: It probably relates to financial difficulties associated with divorce. But, yeah, it still sucks.

  25. Me - now with more humidity says:

    AMEX will suddenly give you a limit if you charge educational expenses like tuition at a level they deem too high. Happened to me. I just wanted the miles.

  26. badgeman46 says:

    @modenastradale:

    The tires make sense if you read into the rest of the items. I actually think it is their workaround to the race issue. Tire shop= flashy rims on the hoopdee= ethnic demographic. Much like bars and billiards could equate to trailer trailer trash. Massage parlors= sketchy warmup suit guy who buys a lot of porn, and marriage counselor being the obvious one, man who is about to not be able to pay the bill. It appears as someone has looked carefully at demographics of what they perceive to be “high risk.”

  27. DallasPath says:

    @ThomFabian: @MissTicklebritches:

    I thought that marriage counseling was to help people who DIDN’T want to divorce. It means you are at least trying. Using your credit card for a divorce lawyer consultation, well, that might be a red flag.

  28. carso says:

    The most common cause of disharmony in married couples is money.

    So they go to a marriage counselor to help them work through their difficulties. Credit card company sees the charge, imposes higher interest rates and lower credit lines, increasing financial stress and chance that the couple will fight about money. So, couple goes to marriage counselor to help them work through their difficulties. Credit card company sees the charge…

    Credit card companies, your shipment of fail has arrived.

  29. Corydon says:

    So who else is doing this?

    From the article:

    “Every time a consumer accesses their credit, a new decision to extend a loan is being made,” says Rohit H. Kirpalani, CompuCredit’s general counsel. “These scoring models are commonplace across the industry.”

    Scary.

  30. Bladefist says:

    @badgeman46: thats a stretch. And thanks for calling me white trash

  31. MissTicklebritches says:

    @DallasPath: Seeking counseling doesn’t guarantee your marriage will survive.

  32. henrygates says:

    They probably outsourced a study to some company that correlated certain purchases to higher default rates.

    I can see that. I imagine people who spend a lot of money on tires (or ‘phat rims’) are also the type who fail to pay their bills.

  33. PinkBox says:

    I’ve just about given up trying to keep a good credit score.

    I have two predatory credit companies trying to stick me with debts that aren’t even mine, and the credit agencies keep verifying them. How on earth that is even possible is beyond me.

  34. Corydon says:

    Another thought…if I have a debit card and/or multiple credit cards from the same bank, are they all sharing information about my spending patterns? Worse, is there some kind of clearinghouse for this data that multiple banks use?

    A third thought…is this why the interest rate and penalties for cash advances are so high? Because they don’t have visibility into where the money went?

    It may be time to go back to paying for stuff with cash.

  35. Applekid ┬──┬ ノ( ゜-゜ノ) says:

    @Corydon: Isn’t the whole point of a revolving credit line is to, you know, revolve the credit without a reapplication every single time?

    Scary AND dastardly.

  36. teapartys_over says:

    @henrygates: Well is there an actual correlation or just a racist stereotype? Is there some big problem with people charging rims and then not paying their bill? Are you “imagining” the “phat rim” scenario based on your knowledge from real life, or something you saw on TV?

  37. sean77 says:

    Who’s running compucredit? the guy from eHarmony?

    That’s ridiculous.

  38. henrygates says:

    @NameGoesHere: Probably because the agencies are too lazy to actually verify anything. They just call the company and ask if you owe them, and of course the answer is always yes.

  39. henrygates says:

    @teapartys_over: I don’t know, since I didn’t do the study. What the heck does race have to do with anything? There’s also a correlation that as ice cream sales go up, crime does also. Is that a racist stereotype also?

  40. cmdrsass says:

    @DallasPath: The credit card company knows something that you don’t – marriage counseling doesn’t work by the time it’s tried.

  41. bohemian says:

    Wow, it is like your mom AND the the women’s church morality brigade rolled into one, judging your spending habits.
    Now we have corporations judging you and taking punitive action if they don’t approve of your spending habits.
    There have already been issues of employers looking at other data to decide if they think your going to jack their insurance rates and such.
    The next step is places like Choicepoint that keep way too much data about your spending habits selling that to potential employers or creditors using that to make broad judgments about people.

  42. TheFlamingoKing says:

    I build credit models for a living, so I am really getting a kick out of these replies…

    Seriously, though, no one here is seeing it from a lender’s perspective – they’re all just evil corporations who want all your personal information for no reason!!! Why do you guys think it’s ok for them to give you money but not check whether you will pay it back? Would you do that?

    Also, I know for banks and lenders, they are subject to oversight by the Office of the Comptroller of the Currency (OCC) for their credit models. There are also a ton of regulations around fair lending, and which data fields can and cannot be used in a model (like age or gender). I actually write reports that insure that our customers meet fair lending requirements they must have on hand in case of an model audit. Proof that there is discrimination can cost banks millions of dollars, I know I’ve seen evidence of that on the OCC website.

    To the last thought on this article: Sorry. You’ll never know what’s in the credit model, it would give you the ability to game the system. The lenders wouldn’t disclose anything anyway, because they’d lose a competitive advantage – these models cost millions to build.

    @Corydon: To your first comment, credit models are everywhere you apply for credit. There’s serious math behind them to determine what factors predict risk of default. FICO is just an example, most lenders use FICO plus a custom score model to determine whether you are going to pay the money back.

    Also, here’s a shocker – if you have more risk of default, you will pay more money for something. In society, people will only absorb increased risk if the reward is worth it, or else they will seek the same reward for less risk. Why give the money to you when John down the street has always paid his loans back but you missed a few payments a couple of years ago?

    To your second comment, if you want to be truly scared, start researching customer segmentation models. Look at Acxiom or Claritas. With a connection to those databases, I can get so much information on your purchasing habits, your house, everything about your financial situation, even your personal attitudes – all from a simple name, address, phone number style search. Many bigger banks are doing this now. Smaller local banks may not have the money, but some do.

    In other words, forget cash. (The government will come after you anyway if you try to do too much in cash post 9/11, because you might be a terrorist.) You need to go completely off the grid to be untraceable. No internet. No phone. No bills. No large purchases. No rental agreement or home purchase.

    Good luck!

  43. TheFlamingoKing says:

    Also, one last thing… Why aren’t people concerned about census data? We use a ton of that stuff in banking. All I need to know is your name and zip code and I can figure out a lot about your income, age, gender, race, etc. Is it truly that frightening when it’s a business (one that’s providing you with something) but it’s ok when it’s the government?

  44. MissTic says:

    I just went online to check out claritas. WOW. [www.claritas.com]

    The zip code tool is interesting. [www.claritas.com]

    Go look. I’m not surprised to see this at all. We all know that information is power and it’s especially true in the world of consumerism.

    Their classifications make Best Buy’s customer guide look tame.

  45. MissTic says:

    ^as for the census, there’s always fava beans and a nice Chianti :)

  46. TheFlamingoKing says:

    To keep from sounding like a total corporate whore here, I would say that the complaint against CompuCredit described here is very valid. Disclosure is the key. Most people wouldn’t have read it anyway – the loss of a few customers that read the entire agreement and declined would pay off tremendously compared to having to fight off the FTC.

  47. Corydon says:

    @TheFlamingoKing: Thanks for the insight into a murky world.

    Why do you guys think it’s ok for them to give you money but not check whether you will pay it back? Would you do that?

    I don’t think anyone objects to credit models that determine the creditworthiness of potential customers (so long as the data’s accurate). As a responsible borrower, I want the banks to be able to make sound judgments about whether the money they loan out will be repaid in order to keep my rates lower.

    Nor do I object to loans that are conditional on being used for certain purposes being tracked to ensure they are being used for those purposes (e.g. mortgages, student loans, auto loans, etc.)

    I do object to banks tracking every last little detail of what I spend money on for an open line of credit. If you don’t think I’ll repay the money responsibly, you shouldn’t be loaning it to me in the first place.

    It’s none of your business if I use my credit card to buy hot chocolate and a copy of the Bible at Barnes and Noble or if I use it to buy $250 bottles of champagne at the local strip joint.

    Just one more point about these Aspire credit cards: frequently “credit rebuilder” cards are actually secured by the creditor’s own cash (i.e. the creditor gives the bank $250 and then gets a card with a $250 limit). The bank’s got absolutely nothing whatsoever on the line and is just raking in high interest rates and fees risk free. If the creditor defaults, the bank keeps the collateral.

  48. bohemian says:

    @MissTic: I looked at that Claritas zip code tool. None of their profiles come anywhere near anything close, guess I am the neighborhood freak.
    This crap makes me want to give random zip codes when I buy and pay cash.

  49. Corydon says:

    @bohemian: Yeah I did the same thing. Their profiles struck me as being rather like horoscopes you read in the newspaper—at first it sounds pretty good, but when you read it, they’re basically making some generalizations based on average neighborhood income and age.

    My neighborhood had profiles covering the gamut from yuppie kids to wealthier retired folks with some middle income types thrown in. Well gee, thanks for that information…we’ve got some of everyone in my neighborhood. Oh and I’m relieved to discover that my (obviously urban) zip code doesn’t have a lot of suburban soccer moms living in it. Never would have guessed that.

    In other words, nothing you couldn’t figure out with a little census data and a map.

    Here’s where someone will mention that Claritas makes the whole process of choosing neighborhoods to market in that much more efficient.

    But the problem with that assessment is that if you’re looking to expand into a particular area, you’re a lot better off actually getting your own feet on the ground and getting to know a neighborhood than you are relying on some warmed-over census data.

  50. bohemian says:

    @Corydon: There are always ways to use this crap against the intended purpose if you think long enough. Most of the data is pretty stuck on income & age but our zip code insists that I’m either a toothless redneck who loves hunting or a rich conservative who loves hunting. That doesn’t describe me but it does kind of describe quite a few of the people around here. So these stereotype marketing profiles might give at least some idea what a zip code is like when your looking to move somewhere. Combine that with things like home values, schools and crime stats you might get a clearer picture of the area. Much more than the sanitized crap various cities and suburbs or real estate agents tend to give you.

  51. wagnerism says:

    I saw my demographic on Claritas:

    We cook your meals, we haul your trash, we connect your calls, we drive your ambulances. We guard you while you sleep. Do not… f**k with us.

  52. azntg says:

    @hellinmyeyes: Why would the agencies do that? They’re shamelessly proud to be in cahoots with those that they’re supposed to regulate!

    @NameGoesHere: The credit reporting agencies can keep verifying the debt as valid because the reporting creditor or collection agency say they are.

    Obviously, they’re not “verifying” in a way you’d think they should be doing. It’s very perfunctory, to say the least.

    I would provide some suggestions on how to address your problem, but I don’t have enough experience on that. I would strongly suggest you take a look at Creditboards (append .com to that, or look it at Google), which has an excellent collection of self-help threads and a large, caring and helpful community. It might be worth your time and consideration.

    @TheFlamingoKing: Welcome to the Consumerist, a blog where consumers unhappy (or on the flip side, very happy) with businesses reign!

    Haha, just playing with you a bit. I know you’ve been here a while.

    Frankly, it’s quite easy, from the consumer’s perspective to think that the evil corporations will lend us money, but not check whether we will pay it back.

    Why? Because few (many credit unions and some conservative lenders being exceptions) actually go the extra mile (what used and should be standard practice) to even verify if we can pay back what we owe. Aw heck, look no further than the subprime lending that is partly responsible for bringing our economy to where it is now.

    You know, when you think about it, mathematics and modelling is quite convenient. It can be manipulated well enough to bring a rush of air of legitimacy and truth behind deviousness. Redlining still lives strong. And I’d bet that people like you, among other people would know it best.

  53. Snarkysnake says:

    @weakdome:

    All of this is wrong,wrong,wrong. Not the least of because it limits the number of customers that legitimate businesses can do business with.I don’t want some proprietary formula picking winners and losers. If tattoo parlors ,tire stores (Tire Stores !?) are “undesireable” vendors,the customer should determine that,not some damn scoring formula.

  54. TwoScoopsRice says:

    @TheFlamingoKing: Your mention of the federal census data gave me a quick one-way flashback to cold chills and misery. We were “selected” for the full-on version a couple cycles ago. The questions were incredibly detailed and intrusive, and there was simply no opting out of the long version (we tried, and had a census employee show up at our home at like 7 a.m. one Saturday). My gripe wasn’t with how time-consuming the survey was but the degree to which we were expected to bend over and breach our own privacy.

  55. thegirls says:

    What if I’m buying retread tires as a gift for somebody? Why should that affect my credit limit?

  56. I always use American Express when I hire streetwalkers, is that going to be a problem with my credit rating?

  57. @ThomFabian: When I lived in NC, getting tested for STDs increased your health insurance rate, because it was an indicator you were engaging in “risky behavior.” Risky behavior, like, you know, trading STD panels before having sex. :P

    I’ve got to think there’s a public policy objection to penalizing people for seeing marriage counselors. It’d make an interesting lawsuit, anyway.

  58. bonzombiekitty says:

    @weakdome: Maybe the thought is that if you’re getting your tires retreaded, you can’t afford new tires, so you are strapped for cash, and thus a credit risk.

  59. Me - now with more humidity says:

    @thegirls: It only matters if you’re gifting them to a beer-drinking, pool-playing stripper.

  60. satoru says:

    I’m not quite sure what the sudden fuss is about. Credit card companies already do this. It’s called fraud prevention. They’re already analyzing your buying patters, where you buy, what ‘types’ of things you purchase, and for how much. Basically if you’re a good borrower its called fraud prevention, if you’re in subprime then its discrimiation?

  61. hatrack says:
  62. Elber123 says:

    I work at AMEX and yes we do this also.

  63. Elber123 says:

    @TheFlamingoKing and Corydon

    TheFlamingoking is right I work at AMEX and we have our own model that we rely on more than FICO. We are told that our model is much more accurate. And to Corydon, customers do object to the model. Try telling someone that we didn’t decline them because of their 750 FICO score, but because of our scoring system. They don’t understand.