Capital One Financial Corp. and other lenders came under criticism at a Senate hearing Tuesday for reporting a customer's debt to credit agencies while withholding how much unused credit the customer still has.
Some senators and consumer advocates said not disclosing the remaining credit may give the false impression that consumers have borrowed their full amount of credit and hurt their chances of getting additional credit from other companies.
Capital One appears to be "gaming the system to prevent its customers from appearing like worthwhile marketing targets to your competitors," Sen. Richard C. Shelby (R-Ala.) told a Capital One executive at the hearing.
Scott Hildebrand, Capital One's vice president of direct-marketing services, confirmed the practice of withholding information about customer credit limits while denying any intention to harm consumers.
Capital One uses this information in a proprietary way to manage lending risk, a process it calls "credit-line sloping," Hildebrand said. The company views releasing that information as possibly undercutting a business advantage.
"We have not seen any research yet that indicates that this is in any way impactful on consumers," Hildebrand said. If it proves harmful to consumers, the bank would stop the practice, he said.
The Senate Banking Committee reviewed the credit policy as it is considering renewal of the Fair Credit Reporting Act, which governs the accuracy and privacy of consumer credit reports. Consumer groups are calling for stronger measures to inform consumers of the credit process and protect their creditworthiness.
The withholding of information by Capital One and others is "an unethical practice," said Travis Plunkett, legislative director of the Consumer Federation of America. "We need an explicit standard for completeness," he said.
Consumers aren't even aware of the practice, said Shelby, chairman of the Senate Banking Committee.
Senators suggested that lenders should be required to report all relevant information to companies that prepare consumer credit reports.
"Clearly, a negative mark is going to register against a consumer, and they don't deserve it," Sen. Paul S. Sarbanes (D-Md.) said.