Every decent American, when he or she is standing at a cash register, having just handed over the Visa card to pay for the pile of groceries or whatever, says the same silent prayer:
Please let the card go through.
Or we open the little plastic folder that holds the restaurant bill — oh, look! the waiter has brought us a little booklet! — slip our card into the slot, flip the booklet closed with a snap, hand it back to the waiter, and as he takes it away we half-close our eyes and pray:
Please let the card go through.
It’s our national mantra. It doesn’t really matter if we know, for certain, that the card is fully operational and loaded with untapped credit; it doesn’t matter if we’re the clean-living pay-it-off-each-month type; it doesn’t matter if it’s an AmEx Platinum or a Centurion.
The lady takes the card and swipes it through the machine, and we stare, in tense silence, as the display on the thingy goes from “Connecting . . .” to “Transacting . . .” The waiter makes his way back to our table through the crowded restaurant and we scan his facial expression for clues: Does he look like he’s about to have an awkward conversation with us? Does he look suspicious or disapproving or ready to call the sheriff?
But when the display shows “Approved,” or the waiter plops down the check, ready for signature, it’s like a little victory. A minor triumph. A narrow escape.
It has nothing to do with creditworthiness or ability to pay — when you eat a meal or buy a thing and pay for it not with cash but with a promise, you’re a borrower, a mooch, what they call in Yiddish a schnorrer. You’re Wimpy from Popeye: I will gladly pay you at the end of this month’s billing cycle a defined minimum payment for a pair of pants at Banana Republic today.
And it’s a pretty good system. Credit cards give what is called unsecured debt because it’s not tied to your property, the way a mortgage is tied to your house. When a credit-card company loses money on a consumer, the losses are covered by the rest of us who pay the fees and the interest and the minimum payment each month, who wouldn’t dream of walking away from our obligations, and who hand over our cards with almost-confidence, though we can be heard to murmur, despite our jobs and 401(k)s and bank statements: Please let the card go through.
If the credit-card issuers make it up in volume — get a load of people to carry your plastic and the Boy Scouts will cover for the Bad Kids, and then some — the subprime-mortgage underwriters rely on the same good citizenship.
The last thing a person wants to lose, a (former) banker in the subprime business explained to me, is his house. People will sell the family jewels, cut out meals, pull the kids out of private school — anything — to keep current on their mortgages. It may make no sense economically, but homeownership has a powerful emotional pull. The subprime business, with its higher fees and punitive interest rates, maps itself pretty closely to the credit-card business: Get a load of iffy credit risks to take out higher-fee mortgages, and the Gallants will outnumber the Goofuses.
Not a bad business. Until, you know, recently.
With the total collapse of the subprime-mortgage business, and the coming wave of credit-card defaults, the nation has a new mantra. At the same moment that the credit-card holder stares at the credit-card thingy, intoning silently, Please let the card go through, please let the card go through, the bank issuer is on the other side of the terminal with a prayer of its own:
Please, dude, be able to pay this bill.
Because despite all of the research and the data mining, all of the complicated financial modeling and forecasting, this current economic downturn is fantastically baffling to the financial institutions that one year ago passed out credit cards and mortgages like Thai-restaurant takeout menus. Mortgage foreclosures are supposed to come only after people claw and scrimp and fight like wildcats to keep their houses, but these days, people just mail the keys back to the bank and walk away.
#page# At least the mortgage lenders get to keep the house. Unsecured-debt providers like credit-card issuers are left with nothing to do but place threatening phone calls, send out sternly worded letters, and, in the event the defaulter has anything worth taking, sue.
As the credit-card issuers try to limit their losses and trim the amount of available credit out there, it’s become obvious to them that they really don’t know that much about us. A credit-card application is barely one page long. The most crucial detail — the applicant’s Social Security number — is useful in assessing his past creditworthiness, but the future, as the shareholders of Lehman Brothers, Bear Stearns, Bank of America, Merrill Lynch, Wachovia, Countrywide, Morgan Stanley, et al., have discovered, is a mysterious thing.
So what can the credit-card issuers do?
They can do what we always thought they were doing anyway, as we stared at the display on the thingy and hoped they’d approve of our groceries, or pants, or hamburger, or iPod nano and prayed for them to please let the card go through. They can judge us.
Recently, charge-card issuer American Express has been adjusting its data filters to a brand-new metric: where a customer is shopping. According to their (no doubt) flawless statistical models, a Platinum Card holder who suddenly develops a taste for downscale shopping — from Lora Piana to Wal-Mart, from the Four Seasons to the Econo Lodge — may be about to experience the four most terrifying words a credit issuer can hear: an inability to pay.
Customers are reporting sharp, unexpected drops in their credit limits — despite a spotless payment history, despite money in the bank — due to a few key factors: a sudden interest in el cheapo shopping, a home mortgage from a subprime lender, and a house located in a real-estate-bubble disaster area like Florida or California. If all of these apply to you, don’t try to put the new flat-screen from Wal-Mart on your AmEx card. Alarms and sirens will go off in AmEx HQ. You will be identified as part of a newly discovered economic class: the pre-deadbeat.
The trouble is, as the economy slides lower and slower, haven’t all of us taken a sudden interest in Target? Speaking as someone who lives in tony, up-up-upscale southern California, where we used to wear $400 sweaters and enjoy $50 salads, I know I have. And so have a lot of my tonier friends. In the past, after an expensive meal or a high-end shopping spree, of course we’d mumble our little please let the card go through prayer because, honestly, we knew we’d overspent. We knew we didn’t need the chef’s tasting menu or the designer shoes or the hotel-room upgrade. We did it because, well, Citibank said we could. See? It says “Approved.” Right on the thingy.
Call it the Tacky Index — a new way to forecast the creditworthiness of a cardholder. Part snobbery, part caution, all ironic: Now that we’ve all finally discovered the joys of discount, downscale living, the credit-card companies are cracking down.
It’s hard to imagine that at my new favorite restaurant — after I’m asked, “Do you want fries with that?” (to which I usually nod vigorously) — I’ll have to wonder, as I hand over my Visa card, whether I’m going to trigger some complicated algorithm. Hollywood writer + Los Angeles address + Filet-O-Fish = Danger! It’s just a matter of time, I guess, before I top out on the Tacky Index. On the positive side, it means no more point-of-purchase prayers.