Where you shop and what you buy may impact your access to credit — and that’s not a good thing for democracy.
Last week, BusinessWeek.com reported on a lawsuit filed against CompuCredit, a credit card issuer, for failing to disclose that it uses the buying patterns of card users to evaluate how much credit to offer them. The lawsuit (details here) has been filed by a U.S. regulator, the Federal Trade Commission, which protects consumers from fraud.
Global Integrity’s work emphasizes fighting corruption in governments through checks and limits on government power — an approach rooted in the Jeffersonian idea that in a democracy, a citizen’s right to speak and act freely must be protected from power-seeking institutions. In Jefferson’s day, this meant government institutions. While powerful corporations existed then, the daily engagement between citizens and these institutions was limited — the East India Company didn’t much care what you were reading. But it looks like CompuCredit might.
According to the FTC’s complaint, the company uses buying patterns to determine who presents a higher risk of defaulting — a visit to a marriage counselor might flag you as soon-to-be financially unstable. Any development-oriented microlending organization will argue that access to credit is a key factor in economic empowerment. Given the volume and detail of information that a credit card bill provides about the person using the card, it’s not hard to see where this can progress from a debatable to disconcerting to fundamentally undemocratic way to deny that access. Should a person who shops at a university bookstore get better access to credit than someone who uses a laundromat? What about a grocery that caters to immigrants? What can magazine subscriptions tell a lender about a person’s financial future? It’s not hard to imagine a lender preferring a Forbes reader over a New Socialist subscriber. Or a New Parent subscriber.
If these practices were all publicly disclosed and debatable, that would be one thing — but they’re not. Credit profiling is an occult art; the careful management of who to lend to is one of the few ways that lenders compete with each other. (The FTC complaint is with CompuCredits’s alleged lack of disclosure of sales-data profiling, rather than the practice itself.) The end result is a culture of uncertainty and fear — where self-censorship is common and the financially responsible choice is to stick to the mainstream, even with private acts like shopping online.
Thomas Jefferson was a staunch defender of “the rights of thinking and publishing our thoughts by speaking or writing; the right of free commerce; the right of personal freedom.” This is commonly interpreted as a defense of unregulated markets, but I would argue that Jefferson would be horrified by the hold that financial institutions like CompuCredit have over citizens. Using detailed personal histories to determine a person’s financial destiny threatens the roots of democracy: freedoms of conscience and association.
The FTC’s attempt to enforce existing transparency rules around these practices is a good start. In this case, ensuring “the right of free commerce” may require additional government regulation.
— by Jonathan Werve —