Bankruptcy

Credit Card Application Approval Processes

By Adam Levitin

An enterprising individual decided to test whether he could get a card using a torn-up application that he taped together and then filed out with a new (unverified) address and phone number.  He ended up with a shiny new Chase Mastercard sent to the new address.  (This story is a couple years old, but I just saw it today.)  If this doesn't make you go out and buy one of those fancy super-duper cross-cutting Ollie North/Arthur Andersen-endorsed shredders, I'm not sure what will.  And we wonder why identity theft is a problem...   

Put that together with the latest story of a dog getting a credit card, and you've got to ask whether credit card lending has become like NINJA loans in the mortgage market--does the lender really care about whether the borrower can or will repay?   What's going on here?  Has securitization created a moral hazard for the card industry?  It's surely less than in the mortgage industry because card issuers carry much more of the debt themselves than say a mortgage bank.  Or are fraud costs so low that it isn't worth the cost it would take to fix them?  Or is something else going on? 

I have trouble believing that this is just a couple of isolated errors or the result of a bad apple.  There are just too many examples of minors and pets getting "pre-approved" card applications.  Or as Alan Greenspan put it a few years back "Children, dogs, cats, and moose are getting credit cards."  Thoughts?  Comments are open. 

Full post as published by Credit Slips on February 19, 2008 (boomark / email).