Two recent reports from the Federal Reserve Board, focus on whether behaviour profiling tactics are being used by credit card issuers to adjust the rules and terms of the account, and if the credit card rules could be extended even to small business credit cards. Inaction is being called upon as a conclusion. The press has highlighted claims that credit card companies, in order to adjust the terms on the account, look at transaction behaviour, which includes names, location of stores, identity of the mortgage lender and other such information. A survey of the top 100 credit card issuers along with 75 other companies about their practices, showed that a few of the issuers use transaction specific information as a basis for a change in the terms. Only 6 issuers, over a period of 3 years have admitted that they considered transaction behaviour information to make changes with the credit limit. 4 of the issuers closed the accounts while two issuers altered the APR.
Adjustments in credit limits were made with this data, however, that represented only a small number out of the 340,000 cardholders who found their credit limits reduced for various reasons. As per the report, the issuers use transaction related information for reducing credit lines or to hike the APR, but in general this slashing doesn`t depend on the individual stores` identity or even the merchant or the goods purchased as part of a transaction. Issuers of credit cards use purchase totals and the category of the merchant instead of specifics of the payments or the name and location of the merchant.
As per the report, it could be expensive to prevent the use of transaction specific information. It could also negatively impact the way fraud detection systems work, as they rely on data of this sort to flag suspicious expenses. The Truth in Lending Act, amended by the Credit CARD Act, has offered different types of protection to consumer credit cards but not to small business credit cards. The Board meanwhile, looked at information on whether the same protection could be extended even to the small business credit cards. However, it should be taken into account that the credit card limits, servicing costs and spending on such cards are much higher. This is due to the fact they need specialized management and techniques of underwriting, in order to contain the risk presented by small businesses.