Can your issuer close your card based on your reputation?
by John Egan, on Feb 6, 2019 4:02:42 PM
For an array of reasons, a credit card issuer can cut off your account. Maybe you haven’t used your card for more than a year or you’ve racked up too many late payments.
But did you know a credit card issuer might close your account based on what it discovers about you online? In the era of search engines and social media, personal information floating around the internet could put you in a credit card issuer’s dog house.
While issuers aren’t spying on you around the clock, they can be banking on technology to tap into an ever-growing mountain of information on the internet about you, your relatives, friends, neighbors, or your coworkers.
“Credit card companies operate in a competitive and actuarially complex industry that relies heavily on the use of data to assess risk. As such, it’s only natural they would be exploring new and emerging types of data to inform their decisions,” said Rich Matta, CEO of ReputationDefender, an online reputation management company.
Are you ‘bad news’ to an issuer?
Card issuers are employing software that automatically combs the internet that can turn up negative information about you. That data can then be matched against the issuer’s database of cardholders. If it’s determined you’re a significant financial risk for the issuer, you could be dropped as a customer.
Todd William, founder and CEO of Reputation Rhino, an online reputation management company, said account cancellations can be based, at least in part, on a news article about a criminal conviction, a court record of a bankruptcy filing or other information that signals how you’re handling your finances now or how you’re likely to be handling them in the future.
“Issuers do definitely monitor the names of their customer base for what in the card business is called negative news,” said Mike Brauneis, North American leader of the financial services practice at consulting firm Protiviti and global leader of its regulatory compliance practice. “Think about it like a Google search on steroids where there’s services like LexisNexis, for example, that maintain databases that aggregate public records and public news stories.”
For instance, a “negative news” screening might detect a news article about someone being charged with or convicted of financial fraud. If the name of that person appears in the card issuer’s database, then his or her account will be examined for money laundering or other suspicious activity, Brauneis said.
If the person who was flagged actually is a customer and questionable activity has occurred – a large, suspicious charge was made, for instance – that could lead to cancellation of that person’s account, he said.
Screening for negative news also might pick up information about a cardholder’s wages being garnished in conjunction with a legal dispute. Just as in the case of financial fraud, an issuer might decide the customer represents an unacceptable credit risk as a result and will shut down that person’s account, Brauneis said.
Cardholder loses account over employer’s settlement
Bryan Sequeira suspects that’s what happened with his Chase credit cards earlier this year.
Sequeira provided to CreditCards.com a copy of a June 15, 2018, letter that shows Chase notified Sequeira his two Chase credit card accounts would be closed Aug. 13, 2018, because “continuing the relationship creates possible reputational risk to our company.”
The letter, which came from Chase’s “executive office” in Columbus, Ohio, and was signed “Chase Customer Service,” didn’t pinpoint what that risk was. The rest of the letter provided instructions on how to wind down the accounts and directed Sequeira to call a toll-free number if he had questions. Accompanying the letter was a one-paragraph notice about Sequeira’s anti-discrimination rights under the federal Equal Credit Opportunity Act.
Puzzled, Sequeira went in search of answers. He reached out to Chase numerous times, to no avail, and he published a post about his predicament in the Facebook group for Sapphire Reserve customers. That Facebook post caught the attention of a Business Insider reporter who did some digging.
Sequeira said that in the reporter’s quest for answers, a Chase representative asked the reporter whether he’d Googled Sequeria’s name. The reporter had not, but a subsequent Google search unearthed a potential motive for the account shutdown, according to Sequeira.
In May 2017, eClinicalWorks and several employees, including Sequeira, agreed to pay a total of nearly $155 million to settle federal allegations that the Massachusetts company, a maker of software for electronic health records, had misrepresented the capabilities of its software and had paid kickbacks to certain customers in exchange for promoting its product.
Sequeira, a senior product manager at eClinicalWorks, agreed to pay $15,000. In the settlement, neither eClinicalWorks nor Sequeria and other employees admitted wrongdoing.
An October 2018 search of the name “Bryan Sequeira” on Google turned up two news accounts about the eClinicalWorks case within the first two pages of search results. Sequeira was mentioned in both news stories.
CreditCards.com couldn’t reach Chase for comment about Sequeira’s circumstances. In September 2018, a Chase spokeswoman declined to comment to Business Insider about Sequeira because it doesn’t publicly discuss individual clients.
Sequeira told CreditCards.com he’d had a stellar payment history with not only his Chase Sapphire Reserve card, but also a Marriott Rewards card from Chase. In addition, Sequeira said his credit score – before the Chase debacle – was around 770, well above the average FICO score of 704.
Sequeira said he feared the Chase case would hamper his ability to buy a house in Worcester, Massachusetts, since cancellation of the card contributed to a 30- to 40-point decline in his credit score. But he still qualified for a mortgage, and he and his wife were able to settle into their new home in September 2018.
If it happens to you, make noise about it
Sequeira said the eClinicalWorks settlement should have had no bearing on his status as a Chase customer, adding that he’s far from being a “criminal mastermind.”
“I don’t see myself being a credit risk. I don’t see myself not being able to keep up with payments. I don’t see myself being part of any of the things Chase doesn’t like,” Sequeira said. “There was no reason for them to see me as a risk.”
Sequeira said wife still has a Chase card in her name, but she plans to cancel it before the next annual fee is due. As for Sequeira, he still has six credit cards – from Bank of America, Barclays and Capital One. As of late October, Sequeira's credit score was around 740, he said.
So, what’s the lesson for other credit card holders from Sequeira’s experience?
“You can’t forget that everything that’s available online is something that can be used against you. Just because it’s not financially related doesn’t mean that it doesn’t factor into how a bank [decides your creditworthiness],” Sequeira said. “At the end of the day, it’s a business – they’re trying to mitigate risk.”
As such, he acknowledged the right, under terms and conditions agreed to by every cardholder, for a card issuer to refuse to serve someone to help mitigate risk. “We may cancel, change or restrict your credit availability at any time,” Chase’s agreement with its credit card customers points out.
Sequeira recommended that if you find yourself in a dilemma similar to his, you should “make noise” by reaching out to the card issuer, posting about it in online forums and undertaking other “public appeals.”
“If we don’t band together and we don’t show them these practices are wrong, they’re just going to keep doing them,” he said. “There needs to be a more human touch to this business. It’s not just about numbers.”
Efforts to reach Chase as well as card issuers American Express, Bank of America, Capital One, Citi and Discover about their card cancellation policies were unsuccessful.
Like an IRS audit, ‘negative news’-driven card cancellation is rare
Harsh Pandya, a social scientist at Giant Oak, a company whose technology helps fight financial fraud, said situations like Sequeira’s – where a decision appears to have been based solely on negative news and not on information contained in a credit report – do happen, but they’re rare.
Brauneis of Protiviti estimated that fewer than 5 percent of negative news matches trigger further scrutiny by a card issuer and even fewer accounts actually merit closure based on that scrutiny.
Brauneis draws a parallel to IRS audits.
“A lot of people get audited every year on an absolute basis, but the percentage chances of you being audited in general are really low,” he said. “Even if you're audited, it doesn’t necessarily result in a bad outcome.”
The IRS says it audited less than 1 percent of the individual tax returns filed in 2016.
Pandya stressed there is some good news about how consumers are screened by credit card issuers these days. In the past, entire categories of consumers would be excluded from consideration for credit because of where they lived, for instance.
Case in point: According to Pandya, some Americans once were branded as credit risks – and would be rejected for credit – because they were located in areas deemed as being at high risk for financial crimes.
Now, thanks to advancements in technology, consumer screening has been fine-tuned so that everybody living in a high-risk region isn’t broadly deemed a high-risk customer, Pandya said. Therefore, screening tools actually can benefit, rather than punish, some consumers.
“Certainly, there are two sides to this coin,” Pandya said.