Credit Card Lenders Get Personal

Banking and Borrowing

Updated on 17 February 2009 | 4 Comments

Credit card issuers are set to share even more data about their customers in a bid to promote responsible lending. But will it really work? And could rate tarts suffer?

This month, five UK credit card issuers will begin sharing `behavioural data' on their customers' accounts. The idea is that it will help credit card companies identify and help anyone who is experiencing financial difficulties.

Barclaycard, Capital One, GE Money, HBOS and MBNA are initially taking part in the scheme, with other issuers expected to follow at a later date.

What credit card firms will know

Sharing data about how you manage your credit accounts is, of course, nothing new. Credit card issuers already share data about your current balance, credit limit and whether your payments are up to date.

But this new data will take it one step further to include:

  • The amount of your last payment
  • Whether this was equivalent to the monthly minimum repayment (MMR)
  • Changes to your credit limit
  • The extent to which you withdraw cash on your account
  • Whether you have signed up to any promotional deals

Why?

Credit card firms have been criticised in the past for lending to people without looking at the full extent of their borrowing, and these new measures should be a step towards rectifying this.

APACS, the UK payments association, has welcomed the move, believing it will enable lenders to have a clearer idea of how customers use their credit cards so they can lend accordingly, thus supporting the industry's commitment to responsible lending.

The new measures have been designed to allow lenders to intervene at an earlier stage to help those who are showing signs of debt problems. The measures should mean that struggling borrowers are not given further credit or new cards which would only cause their debts to spiral further.

Potential problems

Despite the plus points, I'm not entirely convinced about the motives behind these new measures.

Call me cynical if you like, but I'm not sure lenders will go to any great lengths to help those customers in debt.

What's more, I'm concerned that rate tarts could suffer from these new measures. That's because lenders will be aware of all promotional offers obtained by customers and can keep track of those people who frequently shift from 0% deal to 0% deal. This could result in lenders preventing rate tarts from switching credit cards on a regular basis.

However, I was assured by an APACS spokesperson that this wouldn't be the case and that the data-sharing has no connection with stopping rate tarts. Lenders must adhere to strict guidelines around the use of the data which can only be used to prevent over-indebtedness.

I was told the only reason lenders will know about promotional offers is so that data is not misconstrued. By having this data to hand, a lender will be able to tell whether a customer is paying the MMR because they are in financial difficulty or because of the deal they have obtained.

Even so, I can't help but feel it is all a bit too `Big Brother' like for my choosing and I am not totally comfortable with the idea of lenders knowing all the ins and outs of my credit card habits, particularly when I am a bit sceptical about what they will actually use this knowledge for.

Having said that, if extended data sharing really does prove to help those in debt, then it's a price worth paying, and I do hope my scepticism proves to be unfounded.

Don't forget, if you are struggling with debt, you can seek help and advice from the friendly Fools on our Dealing With Debt discussion board, and visit our Get Out of Debt centre.

You can also contact a free, independent advisory service such as Citizens Advice, National Debtline or the Consumer Credit Counselling Service.

More:  Debt: The Warning Signs And What To Do | Credit Card Rip-Offs That Should Be Banned!

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