Home > Personal Finance > Target REDcards Give You a 5% Discount: But At What Cost?

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Target REDcard credit and debit cards offer a generous 5% discount on your purchases, along with other benefits like free shipping for online orders at Target.com. But the discount comes with a price. Information about your purchases will be sliced, diced and combined with other personal information to create a profile that the retail giant will then use to try to entice you to buy more stuff from them.

While Target isn’t alone in using customer spending data this way, they happen to be very, very good at it, as a recent, much discussed New York Times story documents.

Given all that, it’s no surprise that a reader named John wrote me with the following question.

Hi Gerri, I just read your two-part blog on the Target RedCard. There is no mention of what Target gets out of this deal, although I can guess customer loyalty and maybe credit history which they then sell to other organizations?
I know for a fact that businesses like Target do not do anything for the sheer benefit of the consumer, there is a hidden benefit for Target somehow.
Can you explain? —John

It’s a great question. The Target REDcard 5% discount on virtually all purchases is more generous than other loyalty reward programs, general purpose credit card reward programs, and is certainly better than other debit card reward programs, many of which are no longer around since the Durbin amendment limited debit card swipe fees. On top of that, Target will donate 1% of the amount you purchase on one of these cards to a local school you designate. Target wouldn’t continue to offer those rebates if the program wasn’t lucrative for them.

John’s thinking—that customer loyalty and information must be worth something to them—is logical. So what kind of information are they collecting from cardholders, and what do they do with it?

The first place to look, of course, is at the privacy policy. As required by law, Target sends cardholders a privacy notice each year. I have one of these cards myself, and recently received the privacy policy in the mail. It is also posted on their website. Here’s an excerpt:

To summarize, Target says it may share personal information gathered in the course of using your Target REDcard (credit or debit card):

  • For our everyday business purposes—such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus
  • For our marketing purposes—to offer our products and services to you
  • For joint marketing with other financial companies
  • For our affiliates’ everyday business purposes—information about your transactions and experiences (Target defines its affiliates as companies related by common ownership or control, including Target National Bank, Target Bank, Target Stores and websites and Target Commercial Interiors)
  • For nonaffiliates to market to you

Target’s privacy policy says it does not share information “For our affiliates’ everyday business purposes—information about your creditworthiness.” In other words, while Target may share credit information with the credit reporting agencies, it doesn’t share it directly with affiliates. And although it’s not stated in the privacy policy, credit card activity is reported to the credit reporting agencies, but debit card activity typically is not.

Unfortunately, you can’t opt out of having your information shared for any of the above purposes, with one exception. You can instruct Target that you don’t want them to share your information with nonaffiliates in order to market to you. Everything else is fair game.

What’s It Worth To You?

But is it really so bad for Target to collect and use your information for marketing, either internally or with other companies? A recent New York Times article, How Companies Learn Your Secrets, by Charles Duhigg, suggests Target places a lot of value on your personal information. He writes:

For decades, Target has collected vast amounts of data on every person who regularly walks into one of its stores. Whenever possible, Target assigns each shopper a unique code—known internally as the Guest ID number—that keeps tabs on everything they buy.

Duhigg reports that Target will collect information from credit card purchases, coupons, surveys—and presumably your REDcard—and supplement that with demographic data it may gather from other sources, all in an effort to understand what you buy and to find ways to encourage you to buy more at Target.

To be fair, this may not be that different from what other retailers do through loyalty programs and the like. But the article seemed to imply that Target is very, very good at mining and then using data. The article gave an example of a father who found out about his teen daughter’s pregnancy after noticing that Target was sending her coupons for maternity and infant products and then confronting her with that information.

Target declined to elaborate on its privacy policy or share any additional information about what type of information is gathered through the use of a REDcard, or how that information is used, for this story.

The Target REDcard privacy policy is not so different from those of other issuers. Comparing it with that of Chase, which issues an Amazon.com Rewards Card, the two are almost identical. The exception is that Chase does share information about cardholder’s creditworthiness with affiliates.

“When you use your credit card, that creates valuable information about your spending habits,” says Credit.com’s Credit Expert Beverly Harzog. “Banks collect this information and sell it to merchants and others who find the data valuable for marketing purposes.”

How much is your information worth? A lot, believes Eduard Goodman, chief privacy officer at Identity Theft 911, Credit.com’s sister company. “Your coming back, your buying stuff, and their being able to target you to buy more stuff is worth more than a 5% discount,” he says, adding: “A one-time sale is one thing, but reaping information to get you to spend more in the future is worth a lot more.”

It’s OK—American, Even

“The reality is from a privacy perspective, Target is still pretty good, all things considered,” says Goodman. “They are not doing anything that would be considered illegal here in the U.S.”

But he explains that Americans are generally casual about allowing their personal data to be tracked, shared or sold. “If you look at privacy in the United States it’s really nothing more than a consumer protection,” he explains, “whereas in Europe it’s more of a human right.” He notes that surveys have found when most Americans are queried about these kinds of practices, they tend to expect that companies have their customers’ best interests at heart.

But a lot of information that can be gleaned from Target REDcard purchases alone, and when that information is combined with all the other data Target has at its disposal, “It’s just potentially at or crossing the ‘creepy barrier,'” notes Goodman. Of course, any loyalty program is about collecting and mining data, he explains. Target just happens to be particularly good at it.

Should You Be More Careful?

Are privacy policy disclosures enough? Some advocates say no. “For starters, national law and retailers’ voluntary policies need to guarantee that consumers can see any and all information a company keeps about them,” says Evan Hendricks, Editor/Publisher of Privacy Times and author of Credit Scores and Credit Reports: How The System Really Works, What You can Do. “Until that happens, consumers will be haunted by what essentially are secret files that can be used to manipulate them. We have strong rights of access under the [Fair Credit Reporting Act]. Those rights need to be extended across the board.”

In the meantime, if you don’t want Target to collect information about your purchases, John, you’ll have to forgo the REDcard discount—and pay for all your future purchases with cash.

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  • Scott

    well… those numbers are not really accurate, but the gist is correct – however, i’m not sure why I care what they save – I only care what I save.

  • Jamie

    Hi there, I have been researching articles about the Target Debit card and how it is affected by the Durbin ammendment. It is issued by a bank (Target National Bank) so it should have to follow the same laws. Last month, I made a very substantial purchase in order to get the 5% discount. I was under the impression that the Debit card worked like a debit card because it says it’s a DEBIT card. However, because I keep my checking account relatively low and just transfer in as needed for purchases, my available balance at the bank was just enough for the purchases I was making without doing another savings to checking transfer. Because of the Durbin Ammendment, my bank (a credit union) has become very efficient at real time balance and funds availabilty. However, between my husband and I, we each made separate individual purchases after the Target transaction and had everything approved, so we thought the other person had taken care of a transfer,if necessary, to cover purchases with our actual debit card from the credit union as well. Well, surprise surprise surprise, that Target transaction was NOT a debit card transaction. The funds were not immediately taken out or even put on hold. It wasn’t even taken out as a check or credit card transaction. It was done as an electronic wireless transfer. This is a whole new type of transaction for us and because of the delay with such a huge purchase and the subsequent actual debit card transactions, this created an NSF fee. Thankfully it was only one fee before we realized what happened and our credit union reimbursed us that one fee and the Target “debit” transaction was paid later that week upon it’s second presentation. However, I got a call today from a company Target has hired to go after it’s users who have these failed attempts at payment. They want me to approve a $30 NSF fee to TARGET. I argued that with the Durbin Ammendment, this was not allowed as there should be no NSF fees associated with a debit card. The company spokesperson actually said to me that Target is a store not a bank. So, I knew then I was dealing with an “uninformed” representative. However, this has to be a lawsuit in the making right here. Thousands and thousands of people are using this card believing it to be a debit card. The rep said it is a debit card because it is “debiting” the account. While it is true it is debiting the account, it is not a debit card in the sense that everyone is accustomed to. For those of us who keep our accounts close or those who live paycheck to paycheck, this looks like a scam and must be a huge moneymaker for Target. It must be quite lucrative to be collecting these fees all day and I know I am not the only angry person out here. The rep sounded ready to fight and I asked her if she encounters resistance all day and she said yes. I told her, they need to change the name of the card – it’s not a debit card in the way that everyone thinks it is, so it’s very deceptive to call it that. Thankfully, I only had to transfer the funds to cover the transaction. What about those that can’t do that and believe their account to be the real “available balance” that the bank is now keeping up to date due to Durbin? The people that are getting hurt are the ones who can least afford to be and this needs to be changed NOW!

    • mori deeds

      I’m sorry you encountered this but didn’t you read the terms and conditions of the card when you signed up for it? Because if you did, all your problems encountered would have been easily prevented. It’s sad what a world it’s come to – instant gratification, stupidity, assumptiveness, etc. You would loose if you tried to sue. Which is another growing sickness in this world – if something goes wrong because of your un-educated decision, you think that it’s not your fault and all the companies!

      it’s called a debit card which is LINKED to your checking account – processes like a check transaction, which means a few days time.

      thousands of people are using this card with no issues. the ones with issues are the ones like you, who don’t keep enough funds in their account to cover multiple purchases which all have different processing times.

      on a side note (since you think you’re so smart about managing your money accounts): did you know that each time you transfer money from your savings account there’s a fee, so I hope you’re enjoying paying those fees. I’m sure you’re bank LOVES you and is making plenty off that alone!

      • Dina

        Mori deeds…..no need to be insulting. You can give useful information without using your sarcasm towards someone you don’t even know.

        • Kari

          No, I think Mori has a valid point. This person is trying to process transactions knowing there might not be enough money in the account. They also didnt read the terms of the card. YOu have only yourself to blame if you dont read it.

      • Kels

        “did you know that each time you transfer money from your savings account there’s a fee, so I hope you’re enjoying paying those fees. I’m sure you’re bank LOVES you and is making plenty off that alone!”

        My credit union doesn’t charge fees for transferring money from your savings account to your checking. There is a limit to the amount of times you can transfer money from your savings to checking every month but there are zero fees. Maybe that’s just because my credit union is fabulous though…

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  • Allisen

    One other thing to keep in mind is that they are saving themselves the money of processing a credit card transaction. The cost of processing an ACH transaction as opposed to a credit card transaction can be worth it to them in and of itself.

    • mori deeds

      This is why stores have their own cards, to save on the exorbitant costs major credit card companies charge. Example: To process just one credit card payment is about $5 bucks. That’s why lots of small stores say the total purchase must be over $5, etc.

      • T S

        You have no idea what you’re talking about.

      • Whitney

        It depends on how much the transaction was for, what markup their processing company charges, and what type of card was used. A lot of the time it’s a small flat rate per transaction plus a percentage (around 1-3%). So yes, they’re saving some money per transaction, but I think the 5% discount might cancel that out for the most part. My guess is that they are holding out for the NSF fees they charge us if the debit card “bounces” since it acts more like a check than an actual debit card. Not to mention the high interest rates on the credit card!

        • mori deeds

          Point well taken – but hey, if the consumer can benefit by using the redcard instead of their bank card/credit card and are responsible with their finances, then it’s a win-win, right? who doesn’t want a free card that saves you money?? and there is high interest but as long as you pay the balance in full then there’s no worries! I don’t know why people are so negative about sharing your shopping habits. I mean, with the facebook era and smart phones, people are sharing a LOT more than their everyday purchases at Target. the sad fact is – in the end, it’s just the lack of knowledge people have and those people will place the blame on anyone except their own stupid selves for their mistakes (which get pricey!) those who get a “bounced” debit redcard purchase are those who already lack knowledge in many areas and the only person their harming is their selves. to be honest, they deserve it. if you don’t read how a credit card/debit card operates then it’s your loss, not Targets or anyone else’s. we live in a time where people think it’s everyone else’s fault except their own. *stepping off soap box**

    • Scott

      it still costs them money. they have a credit option as well… it costs them money to run this – in fact, it’s probably outsourced as well.

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  • CreditSense-CreditRecovery

    Another cost consumers will pay will be with their credit scores. Department store credit cards do not give the same credit score points of a comparable visa or MasterCard. So they limit how high your score can go.

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