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Profitable Canadian Credit Unions
As pressures mount on card issuers of credit bureau Canada to retain their profitable customers with low rates and an attractive overall product offering, a handful of issuers have decided that the marketing and retention strategies they have in place are not enough to compete in the current environment. As many as 19 national consumer lenders, according to Orange, Calif.-based credit bureau Experian, have made it their policy to with hold certain key pieces of cardholder information from credit bureaus for fear their competition will attempt to lure away their best customers with a more attractive offer.
Now, the issue is coming to a head as the Comptroller of the Currency has made two public denunciations of the practice, and has called for the industry voluntarily to restore the free flow of cardholder data. At this point, it looks as though all issuers will have to work with the credit bureaus and commit themselves to full disclosure. If they do not, the credit reporting system could be badly compromised for all.
According to an Experian white paper, the credit bureau first noticed this shift in reporting policy in November 2007, when a large national issuer stopped reporting credit limit and high balance information "due to concerns of competitors stealing accounts." Apparently, many issuers recently have become skittish about revealing this information because; credit bureaus were, upon special request, providing targeted customer data to their competitors. In the last quarter, Experian has seen the non-reporting trend accelerate. Salinas, Calif.-based Household Bank [HI] and Citigroup [C] of New York have publicly confirmed they have revised their credit reporting policies to shield their high-balance customers.
Today, there are approximately 19 lenders who no longer report credit limit/high balance data to the credit bureaus, which account for a total of 278 million accounts. Clearly, the credit bureaus will be sorely affected by this trend. The Washington-based Associated Credit Bureaus Inc. (ACB), the trade association that represents credit bureaus, is studying the issue, and remains quiet except for the release of a statement that affirmed its commitment "to promote full file reporting of complete and accurate consumer credit histories by companies in all credit granting segments."
Surely the credit bureaus' view is reflected in one card issuing executive's comment; "These practices will have a tremendous impact on the entire industry. [These issuers] have poisoned the well for all of us."
While it is unclear what will be the long-term effect that this practice will have on scoring models and the industry's ability to manage credit risk, the practice has caught the eye of regulators. The Comptroller of the Currency, John D. Hawke, Jr., has issued two warnings to the consumer lending industry about what he terms "a troubling trend." In both statements, Hawke cautioned that this practice of withholding cardholder data in the sub prime market denies borrowers recognition for good payment histories, which causes direct harm to the consumer.
He also criticized issuers for withholding high balance customer information, saying perhaps it's too late for industry codes of conduct, self-policing arrangements or even statements of best practices to relieve the burden of regulatory legislation already on the books."
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