'GMA' Gets Answers: American Express Reverses 'Where You Shop' Policy Following ABC News Investigation
Credit Company Acknowledges 'Confusion' After ABC News Report
By CHRIS CUOMO and JAY SHAYLOR
Jan. 30, 2009 —
American Express said late Friday it will no longer use information about where its customers shop to evaluate, and sometimes lower, their credit limits.
The announcement came two days after "Good Morning America's" Chris Cuomo reported on the practice as part of the broadcast's "GMA Gets Answers" series.
The company acknowledged it had been using customer "shopping patterns" as a "contributing factor" in reducing the credit lines of some of its credit card customers but said it stopped the practice because it was "confusing to card members."
"We are no longer using customer shopping patterns in our model," Amex spokeswoman Lisa Gonzalez said.
The company admitted it made the decision late this week after the "Good Morning America" broadcast. Sources told ABC News the company sent customer service representatives talking points Wednesday morning outlining how to justify the policy to customers.
However, on Friday the same representatives received a new set of talking points saying the company had changed its policy and to tell customers "where you shop ... was never used by itself as the reason to reduce a credit line."
As "Good Morning America" previously reported, American Express had been notifying some customers by letter that their credit limits were being reduced in part because other customers "who shopped at the same establishments ... had a poor repayment history with American Express."
But American Express refused to tell customers if particular stores raised a red flag in its data processing systems.
Gonzalez said the policy was a mistake and that customers should know there was never a list of "blacklisted merchants" used to make credit determinations.
The practice of mining customer purchase data to determine credit risk, known in the credit industry as "behavior modeling" or "behavioral scoring," has drawn scrutiny from consumer advocates and federal regulators. Experts say companies like American Express are trying to find new ways to model risk and lower credit limits in the face of the ongoing banking crisis.
"The problem is that banks are making assumptions about whether your expenditures are good or bad from their point of view," said Robert Manning, a professor at Rochester Institute of Technology and an expert on the credit card industry. "It's a very crude measure. And they don't mind being wrong with thousands of people as long as they think they reduce their potential losses down the line."
While American Express says it will no longer use information about where customers shop in making credit decisions, the company says it will continue to factor other controversial data -- such as the type of mortgage lender a customer uses -- into credit determinations.
Manning said even without using "where you shop," there are hundreds of other data points companies like American Express can use to determine a "risk profile" of its customers. "They've crossed an ethical line in terms of looking at where you're spending your money and making a judgment about whether that's a good or bad decision for you to make given these financial times."
Click here to read the original "GMA" Gets Answers story on behavioral profiling.