Exploiting Familial Ties
At 5:44 AM on Sunday, I received a lengthy email from a stranger in which the author recounted his life history, apologized for various grammatical and spelling mistakes in the note, and then, in a shocking surprise, did NOT ask me to transfer money to an offshore account in order to secure my share of a fortune locked up by despotic rulers in Africa.
No, the author (EI) did not want to defraud me; he wanted to tell me about the “fraud” that he’d experienced.
EI had come across an article that I wrote in the Philadelphia Inquirer back in August about the need for a consumer financial protection agency and he thought I would be interested in his interactions with Discover.
EI is from the fading generation of Americans who grew up on the notion that a person never bought anything that they did not have the cash for. However, he recently found out that his daughter had run up $2300 on her credit card, which with interest and penalties had ballooned to $6500. EI was very worried about his daughter being “behind the curve all the rest of her life” and so he negotiated with Discover to pay cash out of his own pocket to settle the matter with the company. EI is not a rich man, but he wanted to make sure “they would never bother [his] daughter again.”
So what happened?
The very next month, Discover sent his daughter a new credit card application.
Ugh. I’d love to think that this story is extremely unusual, but it’s not. EI’s experience reveals a highly effective and proven strategy for the credit card industry: think of your customer base not as isolated “individuals” but as “units.” The ideal unit is composed of an irresponsible and cash-strapped member of the credit generation and an older relative who is skeptical of debt, cares about the younger relation (and the family reputation), and has savings to dip into. The first half of the unit charges and charges and charges; the second half pays and pays and pays.
Earlier this month, the House of Representatives passed the Wall Street Reform and Consumer Protection Act and the pressure is now on the Senate, where draft legislation is currently before the Senate Banking Committee (the bill will probably come to the Senate floor in February or March). As a result, there is going to be a push by the industry in the next few months to portray the battle as one over personal responsibility. We are going to hear a lot about “greedy” Americans living beyond their means. As the din grows louder, however, let’s not forget about all of the EIs out there — the frugal, responsible Americans who help the ones they love when they fall on hard times – and the companies that exploit them.