Credit card data sharing: responsible lending or profiteering?
AS of this month, the way people use their credit cards will be shared between the providers.
Companies say that plans to share more customer information - including repayment amounts, the amount of times a card is used to withdraw cash and whether cardholders have a 0% promotional deal - are simply a bid to promote more "responsible lending".
But credit cardholders, not unreasonably, suspect that companies could be planning to promote more than that.
So what's the truth: is this responsible lending or profiteering?
The information shared
Credit card companies already share a certain amount of data on their customers including current outstanding balance amounts, credit limits and whether or not payments are up to date.
However, under the new data sharing regime they'll also be able to see information on:
- Exactly how much cardholders paid off their last statement
- How often, if ever, cardholders pay only the minimum amount
- Any changes that have been made to the card's credit limit
- Whether the credit card is used to withdraw cash, and
- Whether the cardholder has a 0% interest free promotional deal
Why share more?
According to officials from the credit card companies, the decision to share more data was taken in order to ensure that they are able to practice responsible lending and to try and reduce the number of borrowers that tend to switch from one credit card to another.
All in all, the providers said, their measures will ensure that borrowers aren't burdening themselves with too much credit card debt.
Barclaycard, Capital One, GE Money, HBOS and MBNA have already started sharing the new set of information. All other credit card companies are set to join the new data sharing as soon as their systems have been updated.
Responsible or profitable?
However, the new data sharing process may prove to be a better way of sifting out the good 'paying' customers who are not over indebted.
For example, Barclaycard encouraged customers to withdraw cash on their credit cards recently: an indiscretion the provider defended by saying that it had only contacted its most responsible customers.
Similarly, just before Christmas 2008 MBNA sent out letters to their credit card customers which promised:
"As one of our best customers [our emphasis] we've recently increased your credit limit to £11,200. This means you can withdraw more cash this Christmas to really splash out on yourself and your family."
Unsurprisingly, cash withdrawals almost always attract the highest rates of interest on a credit card. Averaging around 27.9% p.a. cash withdrawal interest rates are often double that of a standard purchase. Additionally, they generate an instant charge of around 2% - 3% of the transaction for the credit card company.
So now that information on whether or not cardholders are likely to withdraw cash is being shared between credit card companies, it does beg the question: won't providers be more likely to use the information to track down the users who will use cards in a profitable way?
Additionally, it's always been common knowledge that credit card companies like customers who spend money, keep on top of their payments, but who don't repay their balance in full each month.
While the credit crunch has made almost every bank in the world nervous and incredibly shy of any 'risky' customers, it has also made them more in need of profitable ones.
Exactly how the credit card companies are going to use this new information to selectively pick and choose customers to take on, though it's likely exact "pick and choose" criteria will vary between lenders.
However, with the financial climate still very difficult and defaults on credit cards expected to rise as things get tougher, it is in the interest of the lenders to ensure that customers are not taking on too much in terms of unsecured debts.
Coupled with the need for credit card companies to become more responsible with their lending - things are likely to get far more stringent when it comes to the approval of new applications.
It has been predicted by other industry sources that the new data sharing will hit the 'rate tarts' - those who jump between 0% balance transfer deals - the hardest.
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