There have been at least two reports sent to the Congress by the Federal Reserve Board to address the issue of “behavioral profiling tactics” used by credit card companies. The companies use these methods to adjust the terms and conditions separately, and the Federal Reserve Board has taken up this matter with Congress. The Truth in Lending Act would be applicable to the credit card rules, and in turn, small business credit cards will only be known after awhile. There is basically a call for inaction as per the conclusions of this report.Are card companies profiling customers?
The answer is yes. Card companies closely monitor transactions and behavior patterns of the customers, and keep track of the stores in which they shopped, the mortgage lender the customer approached etc. This information is used to readjust the terms on an individual basis.
There was a sample survey done on approximately 100 card issuers, as well as 75 other financial institutions in regards to credit card practices. It came as a shocking revelation when it was learnt that some issuers were calculating the terms based on the transactions with the mortgage lender, as well as other such details. While a few of these issuers stated that they only used this information in order to limit credit lines, there were those who actually raised the interest rates as well as some who closed accounts.
However, credit card issuers state that apart from setting the credit limits, this information is more general in nature, and does not delve into the details of the name of the retailer or merchant. For instance, there would be just a mention of “hardware store” and not the name of the specific store.
The report also suggests that putting a barrier on transaction specific information could prove costly, as it would make the fraud detection ineffective.Would these restrictions be applicable to small business cards?
The amendment in the Truth and Lending Act has many provisions that could be applicable to credit cards. But these protections are not extended to small business cards, and the Board made observations on whether the same protection should be extended to small business cards too. The Board also observed that restricting the adjustments in interest rates by issuers might affect small businesses, as there would be an increase in interest rates as well as a decrease in credit limits.