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

[NRB525]

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@Darinox wrote:

Aggressive credit seeking, though how can they establish a claim whereas a large portion of the available credit is being unused? Where is the evidence?

The evidence, therefore, is the consumer report which reflects 13 per cent overall utilization and less than 30 per cent on each credit card; while one can generally be seen as 'aggressive credit seeker' as per more than 5 credit cards, which is in fact a blanket statement as evidence e.g. historic statement balance demonstrates the opposite.

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The Evidence, however, is only the current report at this moment in time. Many credit applicants get caught up in the "I haven't defaulted yet so I am not a risk" argument, but from the bank perspective, this is not a correct statement of risk. Risk is a future concept.

The bank risk in granting another revolving credit line is, the applicant has the ability to go out and use that credit line for virtually any purchase. The applicant is the only one who knows, in real time, the applicant's finances. Most of the time, cardholders make responsible charges on their cards and pay them off. Sometimes it takes them a while to pay them off. Sometimes they run into financial difficulties (only obvious to the bank in hindsight) and cannot pay back the borrowings. The interest and fees that the bank earns are something they get in revenue, but a single $5,000 charge off from one account makes that account extremely unprofitable, no matter what the interest rate.

Banks make their money on these revolving credit lines, credit cards, only by carefully selecting applicants who are likely to pay back the credit that has been granted. All that careful work can be set back by a charge off, the customer not paying back some portion of the borrowed amount.

From a review of credit risk attributes, applicants who get many new credit lines opened in a short span of time tend to be more likely to run into credit difficulties in the future, including not able to pay back amounts they have charged. The banks actively monitor this, and many banks act quickly to reduce available credit if their credit models indicate the cardholder is showing signs of risky behavior. But they are always looking in the rear-view mirror, trying to suss out these "risk factors".

Including applying for many new credit lines, a risk factor.

One of your earlier posts indicates you are relying on the statement "a credit practice that treats applicants differently on a prohibited basis violates the law because it violates the general rule."

In order to get any further with this argument, you then need to go back to the "prohibited basis" list and show which of the "prohibited basis" items Chase is using to treat applicants differently:

Race?

Color?

Religion?

National Origin?

Sex?

Marital Status?

Age?

or Because you get public assistance?

Unless you can show the 5/24 rule relies on one of these "prohibited basis" categories, the law you cite isn't going to be much help

Also, just as a clarification question, perhaps someone who understands the details of how the 5/24 rule is being applied can help me here:

Is the 5 New Accounts restricted to non-store Credit Card accounts, meaning VISA, MC, AMEX, Discover (and let's throw JCB under the bus) rather than store cards? So the count of store cards may not be a factor in the 5 card count?.

[deltatee]

5/24 is not discrimination, it doesn't treat people differently on any prohibited basis, people with more than 5/24 aren't a protected class, and chase has a non-discriminatory purpose. Sorry.

[Anonymous]

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@Darinox wrote:

Aggressive credit seeking, though how can they establish a claim whereas a large portion of the available credit is being unused? Where is the evidence?

The evidence, therefore, is the consumer report which reflects 13 per cent overall utilization and less than 30 per cent on each credit card; while one can generally be seen as 'aggressive credit seeker' as per more than 5 credit cards, which is in fact a blanket statement as evidence e.g. historic statement balance demonstrates the opposite.

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Seeking - as in looking for more (bad)

Credit unused - as in sitting around doing nothing and showing that you're fine with it just sitting there (good)

If someone was using all their credit, they'd be called an agressive credit user, not an agressive credit seeker. I think you're conflating the two. 

I personally think it's about bonus seekers to Chase than about people who are going to charge up to their limits. 

(I just thought about the irony in their name...Chase...)

[baller4life]

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@deltatee wrote:
5/24 is not discrimination, it doesn't treat people differently on any prohibited basis, people with more than 5/24 aren't a protected class, and chase has a non-discriminatory purpose. Sorry.

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+ 1000! 

DISCRIMINATION: the unjust or prejudicial treatment of different categories of people or things, especially on the grounds of race, age, or sex.

I'm sorry. I really don't understand the point of this thread. Chase and any other lender has the ABSOLUTE RIGHT to establish their own lending criteria! As long as none of the above are discriminated against, there is no issue. If you don't like it, there are a ton of other lenders to choose from. It's their money. They can lend to whatever TYPE of cardholder they choose to. Period!

[Darinox]

@kdm31091 Generally a criteria is set forth in relevance to existing laws. Chase's criteria of having more than five accounts automatically views an applicant differently from other candidates that hold the same position based on factors that are not set forth by federal law: FDIC. 

Section 1002.6—Rules Concerning Evaluation of Applications

6(a)  General rule concerning use of information.

1.  General. When evaluating an application for credit, a creditor generally may consider any information obtained. However, a creditor may not consider in its evaluation of creditworthiness any information that it is barred by § 1002.5 from obtaining or from using for any purpose other than to conduct a self-test under § 1002.15. 

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.

[Anonymous]

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@baller4life wrote:

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@deltatee wrote:
5/24 is not discrimination, it doesn't treat people differently on any prohibited basis, people with more than 5/24 aren't a protected class, and chase has a non-discriminatory purpose. Sorry.

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+ 1000! 

DISCRIMINATION: the unjust or prejudicial treatment of different categories of people or things, especially on the grounds of race, age, or sex.

I'm sorry. I really don't understand the point of this thread.

Chase and any other lender has the ABSOLUTE RIGHT to establish their own lending criteria! As long as none of the above are discriminated against, there is no issue. If you don't like it, there are a ton of other lenders to choose from. It's their money. They can lend to whatever TYPE of cardholder they choose to. Period!

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I agree with baller4 that there isn't really much point to this thread. Chase does have the right to establish their own lending criteria, as well.

It doesn't appear the OP is listening or absorbing what is being said, either.

[gdale6]

Interesting to see most of you saying it isnt a form of discrimination as I posted in another thread a day or so ago that I do believe that it is. Good info being presented here and this is why we have attorneys around to argue cases before the courts.

[NRB525]

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@gdale6 wrote:

Interesting to see most of you saying it isnt a form of discrimination as I posted in another thread a day or so ago that I do believe that it is. Good info being presented here and this is why we have attorneys around to argue cases before the courts.

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On what legal basis is it discriminatory?

[Darinox]

Please do reference something when you make statements:

What is credit discrimination?

ON THE BASIS OF:

• Race or color
• Religion
• National origin
• Sex or Marital status
• Age (as long as you are old enough to enter into a contract)
• Receipt of income from any public assistance program
• Exercising in good faith your rights under the Consumer Credit Protection Act. http://www.consumerfinance.gov/fair-lending/

[Darinox]

Credit discrimination is illegal. Under the Equal Credit Opportunity Act, a creditor can't discriminate in any credit transaction, including mortgages, against any applicant because of these factors:

• Race
• Color
• Religion
• National origin
• Sex (gender)
• Marital status
• Age, unless the applicant is not legally able to enter into a contract
• Receipt of income from any public assistance program
• Exercising in good faith a right under the Consumer Credit Protection Act (such as disputing information in your credit report)

This means that a creditor may not use any of the above grounds as a reason to:

• Refuse you credit if you qualify for it
• Discourage you from applying for credit
• Provide you credit on terms that are different from the terms given to someone else who is similarly situated to you, such as having similar creditworthiness
• Close your existing account

Source: http://www.consumerfinance.gov/askcfpb/1255/my-application-loan-was-denied-because-my-credit-report-...