Anonymous Banker Weighs In On The Coming Credit Card Debacle

This morning — at my blog — professor Levitin, in an op-ed piece, argued that the credit-card industry’s business model is broken. The Executive Suite, a New York Times blog written by Joe Nocera, published an email from a anonymous banker last week, which dovetails pretty nicely with Levitin’s piece. Indeed, the anonymous banker believes that the card industry’s model is broken as well. He’s got some ideas on how to fix it. From the Executive Suite:As a banker, let me describe what we do wrong when we accept and review an application for a credit card. First, we don’t verify income. The first ‘C’ of credit: Capacity to repay, is completely ignored by the banks, just as it was in when they approved subprime mortgages. Then we ask for “household income” — as if other parties in the household could be held responsible for that debt. They cannot. And since we don’t ask for any proof of income, the customer can throw out any number they think will work for them. Then we ask if they rent or own and how much they pay. If their name is not on the mortgage, they can state zero. If they pay $1,000 in rent, they can say $500. (Years ago we asked for a copy of the lease to verify this number.) And finally, we don’t ask how much of a credit line the consumer is looking for. The banker can’t even put that amount into the system. There isn’t any place on the application for that information. We simply put unverified information into a mindless computer and the computer gets the person’s credit score and grants them the biggest line that score and income (ha!) qualifies for.There is a whole lot more where that came from.