Instant Credit Income Verification: A Retail IT Migraine On The Horizon?
Written by Evan Schuman and Fred J. AunA U.S. Federal Reserve Board proposal being fought by retailers would have store clerks asking customers for proof of their salaries before issuing instant credit. But the Credit Card Act proposal raises many troubling questions for retail IT execs. To be able to later prove its compliance with the federal rule, will retailers have to enter the salary data into its POS? Will copies have to be retained and scanned? Will this new mandatory goldmine of identify-thief-fantasy-data points attract more aggressive cyberthieves? Even worse, will retailers be tempted to add such information into CRM databases?
From a non-IT perspective, the move would certainly discourage consumers from accepting—or even pursuing—instant credit, which has been a wonderful thing for merchants. It’s unlikely that shoppers will be thrilled when asked by gum-chewing, teenage POS jockeys to whip out paystubs or a copy of last year’s 1040s.
Consider an analogy: The police chief who lives next door has a town ordinance passed requiring you to store in your basement a ton of heroin and cocaine that the police department has just seized. “Wait a second,” you say. “First, I don’t want this stuff, nor do I need this stuff. If you think it needs to be preserved, then you preserve it. All it’s going to do for me is make my house an irresistible target for every drug dealer in the next three counties, putting my family in danger.”
The argument has been made before that a lot of payment data would be better protected if it were retained by banks and processors and not the local fish-seller or upholsterer. But by adding paystub and/or tax return data into the mandated data, this is getting ludicrous. We’re reminded of the old commercial for Life cereal. “Let’s get Mikey the merchant to store it. He’ll store anything!” But in this case, it’s highly unlikely the retailer will end up liking it.
-Marc
December 10th, 2009 at 11:27 am
1- Who ever carries around their pay-stub or tax return?
2- This would be a great means to kill off the credit concept and force people to only buy what they can afford – in cash. Maybe that’s the real goal?
December 14th, 2009 at 12:40 am
I think this post is mostly based on misconceptions about the Fed proposal. While the Reg Z proposed rule is certainly a problem for instant issue private label credit, the Fed was quite careful to point out that no verification would be required for income data provided by the consumer. Issuers have to ask about income and they have to consider income (and liabilities), but they don’t have to verify. That could change in the final regs, but it’s not on the table now.
December 14th, 2009 at 9:35 am
Editor’s Note: The story didn’t contradict that. But if you think this through, how would this likely work? Is a cashier–in front of everyone–supposed to ask this? And those same associate cashiers are given strong incentives for speed, to keep the line moving. Is not a quick peek at a document more confidential and faster? Even if it’s solely verbal–which seems unlikely–what is the associate supposed to do with that? Wouldn’t it be more likely that they would have to write it down or enter it somewhere? For management purposes only, there has to be some kind of record. And the capturing of that data is what the story was discussing. The last thing any major chain would want to do is blatantly follow the letter of the rule and not the spirit. For the moment, we stand by the concerns and issues raised in the story.
December 14th, 2009 at 1:53 pm
We may be saying the same thing, or we may not. The requirements to consider income and liabilities is certainly a huge impediment to instant issue credit cards. Thoughtful concerns have been and are being lodged with the Fed. These rules (to me) seem to be solutions in search of a problem. Failure of consumers to repay private label credit cards did not cause the current crisis. Mortgage companies are now required to verify income, which seems somewhat more on target.
But in terms of information collected, I don’t think issuers want to verify it unless the Fed requires them to – and if they do want to verify it, they are probably already doing so (at one time Amex required 1040s for credit issuance, and may still do so for some cards).
The consumer will have to fill out an application (paper, terminal or verbal) just as they do now, and, just as they do now, the information from the application will have to get into the system. Your question about how this information is communicated (verbally?) is certainly one of the thorny issues that issuers have raised, but to someone wanting to steal my identity, my income level is a lot less important than my DOB, DL# or SSN, at least a couple of which are already in the system. I’m not sure that information about income or liabilities is qualitatively different than what is currently collected and not any huge quantitative leap.
My original comment and this response is in no way intended as confrontational, I’m just pointing out that verification isn’t currently proposed, and I don’t think most retailers intend to do it. I’d certainly be interested to hear of issuers with plans to the contrary.