Tuesday 19 February 2008

Avoid the credit card blacklist

UK Credit Card companies are to start sharing personal data in the spring that will help them weed out prudent and therefore ‘unprofitable’ customers for the first time.

Banks have been talking to industry bodies for several months about new initiative that will enable them to identify consumers who clear their balances in full every month, or who constantly switch to 0 per cent deals. Such customers make the banks no money because they do not pay punitive interest charges of up to 28%.

The disclosure follows online Credit Card company Egg’s controversial decision to cancel the cards of 166,000 customers earlier this month.

It claimed they were “high risk” in other words, they have missed payments or borrowed beyond their means.

However, hundreds of Egg customers came followed to say their cards had been cancelled even though they had never missed a payment, cleared their balances in full every month.

This raised speculation that Egg, owned by Citigroup, had cancelled the cards simply because it was not making money from them and this will become much easier under the new initiative.

At present, the only information banks share includes when a card was issued, when it was closed, the balance and whether or not there have been any missed or late payments.

From spring, however, customers can be vetted by credit lenders to see if they pay off their balance in full each month, and make use of promotional 0 per cent deals.

Credit Card firms will also be able to see more signs of ‘high risk’ behaviour such as withdrawing cash with a credit card, and big changes in a customer’s credit limit.

The sharing of this additional “behavioural” information will conclude a two-year project overseen by Apacs, the UK payments authority, to help lenders better judge risk.

However, consumer groups warn the move the first change for more the first change for more than a decade could mean more customer are denied credit.

Credit-card providers such as Barclaycard, HSBC and others have already tightened their lending criteria in response to the credit crunch by asking customers who don’t use their cards to justify why they need them.

Lloyds TSB charges some customers a £35 “inactivity fee” if they have not used their cards over the past year.

Neil Munroe at the credit-reference firm said: “Minor misdemeanours, such as missing a telephone-bill deadline, which may have been overlooked in the past, may not by now.”

Although the “behavioural” information will be made available in the next couple of months, some industry insiders say it is already being circulated under a “principle of reciprocity”, where banks will pass information between each other if another banks is prepared to disclose a similar level of information.

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