Jan. 28, 2009 -- A new policy being used by at least one major credit card company judges a shopper not necessarily by his credit purchases and payments alone, but also by the fiscal behavior of the fellow shoppers in the stores he visits.
And in some cases, the bad repayment history of the guy behind you in line at your local megastore could result in a reduction of your credit line, which, in turn, could lead to a reduction in your credit score -- all because of where you shopped.
Kevin Johnson, 29, of Atlanta, says he got caught in such a financial headlock.
Johnson is, by all accounts, the type of customer most credit card companies want.
He runs his own public relations firm in downtown Atlanta. He owns his own condo in a nearby neighborhood. And he knows how to manage credit wisely.
"My dad worked in the credit industry. So talking about finances was a common thing in our household," Johnson said. "I learned from an early age not to abuse that type of access to money."
Johnson says because of his father's lessons, he scrupulously maintained his credit since college. He says he has never had a late payment, rarely carries a balance on his credit cards and has never been over his credit limit. His FICO score -- the standard credit rating used by most lenders to determine credit worthiness -- is a 764 out of 850. A score of more than 740 is considered by most experts to be excellent.
Two years ago Johnson says he jumped at the chance to open a "blue" personal credit card with American Express. He says he considered the card prestigious.
"They have a wonderful rewards program, where I can get a lot for my money," he said.
In order to earn the most rewards points, Johnson says he used his American Express card as his primary payment method when he went out to dinner, bought groceries or filled up his gas tank. In the fall, he even used the card to purchase airline tickets for a Jamaican honeymoon with his new wife, Deidre. They left for the trip in October.
'Offended Is an Understatement'
But while Johnson and his new bride were sunning on the beach, a dark cloud was hanging over their mailbox. When the couple returned home, Johnson says he discovered a letter from American Express lowering his credit limit from $10,800 to $3,800.
Johnson says his jaw dropped when he read one of the reasons American Express gave for lowering his credit limit: "Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express."
"I think offended is an understatement," Johnson said of his reaction. "It was more like completely disgusted, offended, appalled. And I didn't know what to do."
"They've crossed the ethical line in terms of looking at where you're spending your money and making a judgement about whether that's a good or bad decision for you to make given these financial times," Robert Manning, the director of the Center for Consumer Financial Services at the Rochester Institute of Technology, told ABC News' Chris Cuomo on "Good Morning America."
Manning, the author of the book "Credit Card Nation," says Johnson was the victim of a relatively new credit scoring process being used by credit card companies.
"They are saying, 'We don't like the behavior of other people that are shopping in stores that you are currently conducting business. Therefore, that raises questions about your ability to repay the loan.'"
Manning says the process -- called "behavioral analysis" or "behavioral scoring" -- is a new twist on the same type of data analysis credit card companies previously used to prevent fraud.
Traditionally card companies used a customer's purchasing history to flag suspicious transactions. For instance, a card company might flag a large withdrawal at a casino if a card customer lives on the East Coast and never gambles.
But Manning says banks are now using the information to model the behavioral patterns of its customers in order to try to determine credit risk.
"Ultimately, the banks now are looking at what we purchased and they're making decisions on whether it's appropriate or not," Manning says.
He says in a recession it might be wise for some consumers to save money by reducing their spending or choosing to shop at a discount store. "And, yet, that creates a red flag where all of a sudden these companies are saying, 'You may be in financial trouble, and we're going to cut you off before we take a loss," Manning said.
"The ability to analyze and mine data is so much easier and faster since 9/11. Many people don't understand how almost every transaction they make today could trigger a readjustment in bank analytics," he said.
'They Changed the Rules…Without Telling [Anyone]'
Johnson says he wants to help others learn more about protecting their credit. He created a Web site called NewCreditRules.com and plans to update it regularly with news about the credit card industry.
While behavioral analysis may be seeing increasing use, it is only beginning to draw scrutiny from regulators and lawmakers.In a lawsuit filed in 2008, the Federal Trade Commission cited Compucredit, a third-party credit card issuer, for failing to disclose to customers the use of behavioral scoring.
In solicitations Compucredit advertised its cards could be used anywhere. Yet the FTC alleged the company reduced credit scores of customers who used their cards to pay for things like marriage or personal counseling or to retread their tires. Allegedly, Compucredit believed those types of purchases signaled a customer might be in financial distress.
In December 2008, the company agreed to settle the case for $114 million in credits to customer accounts. The company did not admit wrongdoing.
"What are the rules of the game? That's all consumers really want to know," Manning said. "They changed the rules of the game without telling Johnson."
Experts say the bigger issue for customers like Johnson is not the immediate loss of available credit. Credit limit reductions can have large, long-term implications because they change the ratio between available and in-use credit and that is central to the FICO score.
"What they're trying to do is squeeze the people they're making money from," Manning said. "Unfortunately, a reduction in a line of credit could hurt someone's credit score."
Experts contacted by "GMA" -- including Manning -- say they believe banks may now be using data collected by customers to compare them to other shoppers at individual retail locations or by zip code, weeding out customers in neighborhoods hardest hit by the economic downturn.
In Johnson's case, American Express refused to say which stores he'd visited might have caused the company concern. Johnson says that's especially baffling since his card purchases were at major retailers like Ruby Tuesdays, XM Satellite Radio and Amazon.com.
He says the only shopping trip he can determine was out of the ordinary was a September visit to a Wal-Mart in Southeast Atlanta. It was the first time he had used his American Express card at that store.
"The majority of the retailers I went to are not in my neighborhood. Coincidentally, though, the one time I went to the Wal-mart in the area that I live, the next month I get a letter saying my credit limit is reduced," Johnson said.
For more than a month after he received the letter, Johnson says he tried to contact American Express to get his credit limit restored. He says he pointed out to customer service representatives that in addition to his personal account with American Express, he also has business accounts with the company, all of which he says are in good standing.
Johnson says at one point he was even transferred to an assistant in the executive office of the vice president who signed the letter announcing his credit limit reduction.
"She said we don't find anything out of the ordinary here, other than the fact that we're feeling the heat and the pressure from the economy. But, other than that, we think that your gripes are justified," Johnson said he was told.
"GMA" asked American Express to discuss Johnson's case and the practice of behavioral analysis in an on-camera interview. The company refused the request and instead issued the following written statement:
"Our intent is to strike the right balance between accommodating our card members' spending needs and, at the same time, prudently managing credit risk," the statement reads. "While we may use additional data points, the driving factor for any credit limit reduction is the customer's debt level."
Both Johnson and Manning question that statement, especially in light of the recent government bank bailout. In January 2009, American Express became a bank holding company and received more than $3 billion in taxpayer money as part of the Troubled Assets Relief Program.
"I think the fact that American Express has taken bailout money is one of the most appalling parts of this story," Johnson said. "Here you have a company that's obviously in dire straits, but, in trying to turn the company around, they actually throw some of their best customers under the bus."
In an interview broadcast on "GMA," Cuomo asked House Speaker Nancy Pelosi about Johnson's concerns.
"American Express took money from TARP," Cuomo asked. "Are you going to enforce how banks get to use this money? Credit card companies could be the next wave."
"They could be the next wave," Pelosi said. "The curtain has been pulled back on how the financial services community has mis-served the American people."
Pelosi says she believes new accountability standards being implemented by Congress will prevent companies like American Express from taking tax dollars and then refusing to lend them to credit-worthy customers.
In the meantime, Johnson says he just longs for the days before he returned from his honeymoon to find his credit score tarnished.
"I would like them to restore the credit, but more than that, I would like them to become more transparent," he said. "I don't think anyone would agree to be discriminated against based on where they shop."