In what was described as a landmark victory in the fight for privacy, New York’s attorney general said Wednesday that American Express agreed to inform its cardholders that it sorts them according to spending habits and uses the information to pitch plane tickets, rental cars and other merchandise.
Privacy experts and New York Atty. Gen. Robert Abrams said it is the first time a credit card firm has agreed to disclose how it uses the vast amounts of personal information contained in its files for direct-mail sales pitches.
Abrams said that American Express separated its 20 million cardholders into six broad categories, such as “Rodeo Drive Chic” or “Fifth Avenue Sophisticated.” American Express then used the lists in sales promotions with such companies as Saks Fifth Avenue, American Airlines, Hertz Rent-a-Car and Marriott Hotels.
“A consumer who pays with credit is entitled to as much privacy as one who pays by cash or check,” Abrams said in a statement. “Credit cardholders should not unknowingly have their spending patterns and lifestyles analyzed and categorized for the use of merchants fishing for good prospects.”
The company’s program was not very extensive or detailed, said American Express spokeswoman Maureen Bailey. The names, spending habits and income of cardholders are not disclosed or sold to outside vendors. American Express handles the direct mailings on behalf of clients, she said.
Bailey noted, as an example, that American Express uses the data to offer travel bargains to cardholders who make frequent airline trips.
She said the company had always told cardholders that they could have their names removed from mailing lists. As part of the agreement reached with Abrams, American Express will send cardholders a mailing in August to let them know that they are put on lists based on “spending preferences and lifestyle.” The company also agreed to pay a $10,000 fine to cover the costs of the attorney general’s investigation.
Robert Ellis Smith, editor of the Providence, R.I.-based Privacy Journal, called American Express’ use of cardholder files a “breach of trust with its consumers.” He predicted that a large number of people would want their names deleted from the company’s lists.
“Once these practices become known, the marketplace takes care of them. The problem is in making them known,” he said.
American Express did not comment on how the agreement might affect the size of its lists.
The announcement was yet another blow to American Express’ image, which has suffered from the recent publication of two critical books and continual grumblings from scattered merchants and consumers who complain that the card costs too much. The company has sought to placate both groups, with only modest success so far.
A spokesman for Abrams said the investigation arose from an earlier probe into practices at TRW, in which the credit-rating firm was found to break down credit information and sell the lists to direct mailers. The probe resulted in a lawsuit by nine states, including California, that was settled when TRW agreed to change certain practices.
However, the issue of compiling lists was not part of the TRW settlement because the Federal Trade Commission was dealing with that matter, said Richard Barr, a spokesman for Abrams.
In Washington, a spokesman for the FTC would not discuss its role in any TRW probe.
Barr said that in January Abrams asked several of New York’s largest banks and American Express whether they had developed similar lists with credit card information. Based on their responses, Abrams learned that American Express had compiled the most extensive lists, Barr said.
Barr said Abrams’ office had “talked to Citibank,” the nation’s largest issuer of Visa and Mastercard, but would not comment on the bank’s use of consumer data. He would not name other banking institutions that have been contacted, but he said the investigation is continuing.