How do they monitor credit card risk?

The purpose is to calculate who may be a credit risk and methodically weed them out of the mix. If consumers use their credit cards at secondhand clothing stores, or discount grocers, lenders are taking note. The assumption is that if a consumer uses certain stores, they could be in financial strains. Based on purchasing behaviors, creditors are making decisions about consumer’s creditworthiness and changing the terms of the credit agreement accordingly.

Congress is getting involved, however. Federal regulators are looking into the extent to which credit lenders are using shopping information against consumers. It’s become a standard practice that if a consumer poses a credit risk, lenders either increase their interest rate, slash their limits or both. Federal regulators are trying to create a watchdog service to protect consumers’ rights.

A new credit card reform law

President Obama signed a new credit card reform law into action this year. There is a provision requiring a federal investigation into the practices of credit card issuers using shopping information against card users. Namely, lenders seem to be using information about where consumers shop, what they purchase, the category of merchants they shop with, their locations and the mortgage company they work with as a basis for increasing rates or reducing limits. US Representative Maxine Waters said, “Where a person shops, in my opinion, has little bearing on whether they can pay back a credit card balance… I want this study done because I want to stop some of these outrageous practices in the future.”

Reporting on lenders

The Federal Reserve and Federal Trade Commission have until August 22 to gather information on credit lenders and assess whether or not they are unfairly watching consumer’s habits. Regulators have to decide if negative profiling affected minority and low-income credit card users. American Express is one issuer of credit cards that acknowledged its former usage of profiling information to limit the amount of credit it extended to customers, though they have since discontinued the practice.

Waters added, “I’m concerned that limiting credit based on where a person shops or neighborhood they live in could amount to red-lining.” Red-lining is the practice of targeting specific demographic areas or neighborhoods for the purpose of discriminatory housing, insurance or lending actions.

Address privacy issues

In addition to not being fair to consumers, there are privacy questions to address. “Obviously that is something that most credit card holders are not going to think about,” said Paul Stephens, director of policy and advocacy for the Privacy Rights Clearinghouse. “They’ve obtained a credit card and think they can go out and use it in any way they like.”

Suggestions from experts

Until rules are sorted out, many experts are encouraging cardholders to pay with cash, use gift cards or prepaid debit cards in lieu of their credit cards. Shopping at wholesale outlets or discount grocers may also thwart profiling. One expert suggests spreading purchases over a few credit cards to avoid triggering alerts for a single lending company. Stephens added, “Cash is the ultimate privacy protector. It’s kind of hard to trace. With most other payment mechanisms, there is going to be a trail.”

Payday loans are in higher demand now than ever before. During the economic downturn and the credit crunch, more people from more income brackets started turning to payday loans than ever before. Reuters reports that “Customers’ average income has increased to about $50,000 from $41,000, and a significant portion of customers have a median household income over $75,000.”

Furthermore, experts predict that once credit card issuers start feeling the crunch from the new credit card laws, fewer people will be approved for credit cards. Likely payday loans will be in even higher demand as people have fewer options for credit.

How payday loans work

Many people prefer using short-term credit to using credit cards simply because it saves them money in the long run. Payday loans generally only have terms of about two weeks or until you receive your next paycheck. You must pay back your payday loan plus lenders fees all at once. So, after your two-week loan is up, you’re done. There’s no compounded interest every month on charges that can sit there for years.

Payday loans can also save people money on overdraft fees. As banks begin to lose money because of the new credit card loans, they might turn to overdraft fees as a source of additional income. Bank overdraft fees are already extremely high; many charge $35 per transaction, regardless of the amount.

Payday loans can work for anyone

More people are discovering how fast, easy and convenient payday loans are every day. You can get the extra cash you need automatically deposited into your account in just a couple of hours. You can get small payday loans for just $100, or you can borrow up to $1,500.

Whatever your financial emergency is, payday loans can help you get out of hot water. There are generally no credit checks, and payday loans don’t affect your credit score. Click “Apply Now” to fill out a short application.

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