Compliance in Credit Cards!
For more than 50 years, the credit card industry in the United States has consistently done what consumers expect it to - and in many cases, this has been disappointing. When we started Final, we realized we wanted to do things differently. Not everything, but lots of things - motivated by our desire to do better by consumers.
As a result, we had to ask ourselves not only the question of how to innovate in a space that hasn’t changed in decades, but firstly the question of where to start. For me, it was obvious that there are numerous opportunities to put fresh eyes to many compliance-related issues in our pursuit of great customer experience and innovative thinking.
Our CEO, Aaron Frank, has previously posted the four pillars that we focus on to provide unparalleled value to our cardholders while building durable advantages in our business. The four pillars consist of:
- Radical Transparency
- Delighting our cardholders
- Rebuilding for a digital experience
- Customer Advocacy
One of the things that I have taken to heart in my role as Chief Compliance Officer is the first pillar, Radical Transparency and how it relates to credit card and banking compliance. While the credit card industry has - from a consumer perspective - not changed much over the past 50-plus years, the regulations (both state and federal) governing it have routinely evolved (or devolved, depending on your point of view).
The old saying “the only constant is change” is true in the regulatory compliance environment. While regulations have mainly been created to help consumers in the lending and deposit arenas, sometimes there are unforeseen adverse effects to attempts at consumer advocacy.
We wanted to shed a bit of light on one of these regulations and share our thoughts on one of its unfortunate consequences, in the spirit of Radical Transparency:
The Equal Credit Opportunity Act (ECOA) was created to promote the availability of credit to all creditworthy applicants without regard to:
- National origin,
- Marital status,
- Age (provided the applicant has the capacity to contract),
- The fact that all or part of the applicant's income derives from a public assistance program; or to
- The fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.
The regulation prohibits creditor practices that discriminate on the basis of any of these factors. The regulation also requires creditors to notify applicants of action taken on their applications; and to retain records of credit applications.
In a nutshell:
- We can’t discriminate against you on a prohibited basis regarding any aspect of a credit application.
- We have to let you know a decision on your application within regulatory timeframes.
- We have to retain the information you provide us for a period of time (usually 25 months).
We believe these are all great protections afforded to consumers in the U.S.
However, sometimes it feels like the regulation handcuffs us in other areas. The federal regulatory agencies have companies so worried about violations of ECOA that we often feel like we must encourage all applicants to apply, even if we know they will not be approved. In addition, depending on how a potential applicant poses a question to us, our response could be considered an actual credit decision.
This comes into play on a regular basis between our team and prospective applicants. Picture this:
- A potential applicant - perhaps you - has a decent sense of where your credit profile stands (You think you have what would be considered "good" credit, but you may have a credit score you think is ‘on the fence’ or have a few dings that give you pause about actually applying for the Final card.)
- You think that the responsible thing to do would be to email or call us to discuss the dings and ask important questions about credit inquiries impacting credit score. We as a company have advertised that we are Radically Transparent. We’ve stated that we have the consumer’s best interest at heart. We have promised to be consumer advocates and want to help you be smarter about credit and our product so you inquire with us… and due to the fear of discouraging you, we say:
“There are many variables that factor into the credit decision process. The only way for us to provide you with a credit decision is for you to submit a completed application.”
How does that feel?
We know this response does not feel good for you to hear, because it doesn’t feel good for us to say it to you.
Based on the “dings” you have mentioned to us, we may know you’re not going to qualify for our card. However, regulatory compliance issues have us so concerned with what we can and cannot say in this and many other cases. While we want to answer transparently, we are worried about regulators beating down our doors because they considered a candid response we’ve provided to have discouraged an applicant.
The unfortunate end result of this scenario is that in some cases you apply, we do a credit inquiry that has an impact on your credit score, and you get declined.
How is that beneficial to you or any other consumer? I’m not advocating the abolition of the ECOA, but I am saying that there are instances where we feel that we can’t be straight up with you, because of it.
So, with the above being said and not taking into consideration any applicant’s specific credit factors and with the aim of being different and more transparent than some of the “big banks”, I’d like to present some of what we look for when making a credit decision:
- Good to excellent credit backgrounds.
- A verifiable physical residence (not a PO box) within the United States.
- A Social Security Number.
- A working home or mobile phone.
- You must be at least 18 years of age (or able to legally enter into a contract if the age requirement is higher in your state of residence).
- To be approved, you should have a strong credit history and score, reflected in your credit report. Strong scores are often the result of:
- Not being late on any payments for at least the past year.
- Never having declared bankruptcy or defaulted on a loan.
- Having more than one other loan in your name with on-time payments for more than a year.
- Having a low debt-to-income ratio.
- Having a low combined balance on your other credit cards.
- Not having any unpaid derogatory judgments, tax liens, charge-offs, repossessions, or collection accounts within the past 24 months.
- And last, but not least, you must not be a jerk. Being a jerk is not a protected class and quite honestly if you can’t be nice to our wonderful customer support team, why would we want to deal with you as a customer.
Now, this information is provided for your benefit. We want you to know what will typically be an automatic “no go” for us. However, the list above does not represent exact or complete requirements. Meeting the guidelines above does not guarantee approval. Please review the application for additional information about eligibility. Now with all of this being said, there are many variables that factor into the credit decision process. The only way for us to provide you with a credit decision is for you to submit a completed application. We hope you’ll apply. We would love to welcome you to the Final family and we look forward to what we hope is a very long relationship between us.