The much talked about credit card reform bill passed the Senate on May 19 and with it comes at least a semblance of resolution to what has impacted so many American's financial wherewithal over the last several years. In a previous post on this topic, we mentioned that credit card companies currently perform, and will now ramp up, extensive consumer psychology research to find out what drives our spending habits. More specifically, they'll be using the information to find out just what kind of credit risk we pose to them when it comes to dishing out more credit and how apt we are to pay it back.
The whole process started not long ago, sometime in the mid 1980s, when some lending industry backed number crunchers figured out that the real profit can be made off of the folks who didn't pay their whole balance each month. Before that, credit cards were somewhat mundane and simply not a major profit center for the banks.
As credit cards grew during the early 1990s, the influence of Madison Avenue advertising creatives entered the picture, more than doubling the industry's income from fees alone. Credit card companies were mailing billions (yes, with a "b") of offers to cul-de-sacs across the country.
Despite the power of a Super Bowl commercial, true credit card user psychology has been traced to an executive of a Canadian department store, who spent years analyzing the products bought and locations where his store issued credit card was used. For example, he determined that people who bought birdseed and products to protect hardwood floor finishes from furniture were more apt to pay a credit card on time because those items proved they care for things not belonging to them (birds) and want to preserve their own investments (floors/condition of their home).
On the flip side, he proved that customers who used the store's card to by a booming car exhaust system were subject to miss credit card payments. He even connected spenders to what restaurants and drinking establishments they frequented. Those that spent at the "roughest" bars were in the same category as those who purchased obnoxious mufflers.
As a result of this gentleman's research, former credit card executives in America became consultants to banks and other lenders, pitching the Canadian's research as solid gold profit. And they were right.
Fast forward to today, when a shattered economy and record credit card debt has data-mining shrinks telling lenders how best to extend credit. If they notice late-night log-ins, then that person is losing sleep from stress and may be on the verge of a financial crash. What about spending in the middle of the day? Clearly that person is not working and has no way to pay for what they're buying. That means an interest rate should go up to get as much as possible before they can't pay anymore.
Collection companies employ the same tactics and offer training in negotiations and conversational sales so they can better relate to whatever situation was the cause of your debt. Divorce? How are the kids? Medical bills? They wish you the best. But all the well-wishes and empathy is nothing more than a commission tactic, because definitive research has proven that cardholders will pay first the companies who seem to care.
While we all want to have the pride that comes with taking care of our own problems, it's important to understand that you don't always create your financial problems. But don't worry, the credit card companies understand what happened. Now how much do you think you can pay this month?