Consumer Law

Times Sunday Magazine Money Issue

By Jeff Sovern

Yesterday's Sunday Times Magazine was devoted to money.  The entire issue was worth reading, but two articles in particular were striking.  One, written by Times economics reporter Edmund Andrews and titled My Personal Credit Crisis, was excerpted from his forthcoming book, Busted: Life Inside the Great Mortgage Meltdown.  A divorce and child support obligations left Andrews with take-home pay of $2,777.  Nevertheless, he and his second wife were able to qualify for a substantial mortgage that didn't require him to disclose his income, alimony or child support obligations.  The only problem was that his monthly payments exceeded $2,500 for the first five years, after which his payments would rise still higher.  Eventually, he ran out of money and despite refinancing, stopped making payments on the mortgage.  Here's a revealing passage in which he quotes Bob Andrews, a loan officer at the now-defunct American Home Mortgage Corporation:

?I am here to enable dreams,? he explained to me long afterward. Bob?s view was that if I?d been unemployed for seven years and didn?t have a dime to my name but I wanted a house, he wouldn?t question my prudence. ?Who am I to tell you that you shouldn?t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it?s your signature on the mortgage ? not mine.?

The other article is titled What Does Your Credit-Card Company Know About You? and is about how credit card companies have discovered that consumers who charge some items, like chrome skull accessories, are more likely to default than consumers who charge other items, like premium wild birdseed.  That, of course, is relevant to who gets a credit card and the rates they get charged.  The article also explores how credit card companies have learned which strategies are more likely to help in collections than others, based on what they know about the particular consumer.  An excerpt:

[C]redit-card companies are becoming much more interested in understanding their customers? lives and psyches, because, the theory goes, knowing what makes cardholders tick will help firms determine who is a good bet and who should be shown the door as quickly as possible.

Luckily for the industry, small groups of executives at most of the large firms have spent the last decade studying cardholders from almost every angle, and collection agencies have developed more sophisticated dunning techniques. They have sought to draw psychological and behavioral lessons from the enormous amounts of data the credit-card companies collect every day. They?ve run thousands of tests and crunched the numbers on millions of accounts. One result of all that labor is the conversation between [credit card employee] Santana ? a former bouncer whose higher education consists solely of corporate-sponsored classes like ?the Psychology of Collections? ? and the [consumer] from Massachusetts. When Santana contacted the [consumer] last month, he was armed with detailed information about his life and trained in which psychological approaches were most likely to succeed.

Full post as published by CL&P Blog on May 18, 2009 (boomark / email).