Image: Jesse Gilleland of Stafford, VA
Michael Temchine  /  for msnbc.com
Computer consultant Jesse Gilleland, 37, of Stafford, Va., had two American Express cards canceled and the limit on a third card cut. The company said the decision was based in part on where he  shops and who holds his mortgage.
By Mike Stuckey Senior news editor
msnbc.com
updated 10/7/2008 6:42:13 AM ET 2008-10-07T10:42:13

As the global credit crunch reaches from Wall Street to Main Street, guilt by association has become a tool for evaluating the creditworthiness of American Express customers.

Among other criteria, cardholders are seeing limits reduced because of where they live, where they shop and who holds their mortgage.

“Absolutely unbelievable!” said Jesse Gilleland of suburban Washington, D.C., who says revisions of his American Express accounts and credit limits, at least partly for those reasons, could force him to close his once-thriving computer-consulting firm.

A letter sent to Gilleland by American Express, one of the nation’s largest credit-card issuers, includes these reasons why the spending limit on his Platinum Card was reduced:

  • “Our credit experience with customers who have made purchases at establishments where you have recently used your card.”
  • “Our analysis of the credit risk associated with customers who have residential loans from the creditor(s) indicated in your credit report.”

Credit-card experts and consumer advocates say that while such practices have been rumored for some time, this is the first time they’ve seen them cited as criteria for a credit limit reduction.

American Express spokeswoman Kim Forde confirmed that the company is analyzing its exposure to risk more closely as it reviews its cardholders’ credit profiles, including considerations it has always weighed — from payment history to credit bureau reports and income.

But, she said, “We are looking at some other factors, too, in light of the economy. We are looking at consumers holding subprime mortgages (and) those living in areas where there has been a greater deterioration in home prices.”

Asked about the letter to Gilleland, which cites shopping practices and merely obtaining a mortgage from a lender who also loans to other borrowers with "credit risk," Forde said, “You have to remember that this is one contributing factor. That’s not the sole reason, but it’s certainly data that we’re looking at.”

Limits revised for 20 percent each year
Forde said that in a typical year, American Express changes credit limits for about 20 percent of its cardholders. In recent years, about 80 percent of those members saw their limits raised while 20 percent saw them lowered, she said. Now, the ratio is about 50-50.

Limit reductions have pinched cardholders like Gilleland, who said he counted on three American Express accounts to fund startup and travel costs of his firm, based in Stafford, Va. Earlier this year, American Express shut two of the accounts and began lowering the limit on the third to match the balance as he paid it down. When he saw the letter outlining the reasons, he was stunned. He contacted msnbc.com in response to a solicitation asking small-business owners to talk about their challenges in the current financial crisis.

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Gilleland said he has had an American Express Platinum Card for about six years.

“I’ve never had a problem," he said. "They’ve never imposed a limit on me before."

His computer security and data recovery work is “profitable, it’s busy,” he said. "I burn through between $6,000 and $8,000 in travel each month,” which is billed to his clients, he added. He has relied on credit cards to pay for that before being reimbursed and said “it’s been very painful” to have his limit continuously lowered, making his business less viable.

Consumer advocates and credit experts contacted by msnbc.com said they had never seen the profiling considerations cited as contributing to a credit limit reduction, but they were not surprised.

“It’s horrible,” said Linda Sherry, spokeswoman for the advocacy group Consumer Action. “It seems horribly unfair, but they are the ones doing the lending and there’s nothing under the law that can prevent them from doing that.”

Greg McBride, senior financial analyst with the personal finance Web site Bankrate.com, said, “This is something that’s coming across the radar screen as more and more consumers are being denied credit or seeing existing credit scaled back as a result of specific purchase behavior or other entities that they do business with. … Card issuers across the board are playing defense now. Nobody’s giving out credit like it’s candy anymore.”

Ed Mierzwinski, federal consumer program director with the U.S. Public Interest Research Group, said, “There’s no question that this type of behavioral score is used by everyone. They just don’t like to admit it. … It sounds like American Express is dialing up the impact.”

Dialing up 'the ding'
For instance, Mierzwinski said, “For years, you’ve been dinged if you purchased your stuff at a rent-to-own store on your credit card. The ding used to be very small. It sounds to me like they’ve dialed up the ding.”

Gilleland was mystified about what among his own purchases  may have drawn attention from American Express’ risk analysis system.

“I’ll tell you where 90 percent of my purchases are: Avis, Hertz, Target and Best Buy,” he said. He also is irritated that a mortgage he obtained from the embattled lender Countrywide — now owned by Bank of America — had apparently brought scrutiny because it was a refinancing to get out of an adjustable-rate loan and into a 30-year fixed product.

Spokeswoman Forde said American Express would not divulge any of the "establishments" where a cardholder’s shopping might trigger a review. That is “one of the many factors in our property risk model, and it actually changes frequently,” she said.

The company does not review actual items purchased by its cardholders in assessing risk, Forde said.

On the mortgage issue, she said the company does not differentiate between loans obtained directly from a lender and those sold in the secondary market to such lenders.  “In the aggregate, outstanding loans with certain lenders tend to have a higher proportion of credit issues on our card member base,” she said.

Forde stressed that “we take all appropriate measures to meet all fair lending laws.” “I think you have to keep in mind that these are not the only decisive factors,” she said. “We are looking at somebody’s overall profile. … It’s a holistic look at someone’s overall credit profile.”

For Gilleland, the father of three young boys, the credit crunch is just one of a number of financial blows hitting at once. His Virginia home has plummeted in value to far below the amount of his mortgage, and his business expenses are climbing.

“I’m literally at the point where I have to fold the business up, and another dream bites the dust,” he said. “I went out to Monster.com and uploaded my resume because I have to look for a W-2 job. … It will take years for me to recover from this, especially as I’m firmly committed to not filing bankruptcy.”

Consumers: Pay attention!
McBride, of Bankrate.com, said what happened to Gilleland is “something people need to know about, even if there’s not a lot of direct consumer action you can take.”

Consumers with good credit also need to be aware of the flip side of the story, he said.

“If you have a credit score of 700 and up, you should be seeing lower rates now than you did a year ago,” McBride said. “If you find that your card issuer isn’t playing ball, it’s time to shop around.”

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