June 15,2009
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Ya Better Watch Out, Pt.2
So, How do they do it?Referred to as 'MCC' (merchant category code) by the credit card industry, designations have been established by the lenders to track your spending habits. Your purchases are denoted by these four-digit numbers. For business use, it's a great benefit. It's easy to track where expenses are going. Many credit card lenders will even deliver monthly reports delineating which categories the accounts are using most and which are used the least. Accountants love it. They don't track specific products nor services; just the categories. The categories are based on what products nor services a merchant who accepts your credit card transaction predominately provides.
They can tell, however, the merchant's name, city and state, and the purchase amount. For each credit card transaction merchant will also provide a reference number. Things show up like dating and escort services, massage parlors and pawnshops. Sometimes, credit card lenders use this data to tailor rewards programs for people like yourself (from their proprietary 'matrix'). Sometimes, however, they use it for 'different' purposes.
An infamous lender named CompuCredit was busted in a class action suit back in January for abusing it. Using their "behavioral scoring model". they closely monitored credit card purchases made by their consumers to assess risk based on what they deemed "risky activities, immoral behavior, or potentially troubling life changes." In the end, they were busted for $114 million in payback of fees to their credit card holders in refunds and another $2.4 million in penalties imposed by the FTC. They were found bilking the public based on their own set of rules which were not known by anyone on the outside.
Used properly, purchase monitoring is not illegal. The lender is strictly barred from releasing any of their findings to anyone outside of the company. Is it new? Well, it's about as old as credit cards themselves. Just a little more sophisticated today.