Should Retailers Verify Customer Income Before Extending Credit?

One provision of the CARD Act requires credit issuers to verify income and debt load before issuing new credit, and the Federal Reserve is now looking at how to enforce that. That’s scaring retailers, who have come to enjoy the benefits of pushing “instant credit” offers at the register.

A Macy’s spokesman told the Wall Street Journal, “Instant credit is important because it is another service that we can offer the customer that the customer considers to be valuable.” The newspaper notes, however, that the real reasons retailers love instant credit is because they can use store cards to track customer habits, and because they help move merchandise: “In the third quarter, more than half of Macy’s sales were rung up on store-brand credit cards.”

I instinctively distrust any group that doesn’t argue for its own best interests first before pretending to be looking out for the other guy; if you can’t tell me why something benefits you, without dragging your customer in front of me and venerating him like a Token Special Interest American at a State of the Union Address, then there’s probably something bad that you’re not sharing.

To that end, the National Retail Federation warns that verifying income before extending credit is “neither consumer friendly nor does it demonstrably improve the credit-granting process,” which pretty much instantly trips my bullshit detector. Making someone prove he can take on the debt before issuing it to him, and slowing down the credit application process so that rational though prevails, sounds pretty darned consumer friendly to me.

“Hurdle Emerges for Stores Pitching Credit Cards” [Wall Street Journal]