A little known provision of the credit card Act of 2009 is expected to shed some light on a credit card industry practice often criticized. Come May 2010, the federal government will share its findings to the public regarding a study commissioned by Congress during the creation of the credit card bill.
A provision in the milestone legislation calls for the Federal Trade Commission, the Federal Reserve, and other financial regulators to conduct a study into a well-known but highly controversial practice often used by card companies. For years, the public and the federal government has been kept in the dark about the card issuers' monitoring activities. Industry sources say that banks and other financial institutions often keep track of consumers purchasing activities and other transactions to their own advantage.
By keeping tabs on how cardholders use plastic, card companies can often notice patterns and use these to lure consumers into availing of their services. Card issuers also keep track of any sudden changes in the cardholders' regular activities. According to experts, purchasing items from thrift stores can alert card companies about potential financial difficulties, giving them the chance to slash credit limits or place stricter terms.
Charging gambling expenses on credit cards can also point to impending financial problems. Card issuers often watch for these instances before deciding to impose restrictions or changes in the cardholders' terms. Banks and card companies also use the information they acquire for marketing purposes. Even paying for groceries with credit cards can mean trouble for consumers. Card issuers usually relate any shifts in spending patterns to a change in lifestyle, possibly brought upon by financial distress.
Another less known use of the information collected by the monitoring practices is connected with the card companies' collection policies. Investigations conducted by financial experts and journalists last year have revealed that most banks and card issuers utilize the data they collect to develop new approaches to get consumers to pay their dues. Dubbed "psychographic behavior analysis," the practice is thought to have a major influence on the marketing and collection strategies of many card companies.
As part of the measures enacted by Congress, the government-sponsored research will study the involvement of banks and card companies in the said industry practice. The federal agencies tasked with the study must also provide detailed reports whether the monitoring and tracking practice affects low-income consumers. The Congress is expected to introduce new measures to regulate or even remove industry practices considered detrimental for U.S. cardholders.