Intense competition is a fact of life in the credit card industry, but some bankers are beginning to wonder if it hasn't gotten out of hand.
These bankers are concerned that some institutions are stealing customers, taking advantage of readily available data bases with highly specific account information that by rights should be kept private.
Such thefts are allegedly taking place through balance transfer offers, an increasingly common method of aggressive marketing.
Using credit bureau files, a bank could identify prospects' banks and outstanding balances, and then make an offer accordingly.
The three major credit bureaus -- Equifax, Trans Union, and TRW -- deny that their screnning methods are the source of the intelligence, because such lists do not include account numbers.
Furthermore, screening reports do not reveal whether a consumer has transferred a balance.
But TRW Information Systems and Services conceded that a clever marketer could make certain assumptions about available data in order to target certain customers.
The Orange, Calif.-based credit bureau also tried to address the issue, and distance itself from the practice, in an unusual letter to its customers last week.
"There seem to be more instances of people being concerned about balance transfer activity," said Rick Cortese, senior vice president of sales and services for TRW, who is the author of the letter.
"I thought the letter would be a good way for TRW to reaffirm its policies," he said.
"Balance piracy," as the luring of accounts from credit card competitors is known, is not new, but it attracted new scrutiny when two large lenders recently questioned the credit bureaus about their data security measures.
TRW's letter, which was obtained by American Banker, came in response to the inquiries by those lenders -- an East Coast bank and a retailer, whose identities were not disclosed.
TRW acknowledged the potential for customers to manipulate information in its files to gain a competitive edge, and said there is little it can do to prevent it.
TRW was not alone in being questioned.
Chet Wiermanski, vice president of acquisition risk management services for Trans Union Corp., said a large retailer had contacted the company in May, at about the same time that TRW reported being contacted by a large retailer. In both instances, the question was whether the credit bureaus provided information that would allow a credit card issuer to target the retailers' customers.
"We resolved their concerns and showed them that we are not giving out information that could harm them," said Mr. Wiermanski.
A spokesman for Equifax said, "Over the past two years we have received three inquiries on this subject from three different customers."
According to the TRW letter, subscribing companies believe their "customers have been specifically targeted by competitors for balance transfer offers. This activity has raised concerns that account-identifying information may be available through TRW's Prescreen or Quest services."
The Prescreen service selects people from TRW's data base of more than 180 million creditactive consumers who meet criteria prescribed by the credit grantor.
The Quest service identifies customers in a credit grantor's protfolio who are eligible for a preapproved offer.
In the letter, TRW maintained that it cannot prevent the sort of "creative activities" that targe "desired customers." Michael Scharf, manager of the product management group for TRW Information Systems and Services, said, "We know things are possible, but we don't have any ready examples" of how banks are targeting each other's customers.
Beverly Wells, president of Wachovia Bank Card Services, said the trouble TRW went through "to make sure their hands are clean" indicates the company is trying to distance itself from any wrongdoing.
Michael Scheurman, senior vice president of loan administration at Wachovia's bank card unit, added, "It certainly seems like someone is trying to manipulate the rules or skirt the system to get a competitive advantage."
"We would really like to know all those Signet Bank cardholders who are coming up for their one-year anniversary when the introductory rate expires," said Mr. Scheurman, "But there is no way we could identify those people within the guidelines" of the Fair Credit Reporting Act.
Under current regulations, the only situation in which an outstanding balance and the name of the bank appear together is in a credit report, but it is illegal to use a credit report for prescreening. A credit grantor may request a credit report only if the consumer has applied for credit.
Sending out a balance transfer offer to a consumer who has applied for a credit card is a fairly new practice, said Norm Magnesun, director of public affairs of Associated Credit Bureaus Inc.
A bank is permitted to request a credit report under such circumstances, and banks that have the technology can send out an immediate transfer offer to consumers with outstanding balances on other credit cards.
"This practice does not violate FCRA, because the bank has a permissible reason for pulling the credit report," said Mr. Magnesun.
The "creative" activities referred to in TRW's letter occur after the credit bureau completes its screened list.
At that point, the names and addresses go to a third party processor, which can screen the list a second time using sophisticated risk models developed by the credit grantor, who is not allowed to look at the list directly.
"The final screen in a third party shop ensures that the data is as fresh as possible," and the consumer is still credit worthy, explained Peg Smith, vice president of operations and compliance at TRW.
Post-screening, as it is called in the industry, allows the credit grantor to fine-tune its offer to each potential customer and to develop a profile of the customer that predicts his or her behavior.
Ms. Smith believes that the credit bureaus are fielding more questions about balance transfer offers, because so many banks are offering variable rate pricing, targeting consumers with specific terms.
Ronald T. Urquhart, vice president of consumer credit at People's Bank in Bridgeport, Conn., observed "When we [all credit grantors] come out of the credit bureau, we are all equal, but if one of us runs the information we get against another model" the inequality begins.
People's Bank, which built most of its credit portfolio on balance transfers, may have been one of the first banks to employ this practice in 1986.
"We have since transferred billions of dollars to our bank," said Mr. Urquhart, who objects to the term "balance piracy."
"It is competition, not piracy," he added, "if I am a low-cost provider of credit cards and I get your 19.8% accounts."
