What credit card com­pa­nies think of you, based on their pitches.

The Washington Post Sunday - - BUSINESS - BY JEFF GUO jeff.guo@wash­post.com More at wash­ing­ton­post.com/wonkblog

If you want to know what credit card com­pa­nies think of you, look at your mail.

Are you “pre-screened” for lots of mileage-re­ward cards? Banks think you’re rich and ed­u­cated.

Do you mostly see of­fers for low-APR teaser rates? Banks think you’re poor and un­e­d­u­cated — and, per­haps, vul­ner­a­ble to financial traps.

To get ahead in a highly com­pet­i­tive industry, credit card com­pa­nies have be­come in­creas­ingly so­phis­ti­cated — and spe­cific — about so­lic­it­ing new cus­tomers. They have also learned to be savvy about wring­ing prof­its from their card­hold­ers, even if that means tak­ing ad­van­tage of peo­ple’s be­hav­ioral weak­nesses.

The game hap­pens be­fore our very eyes. Re­cently, MIT econ­o­mists Hong Ru and An­toinette Schoar an­a­lyzed more than a mil­lion credit card mail­ings col­lected by Min­tel, a com­pany that pays peo­ple to read their junk mail. The econ­o­mists scanned the terms of th­ese of­fers and noted the in­come and ed­u­ca­tion lev­els of re­cip­i­ents.

Their pre­lim­i­nary find­ings, based on data from 1999-2011, span a seis­mic shift in the credit card industry. The CARD Act of 2009 cur­tailed many industry prac­tices that leg­is­la­tors deemed abu­sive. Ru and Hong’s data of­fer a unique win­dow into an era not so long ago.

Th­ese were the broad pat­terns the econ­o­mists dis­cov­ered: Richer peo­ple were more likely to get cash-back, point-re­ward or mileage of­fers. Poor peo­ple were more likely to get of­fers that ad­ver­tise a low in­tro­duc­tory APR.

Mileage cards tended to be mar­keted at col­lege grad­u­ates, while cards with teaser APR rates were sent to the less ed­u­cated. Cash-back and point-re­ward cards were of­fered equally to peo­ple at ev­ery ed­u­ca­tion level.

The in­no­cent ex­pla­na­tion for th­ese trends is that banks of­fer peo­ple cards they are most likely to want (and qual­ify for). Dif­fer­ent folks, af­ter all, have dif­fer­ent needs. But as Ru and Schoar dug deeper, they found that this wasn’t the whole story.

Cards with travel re­wards epit­o­mize the kind of prod­uct aimed at the rich and ed­u­cated. It’s a fairly ex­clu­sive niche.

In con­trast, the card of­fers sent to poorer, less ed­u­cated peo­ple were of­ten loaded with risky fea­tures: Low in­tro­duc­tory APRs, high late fees and penalty in­ter­est rates that kick in if you break the rules.

“Poorer peo­ple usu­ally have worse credit, so stan­dard eco­nomic the­ory pre­dicts their reg­u­lar APR should be higher,” says Schoar, a pro­fes­sor of fi­nance at MIT’s Sloan School of Man­age­ment. “And it’s not clear why the late fees, the hid­den fees, the fees that hit you when you fall be­hind on your pay­ments— why are they so high for the poor.”

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