If you want to know what credit card companies think of you, look at your mail.
Are you “pre-screened” for lots of mileage-reward cards? Banks think you’re rich and educated.
Do you mostly see offers for low-APR teaser rates? Banks think you’re poor and uneducated — and, perhaps, vulnerable to financial traps.
...
The game happens before our very eyes. Recently, MIT economists Hong Ru and Antoinette Schoar analyzed over a million credit card mailings collected by Mintel, a company that pays people to read their junk mail. The economists scanned the terms of these offers and noted the income and education levels of recipients..
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Mileage cards tended to be marketed at college graduates, while cards with teaser APR rates were sent to the less educated. Cash-back and point-reward cards were offered equally to people at every education level.
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The innocent explanation for these trends is that banks offer people cards they are most likely to want (and qualify for). Different folks, after all, have different needs. But as Ru and Schoar dug deeper, they found that this wasn’t the whole story.
Cards with travel rewards epitomize the kind of product aimed at the rich and educated. It’s a fairly exclusive niche — only about 8 percent of credit card offers fall into this category. People in this demographic are the most likely to jet around, and therefore most likely to appreciate a card that will earn them frequent-flier miles.
But frequent-flier credit cards carry other strange features. Even though they’re targeted at a rarefied clientele, mileage cards tended to have much higher interest rates, Ru and Schoar noticed in their data. They also had lower late fees and other gotcha features. The kinds of cards aimed at rich, educated people did not seem interested in making money off financial mistakes like the occasional late payment.
In contrast, the card offers sent to poorer, less-educated people were often loaded with risky features: low introductory APRs, high late fees, and penalty interest rates that kick in if you break the rules.
“Poorer people usually have worse credit, so standard economic theory predicts their regular APR should be higher,” says Schoar, a professor of finance at MIT’s Sloan School of Management. “And it’s not clear why the late fees, the hidden fees, the fees that hit you when you fall behind on your payments — why are they so high for the poor.”
...
According to the Consumer Financial Protection Bureau, credit cards are now more likely to make their money on “upfront pricing” — regular interest rates and annual fees — instead of “backend pricing” — penalties and late charges. But as companies try to make up lost revenue, some have turned to new alternative fees. According to the CFPB, some of these features still seem to prey on the unsophisticated. Bank of America, for instance, was finedlast year for selling "financial protection" plans in misleading ways to its credit card customers.
...
How your junk mail shows if you're rich or poor
Huh.
Are you “pre-screened” for lots of mileage-reward cards? Banks think you’re rich and educated.
Do you mostly see offers for low-APR teaser rates? Banks think you’re poor and uneducated — and, perhaps, vulnerable to financial traps.
...
The game happens before our very eyes. Recently, MIT economists Hong Ru and Antoinette Schoar analyzed over a million credit card mailings collected by Mintel, a company that pays people to read their junk mail. The economists scanned the terms of these offers and noted the income and education levels of recipients..
....
Mileage cards tended to be marketed at college graduates, while cards with teaser APR rates were sent to the less educated. Cash-back and point-reward cards were offered equally to people at every education level.
....
The innocent explanation for these trends is that banks offer people cards they are most likely to want (and qualify for). Different folks, after all, have different needs. But as Ru and Schoar dug deeper, they found that this wasn’t the whole story.
Cards with travel rewards epitomize the kind of product aimed at the rich and educated. It’s a fairly exclusive niche — only about 8 percent of credit card offers fall into this category. People in this demographic are the most likely to jet around, and therefore most likely to appreciate a card that will earn them frequent-flier miles.
But frequent-flier credit cards carry other strange features. Even though they’re targeted at a rarefied clientele, mileage cards tended to have much higher interest rates, Ru and Schoar noticed in their data. They also had lower late fees and other gotcha features. The kinds of cards aimed at rich, educated people did not seem interested in making money off financial mistakes like the occasional late payment.
In contrast, the card offers sent to poorer, less-educated people were often loaded with risky features: low introductory APRs, high late fees, and penalty interest rates that kick in if you break the rules.
“Poorer people usually have worse credit, so standard economic theory predicts their regular APR should be higher,” says Schoar, a professor of finance at MIT’s Sloan School of Management. “And it’s not clear why the late fees, the hidden fees, the fees that hit you when you fall behind on your payments — why are they so high for the poor.”
...
According to the Consumer Financial Protection Bureau, credit cards are now more likely to make their money on “upfront pricing” — regular interest rates and annual fees — instead of “backend pricing” — penalties and late charges. But as companies try to make up lost revenue, some have turned to new alternative fees. According to the CFPB, some of these features still seem to prey on the unsophisticated. Bank of America, for instance, was finedlast year for selling "financial protection" plans in misleading ways to its credit card customers.
...
How your junk mail shows if you're rich or poor
Huh.
