# Why cant the credit card companies get their crap together? **URL:** \ **Category:** The BBQ Pit\ **Created:** [January 21, 2008, 6:01pm UTC](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392 "2008-01-21T18:01:31Z")\ **Posts on this page:** 9\ **Page:** 3
**Author:** ![Carol\_the\_Impaler](https://avatars.discourse-cdn.com/v4/letter/c/6a8cbe/32.png) [@Carol\_the\_Impaler](https://boards.straightdope.com/u/Carol_the_Impaler)\ **Post date:** [January 24, 2008, 4:50pm UTC](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392/41 "2008-01-24T16:50:14Z")
[QUOTE=saoirse] How about the fact that the comapnies using these scores have lost more moeny than the GDP of most of the nations of the world? [/QUOTE] Yes, they’ve lost money because they ignored the data in front of them. If you set up matrices to assess risk, and then you decide to lend tons of money to people who are not good risks, then no one should be surprised when you lose a lot of money. Look, it seems that you would prefer a more individualized experience where you had a personal banker that knew you or at least was willing to see you as a person instead of a number. But that just isn’t the case for the majority of lenders. It’s their game, so it’s their rules. If they can save money and time by turning your whole financial life into a number, then they will. If they can charge you 25% interest based mostly on your FICO, they will. Lending institutions are for-profit organizations that will squeeze every dollar out of every situation they can. The mortgage crisis is a case in point. They put people into mortgages or into more mortage then the lendee could handle when they had no business doing so. That has nothing to do with _how_ they assess risk, and everything to do with knowing they were making high-risk loans because they were also potentially _high-profit_. It’s not that the system didn’t work. I can tell you that those companies that lost all that money knew full well those folks had a high-probability of not being able to pay a huge balloon payment or make their mortage once the rate adjusted. But they gambled hoping they’d make billions. ---
**Author:** ![Dob](https://avatars.discourse-cdn.com/v4/letter/d/b2d939/32.png) [@Dob](https://boards.straightdope.com/u/Dob)\ **Post date:** [January 24, 2008, 5:35pm UTC](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392/42 "2008-01-24T17:35:06Z")
To add another nitpick to an already nitpick-ed thread… There are no such things as Credit Card companies (well Amex is kinda a CC now since it offers revolving credit cards and not just charge cards), it’s the Banks that issue cards. Visa & MC dont actually issue anything. And unless it was a fairly large bank, chances are your bank doesn’t even issue their own card. They would have a third party processor do it for them. So when you call customer service your not even talking to someone at your bank. ---
**Author:** ![Sprockets](https://avatars.discourse-cdn.com/v4/letter/s/35a633/32.png) [@Sprockets](https://boards.straightdope.com/u/Sprockets)\ **Post date:** [January 24, 2008, 8:07pm UTC](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392/43 "2008-01-24T20:07:56Z")
[QUOTE=niblet\_head] I can tell you that those companies that lost all that money knew full well those folks had a high-probability of not being able to pay a huge balloon payment or make their mortage once the rate adjusted. But they gambled hoping they’d make billions. [/QUOTE] You said it. And their greed - along with the stupidity of borrowers who had every reason to know they couldn’t handle those loans - is something all of us are now paying for. Are the banks being punished adequately, do you think? ---
**Author:** ![saoirse](https://avatars.discourse-cdn.com/v4/letter/s/5daacb/32.png) [@saoirse](https://boards.straightdope.com/u/saoirse)\ **Post date:** [January 24, 2008, 8:10pm UTC](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392/44 "2008-01-24T20:10:00Z")
[QUOTE=niblet\_head] Lending institutions are for-profit organizations that will squeeze every dollar out of every situation they can. The mortgage crisis is a case in point. They put people into mortgages or into more mortage then the lendee could handle when they had no business doing so. That has nothing to do with _how_ they assess risk, and everything to do with knowing they were making high-risk loans because they were also potentially _high-profit_. It’s not that the system didn’t work. I can tell you that those companies that lost all that money knew full well those folks had a high-probability of not being able to pay a huge balloon payment or make their mortage once the rate adjusted. But they gambled hoping they’d make billions. [/QUOTE] My point is, if they were using churn rates to determine the lieklihood that they would pay the loan back, then didn’t know that at all. The two things have no rational connection. What they may have done is given loans to people who would ordinarily not even be sub-prime, but managed to get out of the “Ha-ha, no.” classification and into the subprime classification thanks to their use of credit cards. If you’re saying that playing this game may put a few more points on your FICO score, then what the hell if they’re that important to you play all you want. It’s still dumb, but well within the ordianry mischief of capitalism. If that is your point, you need to distance yourself form the poeple agreeing with you, though, who are sounding an awful lot like a dystopian novel. ---
**Author:** ![Carol\_the\_Impaler](https://avatars.discourse-cdn.com/v4/letter/c/6a8cbe/32.png) [@Carol\_the\_Impaler](https://boards.straightdope.com/u/Carol_the_Impaler)\ **Post date:** [January 24, 2008, 8:26pm UTC](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392/45 "2008-01-24T20:26:06Z")
[QUOTE=Sprockets] You said it. And their greed - along with the stupidity of borrowers who had every reason to know they couldn’t handle those loans - is something all of us are now paying for. Are the banks being punished adequately, do you think? [/QUOTE] Honestly, I don’t know the answer to that question. Seems like there’s always a bubble and investors/consumers/lenders, etc. do really stupid things while they can make money on it. Then it all goes kablooey and the economy suffers and individuals suffer and some companies go under and stock prices fall, but like clockwork up comes another bubble and the whole thing starts over again. The banks - and frankly, all large profitable industries - have the upper hand in the regulatory environment, and so I don’t have any confidence that this will serve as any kind of long-term bellwether or stimulus to prevent it legally from happening again. ---
**Author:** ![Sprockets](https://avatars.discourse-cdn.com/v4/letter/s/35a633/32.png) [@Sprockets](https://boards.straightdope.com/u/Sprockets)\ **Post date:** [January 24, 2008, 8:39pm UTC](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392/46 "2008-01-24T20:39:43Z")
[QUOTE=niblet\_head] Seems like there’s always a bubble and investors/consumers/lenders, etc. do really stupid things while they can make money on it. [/QUOTE] I guess my question was rhetorical. I can’t think of a suitable punishment. My theory (Sprocket Theory) is that individuals and institutions tend to get away with whatever they can until they are caught. Then they do something else, whatever seems profitable and easy at the moment. Until they are caught, and so on. You’d think integrity would be infinitely valuable, as it’s apparently in such short supply. ---
**Author:** ![NinetyWt](https://avatars.discourse-cdn.com/v4/letter/n/cc9497/32.png) [@NinetyWt](https://boards.straightdope.com/u/NinetyWt)\ **Post date:** [January 24, 2008, 8:48pm UTC](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392/47 "2008-01-24T20:48:26Z")
[QUOTE=Sprockets] You’d think integrity would be infinitely valuable [/QUOTE] Is it not? ---
**Author:** ![Carol\_the\_Impaler](https://avatars.discourse-cdn.com/v4/letter/c/6a8cbe/32.png) [@Carol\_the\_Impaler](https://boards.straightdope.com/u/Carol_the_Impaler)\ **Post date:** [January 24, 2008, 9:02pm UTC](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392/48 "2008-01-24T21:02:05Z")
I have to tell ya, it’s been my experience in business (across many different types of industries and at many different levels) that integrity is for suckers. I don’t agree with this philosophy and have actually suffered because I personally find it valuable and wouldn’t play the game. In the end, though, my personal integrity was more important and valuable than my personal profit margins. ---
**Author:** ![Maeglin](https://avatars.discourse-cdn.com/v4/letter/m/8baadc/32.png) [@Maeglin](https://boards.straightdope.com/u/Maeglin)\ **Post date:** [January 24, 2008, 9:40pm UTC](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392/49 "2008-01-24T21:40:30Z")
[QUOTE=olivesmarch4th] I don’t work for a lending industry, so I wouldn’t know… but what is absolutely clear is that credit card companies, banks, and other lenders calculate economic solvency in a different way than FICO does, though the score factors into it. FICO’s bottom line is, ‘‘How responsible are you with credit?’’ Lenders’ bottom line is, ‘‘How much money can we make off of you?’’ Those people with high balances that always pay their minimums and gobs of interest are infinitely more useful than those who do the truly responsible thing – pay beyond the minimum, or the full balance whenever they can. So while the FICO score is a tool that lenders may use to determine to whom they should lend, it’s not necessarily the final word on who gets the loan. [/quote] As it turns out, I am a finance manager for a credit card issuer and acquirer/processor, though I am on the acquirer side of the business. **Dob** should now know exactly who I work for. 😉 The above about the lender’s calculation is not quite true. Estimating the value of an account is in fact rather more complicated and is not strictly limited to “let’s build as much AR as we can as fast as we can.” Different issuers focus on different parts of the card economics model: AR (interest), merchant fees, and cardholder fees. > [@](#): > > II think **saoirse** is accurate in saying that the whole thing is monumentally stupid. Credit repayment history, which makes up a large part of one’s FICO score, makes a lot of sense. Util is one of those measurements of credit that few people know about. I think the basic notion behind it, from a lending point of view, is that they want to be sure someone isn’t maxing out their credit cards. When it gets weird is when responsible people pay off a $7000 debt or whatever and then close the account, with no idea whatsoever that they’ve just damaged their credit by raising their Util ratio. A lot of the stuff that goes into calculating a FICO score does not strike me as ‘‘common sense’’ and some of it seems downright arbitrary (diversity of accounts, for example.) It’s true that we have to learn to play the game because there’s nothing we can do about it… but it doesn’t make seem any less stupid to the average consumer. Monumentally stupid it is not. Real life often defies common sense, especially when one analyzes monumental amounts of data across a portfolio of millions of people. Even if the mechanism that binds cause to effect is not obvious, the fact that it is in the data. As arbitrary as it might seem, it really isn’t. We just don’t yet have a particularly compelling theory as to why open lines should drive likelihood of future repayment. [Previous page](https://boards.straightdope.com/t/why-cant-the-credit-card-companies-get-their-crap-together/434392.md?page=2)