Well, not really…but kinda. It seems as if the class action bug just might bite the credit bureaus because of them not being good enough stewards of your credit data.
According to this article in the Washington Post, Capital One’s actions are about to get the credit bureaus in hot water. See the full article online here.
As you may know, Capital One has for many years intentionally withheld their credit card customer’s information from the three credit reporting agencies. Some people would argue that what they have done is criminal.
Here’s the deal. Capital One will not report their credit card customer’s accurate credit limits as assigned when they open a credit card account. If you have a CapOne card and your credit limit is $10,000, you and Capital One are the only folks that know it.
Why is this a big deal?
It’s a big deal because it can cause your revolving utilization, a key component of your FICO credit scores, to be artificially high. And, the higher your utilization, the lower your scores. The lower your scores the more trouble you’ll have getting credit and insurance with decent rates and terms.
What do they report?
They have chosen to report your high balance instead of your credit limits. The vast majority of people don’t max out their cards therefore their highest balance doesn’t even remotely approach their true credit limit. But since they report the highest balance in lieu of your true credit limit…credit scoring models think you are closer to your limit than you really are. Thus, a lower credit score.
Why do they do this?
Harney’s article misses an important point. His sources assert that Capital One does what they do in a deliberate attempt to lower consumer’s scores to make their customers look worse on paper to their competitors. That’s incorrect. Withholding credit limit information can cause your scores to be higher in certain instances so it can’t be correct that it’s simply to cause lower scores.
The real reason that Capital One does this is because they do not want the credit bureaus to sell their customer’s credit limit information to their competition for use in preapproved solicitations. Here’s what they want to avoid…
"Excuse me Equifax…I’m XYZ Credit Card Company and I want to buy a list of consumer’s names that have low credit scores (Capital One caters to the credit challenged so their customers are going to have lower credit scores) and a credit limit on their credit cards of $10,000 or higher."
Credit card companies can and will buy that kind of information from all three credit bureaus. It’s completely legal. This information is used when they create all of that junk mail that fills up your mailbox each day.
Put your marketing hat on for a moment and you’ll see what I mean. If you knew that I had a lower credit score (and you had a product perfect for lower credit score consumers) and you knew that I already had a card with a credit limit of $10,000…wouldn’t that be valuable to you? All you would need to do is one up the existing credit card company by offering me a $15,000 limit. That would be appealing to me as a potential customer. Capital One knows this.
So, by withholding credit limit information they make it impossible for their competitors to know what kind of credit limits their customers currently have.
But, there are many examples of their policy hurting consumer’s scores. There’s no disputing that.
The reason you’ll notice that Capital One is not named as a defendant in the suit is that they aren’t doing anything illegal. The credit reporting system in this country is largely voluntary so they can’t be forced to report the credit limit.
So, the plaintiff’s and the attorney’s are going after the credit bureaus instead. This should be interesting watching the credit bureaus pay to defend Capital One’s policy in court. It might be cheaper to tell Capital One to shape up or ship out. They tried that once before but Capital One is a multimillion-dollar client and threw around their weight. Now that they will cost the credit bureaus millions of dollars to defend or settle the lawsuit their attitudes may have shifted.
I hope the plaintiff’s attorneys will call me to be an expert witness. I’ve got more examples of Capital One’s policy hurting people than you can shake a stick at.
John Ulzheimer Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on Credit.com News & Advice.
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