Dispute Credit

The strategy game of Risk may no longer be just a board game by Milton Bradley. Some issuers, fearful of competitors stealing their cardholders, are turning off the flow of data to dispute credit reporting agencies-actions that could increase risk for all lenders.

Submitting credit information to credit bureaus is a system that has been in place for decades and is a means for creditors to share and obtain information through an objective, independent source. Over the years, this system has allowed credit card issuers to evaluate a potential cardholder's level of creditworthiness, in other words, to assess the risk in accepting the new account. Although a strictly voluntary practice, most issuers have long shared in the spirit of information in, information out, which has helped to make American lenders better able than most of their counterparts in other countries to control loss exposure. For the most part, the process has been a relatively smooth one. From time to time some issuers may have been selective about the information they provided to the bureaus, but on the whole, credit files in the 1990s have been considered reasonably accurate and complete.

That is, until recently. As consolidation and competition increase, credit card issuers have become more protective of their accounts. And many have realized that the information they provide to the bureaus on their valued customers makes them easy prey for competing issuers.

Industry sources report that Bank One Corp.'s First USA Bank, Citibank and Discover Financial Services Inc. are among the giants that longer report credit limits to the bureaus. Confirmations came from Citi, which says it also does not report high-balance information, and Discover. Neither would discuss their policies on the record. First USA did not return phone calls for comment. The reason for these actions, sources say, is to ward off the competition. Without knowing credit limits, a would-be lender will not have a complete picture of the debt loads a prospective customer could incur.

Lost Integrity? This, many experts say, could have a serious impact on the integrity, accuracy and future of credit reporting. It indeed may deter would-be issuers from booking new accounts, but it also could affect the risk exposure of other lenders that already have accounts with those issuers' customers. Credit-risk executives everywhere are aware of the issue and are voicing their concern. Chase Manhattan Corp. says it is monitoring the issue but, for the present, will not change its policy of reporting all credit information.

MBNA Corp. opposes any reduction of credit data. "We don't plan on making any changes in what we report to the bureaus, and we don't support the issuers who are reporting less information," says Brian D. Dalphon, senior executive vice president for MBNA. The new reluctance by three of the nation's leading consumer card issuers to report data to credit bureaus has parallels in the world of small-business lending. Banks over the years have jealously guarded their small-business accounts from competitors by failing to report their performance to credit bureaus. That practice is now seen as hindering the growth of so-called business cards-commercial cards aimed at small-business owners and employees.