You Have No Choice

Live by the score, die by the score.

    The appetite for our information has only grown with time.  It was perhaps inevitable that businesses outside the financial industry would begin to use these databases as well.  Companies could purchase and use this information to find customers and fine-tune their marketing efforts.  Access to credit scores gave them the ability to rate their customers,  adjust their prices, and even refuse sales based to these ratings.  Seemingly overnight, a good credit score was needed to “qualify” for many things that have nothing to do with lending. 
    Cell phone service, car insurance, and even employment all became things that could be denied outright, or made more expensive by a low credit score or a lack of credit history.  Credit scores had now been transformed from a lending tool to an all-purpose character reference, making the act of borrowing money at interest a prerequisite for becoming a “qualified”  customer, tenant, or employee.  The expanding use of credit scoring has resulted a society in which one must borrow money and pay it back with interest in order to to secure the ability to use an iPhone, get a decent job, and to avoid paying higher prices for many goods and services.  
    Not only has our ability to choose not to borrow money been diminished, we have a very limited amount of choices in the marketplace itself.  Sure, we can find what seem to be many lenders, but this is deceiving.  The consumer debt market is dominated by a small number of very large actors.  The credit card market is probably the best example.  The five largest credit card issuers control about 70% of the credit card market.  In many cases, even credit cards from local banks and credit unions are underwritten by these large institutions.  For example, suppose you want a credit card, but for some reason you decide not to do business with J.P. Morgan Chase.  Instead, you choose a card from Webster Bank.  Well, sorry to disappoint you, but Webster Bank cards are issued by First USA, which in turn is owned by J.P. Morgan Chase.⁷  This is not an unusual scenario.  
    Any competition that exists between the credit card companies is largely an illusion.  It’s a copy-cat industry.  They all offer products that are virtually indistinguishable from each other.  The terms and conditions of credit cards are basically identical from issuer to issuer.  If one issuer increases late fees the rest follow in short order.  If one issuer changes its interest rate policy, the rest follow.  Unlike competition as most people think of it, the “competition” among credit card issuers does not spur any true innovation, and rather than driving prices down, the cost of credit has increased over time.  Instead, this “competition” produces increasingly deceptive and creative marketing and advertising.  “Competition” amongst credit card companies is essentially a beauty contest, with each company perpetually trying to polish its public image and buy each other out rather than offering consumers real choices.   
    Ironically, the lack of true competition amongst credit card companies is confirmed by the companies’ own public relations efforts.  Whenever there is negative press attention focusing on individual lenders’ policies, the individual lenders generally refuse to respond.  Instead, they send representatives from their trade group, the American Banking Association, in front of the cameras to answer for their deeds.  It doesn’t matter which bank is being questioned, the American Banking Association handles all the press.  In most cases, the ABA representative handles the questioning with standard boilerplate non-sequiturs that can be summed up as “If our clients are not allowed to do whatever they please, Americans as a whole will be forced to pay higher interest rates and have less access to credit.”  In other words, if you think things are bad now just try to stop us.  We dare you.
    If credit card companies were truly engaged in vigorous competition it would be very difficult, if not impossible, to speak with such a united voice.  The reason they are able to be so united in the face of scrutiny is because there are no real differences between their businesses, products, or tactics.  One response fits all.