The "Chase" and the "5/24" rule: An open discussion of credit discrimination

[JSS3]

Plenty of people paid their cards on time/responsibly for years, then a major crisis happened(or stolen identity) and those same people had to file bankruptcy. What you're currently doing isn't necessarily what you'll always do. You can go from low utilization to high in a New York minute as long as you have the credit exposure to.

I wouldn't argue the low utilization game. A Chase rep shut that down when a member brought that up. They weren't impressed and retorted with that they give the credit for us to use it.

Also, not only will you look like you're spreading the love around(since you have a few cards), but also you give low love. It just all spells NON profitable.

[Anonymous]

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@Anonymous wrote:

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@Darinox wrote:

Thank you. 

I just want to add something. It is not about 'me' or 'you'. It is not about the inquries. While this is seen as a personal preference, it is also about making the market a fair place. What is the difference between someone with less than five accounts and someone with more than five accounts assuming that both have low utilization? How does one with more than five accounts demonstrates a risky behavior with extremely low utilization or even if he repays with none?

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The 5/24 rule doesn't refer to whether you have less than 5 accounts or more than 5 accounts - it refers to whether you have applied for more than 5 in the last 24 months. In other words, you can still have 14 accounts that you opened years prior and that would not be a part of the rule.

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If I am not mistaken, I believe it has been established thoroughly that the 'rule' is 5 or more credit cards accounts opened within the preceeding 24 months, not just card applications submitted.

[Anonymous]

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@Darinox wrote:

Absolutely right - they do not need evidence luckily there is the FDIC which regulates fair market practices. How is this fair when the sole reason is for more than five accounts opened with all the variety of credit available today?

"And even if a lot of credit is not being used, that doesn't mean that someone one day might just go and run it all up" 

Certainly, though it also applies to the other party - one can diminish all the credit with less than 5 accounts, that's how a bank profits - by charging interest rates. 

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No one said the credit world was fair. A lender is someone who can choose to do business with you or not choose to do so, and it is their right to set up criteria you must meet in order to get a card with them.

There's no discrimination involved.

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

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@Darinox wrote:

Thank you. 

I just want to add something. It is not about 'me' or 'you'. It is not about the inquries. While this is seen as a personal preference, it is also about making the market a fair place. What is the difference between someone with less than five accounts and someone with more than five accounts assuming that both have low utilization? How does one with more than five accounts demonstrates a risky behavior with extremely low utilization or even if he repays with none?

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The 5/24 rule doesn't refer to whether you have less than 5 accounts or more than 5 accounts - it refers to whether you have applied for more than 5 in the last 24 months. In other words, you can still have 14 accounts that you opened years prior and that would not be a part of the rule.

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If I am not mistaken, I believe it has been established thoroughly that the 'rule' is 5 or more credit cards accounts opened within the preceeding 24 months, not just card applications submitted.

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Correct - this refers to inquiries and/or cards opened.

[Anonymous]

I'll add one other point.  A lot of people are posting across the internet world about being upset about the 5/24 rule being applied to cobranded cards because one person (DoctorofCredit) reported that it was going to be applied in April to the cobranded cards.  So its not even a rule that exists for those cards as of yet and as far as anyone knows, the cobranded partners such as United, Marriott, Hyatt, etc may push back if Chase actually has plans to extend the rule.  They certainly have a stake in the number of people that carry these cards so they are going to have some input.  Even with the 5/24 rule for the CSP, Freedom and Slate we have seen people get approved for these cards even with more than 5 new accounts added in the last 24 months so it wasn't some hard and fast rule.  I think before we all get outraged (I saw a person post on FT that he cancelled all of his existing Chase cards in protest like that is going to do any good), we should wait to see what actually takes place.

[Anonymous]

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@Anonymous wrote:

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@Darinox wrote:

Absolutely right - they do not need evidence luckily there is the FDIC which regulates fair market practices. How is this fair when the sole reason is for more than five accounts opened with all the variety of credit available today?

"And even if a lot of credit is not being used, that doesn't mean that someone one day might just go and run it all up" 

Certainly, though it also applies to the other party - one can diminish all the credit with less than 5 accounts, that's how a bank profits - by charging interest rates. 

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No one said the credit world was fair. A lender is someone who can choose to do business with you or not choose to do so, and it is their right to set up criteria you must meet in order to get a card with them.

There's no discrimination involved.

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+1 ^^^^^^^^^

This...

While I may not completely agree with the 5/24 rule, it's their right. It's not personal, it's just business. 

[Anonymous]

@Darinox wrote:

Here's my case:

720 FICO

No public record

No negative history

No negative items or DEROG

No payments missed

No loans

13 per cent utilization rating

12 credit card accounts opened last 9 months

Total credit line: $5,400

Time since oldest account: 9 months

Average length of accounts: 5 months

@humuhumunukunukuapua'a wrote:

The bolded line would scare off more lenders than just Chase alone.

[creditguy]

Obviously Chases 5/24 rule violates no law and is not discrimination, or else they wouldn't have such a rule, Chase may do questionable things in some people's minds but I highly doubt they would have such a rule if it were illegal, why would they invite such trouble?

With that said, Chase is free to do as they please with their cards. If it costs them business I'm sure they will readjust their strategy, although if they plan on expanding the policy to co branded cards it must be working for them. I certainly have no issue with their rules. It's their card, it's their rules. Don't like it? Apply elsewhere. Most people apply for cards that serve their needs and do so sparingly, instead of churning cards for rewards or applying for cards to pad utilization or to simply collect cards, so this rule really doesn't affect most people anyway I'd venture to guess.

Finally this rule is no different than other lenders who deny applications for too many inquiries, too much available credit, too little account experience a recent BK or even banks who require a certain Fico score for their cards. It's called underwriting and every bank has its standards, not everything is discrimination, it's reality. What's next? Refusing credit to someone who has open collections is going to be considered discrimination?

[Darinox]

1.  Scope of rule. The general rule stated in § 1002.4(a) covers all dealings, without exception, between an applicant and a creditor, whether or not addressed by other provisions of the regulation. Other provisions of the regulation identify specific practices that the Bureau has decided are impermissible because they could result in credit discrimination on a basis prohibited by the Act. The general rule covers, for example, application procedures, criteria used to evaluate creditworthiness, administration of accounts, and treatment of delinquent or slow accounts. Thus, whether or not specifically prohibited elsewhere in the regulation, a credit practice that treats applicants differently on a prohibited basis violates the law because it violates the general rule. Disparate treatment on a prohibited basis is illegal whether or not it results from a conscious intent to discriminate.

2.  Effects test. The effects test is a judicial doctrine that was developed in a series of employment cases decided by the U.S. Supreme Court under Title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e et seq. ), and the burdens of proof for such employment cases were codified by Congress in the Civil Rights Act of 1991 (42 U.S.C. 2000e-2). Congressional intent that this doctrine apply to the credit area is documented in the Senate Report that accompanied H.R. 6516, No. 94-589, pp. 4-5; and in the House Report that accompanied H.R. 6516, No. 94-210, p.5. The Act and regulation may prohibit a creditor practice that is discriminatory in effect because it has a disproportionately negative impact on a prohibited basis, even though the creditor has no intent to discriminate and the practice appears neutral on its face, unless the creditor practice meets a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact. For example, requiring that applicants have income in excess of a certain amount to qualify for an overdraft line of credit could mean that women and minority applicants will be rejected at a higher rate than men and nonminority applicants. If there is a demonstrable relationship between the income requirement and creditworthiness for the level of credit involved, however, use of the income standard would likely be permissible.

https://www.fdic.gov/regulations/laws/rules/6500-300.html

[Sharingan]

I see this thread going places... 

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@Darinox wrote:

In my opinion --- being declined solely as a result of the 5/24 rule treats you differently from others because you do qualify, however you are being disqualified immorally for practices unrelated to credit or credit risk assuming that your credit report is perfect and you have less than 30 per cent overall utilization on all portfolio accounts.

a credit practice that treats applicants differently on a prohibited basis violates the law because it violates the general rule

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This argument, however, won't be going anywhere. Banks have been declining applicants for new accounts for decades now (at their sole discretion), and it's really no one's place to tell them how many should be permitted. There are even institutions who aren't even as generous as Chase in terms of the number of new accounts in 24 months. Are you also going to target mortgage lenders? Their underwriting is arguably more stringent and unfavorable to applicants with new credit accounts.

This is not a battle you are ever going to win against Chase. You cannot tell them how to lend their money, especially when they actually are not violating any laws; however, you are certainly free to open your own lending institution with your own controls and underwriting criteria in place.

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@Darinox wrote:

I just want to add something. It is not about 'me' or 'you'. It is not about the inquries. While this is seen as a personal preference, it is also about making the market a fair place. What is the difference between someone with less than five accounts and someone with more than five accounts assuming that both have low utilization? How does one with more than five accounts demonstrates a risky behavior with extremely low utilization or even if he repays with none?

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This isn't quite your determination to make, sadly. Low utilization now doesn't mean that an individual can't or won't spike it in the future with the new accounts they've picked up. It is a legitimate concern for more institutions than just Chase alone.