'Intelligent discontent is the mainspring of civilization.' -- Eugene V. Debs

Saturday, January 31, 2009

American Express Backs Down 

Remember this post from late December? Kevin Johnson, a young, black, Atlanta entrepreneur discovered that American Express had slashed his credit limit, despite a perfect payment history and high credit score. After quoting the Atlanta Constitution article, which didn't emphasize his race in the text, I observed:

Mr. Johnson, if you haven't already guessed is black, as you can clearly see from his photograph, which accompanies the story. He is also a successful executive, as explained in the article as well. One can only imagine how many African Americans less fortunate have already experienced reductions in credible regardless of their history of payment. Just as people of color were disproportionately victimized by the housing bubble, they are likewise going to be targeted to during the recession.

Well, now, it turns out the American Express is terminating this mysterious credit evaluation program:

In recent months, American Express has gone far beyond simply checking your credit score and making sure you pay on time. The company has been looking at home prices in your area, the type of mortgage lender you’re using and whether small-business card customers work in an industry under siege. It has also been looking at how you spend your money, searching for patterns or similarities to other customers who have trouble paying their bills.

In some instances, if it didn’t like what it was seeing, the company has cut customer credit lines. It laid out this logic in letters that infuriated many of the cardholders who received them. “Other customers who have used their card at establishments where you recently shopped,” one of those letters said, “have a poor repayment history with American Express.”

It sure sounded as if American Express had developed a blacklist of merchants patronized by troubled cardholders. But late this week, American Express told me that wasn’t the case. The company said it had also decided to stop using what it has called “spending patterns” as a criteria in its credit line reductions.

“The letters were wrong to imply we were looking at specific merchants,” said Susan Korchak, a company spokeswoman. The company uses hundreds of data points in making its decisions, she said, adding that the main factor in determining credit lines “has always been and still is the overall level of debt, relative to the card member’s financial resources.”

OK, American Express still has a lot of ways to engage in mischief here. Interestingly, though, it also turns out that Johnson played a prominent role in publicizing the program and embarrassing American Express:

Kevin D. Johnson, a 29-year-old Atlanta resident who runs a marketing and communications firm, received a letter from American Express last October saying that his credit limit was being lowered. One reason was that other customers who had used their cards at places where he had shopped were late in paying their bills.

The company couldn’t — or wouldn’t — tell him which charges had met with its disapproval. Frustrated, he told his story to the local newspaper and on “Good Morning America.” He also began documenting his experience on newcreditrules.com, where he posted the names of all the merchants he patronized, in the hope that other American Express customers would cross-check his list with theirs and solve the mystery.

Good work, Kevin! But, as I said in my original post, I believe that there was more to it. I suspect that American Express performed an internal audit, and discovered that disproportionate numbers of people of color with good income and good credit histories were experiencing substantial reductions in their available credit. The public relations debacle regarding spending patterns, spending by card users at particular merchants, was just the tip of the iceberg, and potentially a red herring. It is very possible that American Express is still evaluating creditworthiness based upon spending patterns, but in a modified way, subjecting the outcomes to an analysis as to whether they are having a disproportionate racial impact. And, oh, did I forget to mention that Obama just got inaugurated?

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