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Points for Tough Gals

posted by Elizabeth Warren

Lisa Scottoline is one of my all-time favorite mystery authors. Not only does she write about tough women, she also locates all her stories in Philly. Yeah, I'm an Okie, but years of teaching at the University of Pennsylvania altered my chromosomes so that I yearn for cheese fries and I can now pronounce Schuylkill. (In fact, I can now shout "Yo, get that heap off the Schuylkill" when my mouth is stuffed with cheese fries.  My Okie family does not know this about me.)

So it was a special pleasure to see my gal Lisa take on credit cards. She writes about rewards programs. But the part that caught my eye was that she couldn't get a real, grown-up American Express card, but she could get and use a big-time American Express Business Card. Same Lisa, same income, same FICO, but Business Barbie Lisa can have a card that Regular Paycheck Lisa can't get. Why would that be so? 

Surely American Express doesn't think that small business owners are less risky than employees. (If they do, we have a couple of bankruptcy books to sell them showing that entrepreneur bankruptcies occur at about twice the rate of employee bankruptcies.) Surely they can't think that someone's credit score improves just because she renames herself Lisa Inc. (If they do, let the re-naming begin.) 

Could the AmEx policy be the byproduct of merchant discount fees? If personal cards carry, for example, an average of 3% merchant discount fees, but small business cards carry 5% discount fees, then lenders would be more inclined to cast their nets more widely in the card-issuing phase of the credit cycle. It would also explain why I get an offer a week for a credit card for my small business--despite the fact that most of my income is salaried. It isn't just AmEx. It seems that everyone is pushing "business cards."   

If credit decisions are pushed along by differential merchant discount fees, it is further evidence of Adam Levitin's work on the credit distortions created by merchant discount fees. It not only affects cross-subsidization in the credit market, it also expands the total amount of credit available by forcing the merchants to pay fees that will make marginal credit decisions more profitable for the issuer. It also gives a new twist on John Armour's questions about supporting--cross-subsidizing?--business start up.

Next time Lisa lays down her Lisa Inc AmEx card, will a merchant cough up a big discount fee? Lisa Inc as buyer may not care, but the small business start up on the selling end of the deal may care a lot.


About eight or so months ago I got a business Visa card. Since the application said you didn't actually have to have a business to get the card, I went ahead and got one. So, even though the account is just in my own name, interestingly, it doesn't show up anywhere in my credit report. I did not expect that. I bet if I defaulted, it would suddenly appear on my credit.

Three guesses whether issuer would plead non-dischargability/fraud for these debts if Lisa ever filed a 7 on the basis of her "deceiving" them into believing she was a business.

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