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AmEx Is Judging You


Credit limits slashed based on spending history.

You ever hear of that old axiom "guilt by association" - the logical fallacy that pins fault on the uninvolved and is completely inadmissible in a court of law?

Well, American Express (AXP) has, and it's using the concept to lower a customer's credit limit.

Kevin Johnson -- a 29-year-old entrepreneur living in Atlanta -- returned from a honeymoon in Jamaica to find American Express had slashed his limit by 65%, despite his excellent credit rating and established history with the company. Its argument was even more offensive than the act itself: AmEx just didn't approve of where he was using his card.

The mailed notice read, "Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express."

Immediately after receiving the letter, Johnson called customer service to complain and searched his purchase history for the purported red flag. Curiously, each place of business fell in line with an average person's typical transactions.

So if Amazon, Ruby Tuesday or Starbucks is the culprit, the majority of Americans must have a "poor repayment history," according to American Express.

In an interview with Good Morning America, Johnson spoke of his strict spending habits, never exceeding 30% of his limit and having a credit history completely devoid of late payments - earning him a FICO score of 764 out of 850. Naturally, such an unorthodox credit penalty came as quite a shock.

Johnson said, "I understand the need for and the power of predictive analytics, but I think they have crossed the line."

American Express admits to analyzing spending patterns and using that information to assess a member. In addition to shopping habits, the company also inspects a customer's mortgage lender and if the customer owns a home in an area with declining housing prices.

And, though the company will study a person's spending patterns when setting their credit limit, American Express denies using the information to alter interest rates. However, lowering a credit limit could drastically alter a credit score if the balance then exceeds 50% of the limit.

Johnson isn't alone in his outrage. Speaking with the Atlanta Journal-Constitution, consumer advocate Ed Mierzwinski questioned how these penalties could influence consumer behavior.

"Now you have to watch where you shop, because if you shop where deadbeats shop or live where deadbeats live, [they're] going to use that as a reason to lower your limits or increase your rates."

Mierzwinski added, "I just am not convinced that it's a legitimate use of data mining."
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