Banks Target Troubled Borrowers Using Data-Mining Tools: Is That IT at Its Best or Worst?

Banks and lenders make no secret of the fact that they rely on their own and the credit-card companies’ data mining, analysis and predictive-modeling software to scour databases chock full of consumer financial and personal information.

In an interview I did with Rob Reeg, MasterCard’s head of global technology, for example, he talked about leveraging MasterCard’s 100 Terabyte data warehouse to help banks with their highly targeted marketing efforts. (To read the Q&A, see “The Man Behind MasterCard’s 100 Terabyte Data Warehouse.”)

The end goal for the banks and lending agencies, of course, is to sell more product—to make more loans. Recent (and alarming) evidence shows that up until this summer, business had been really good for banks during the past several years.

During the recent housing boom, “The mortgage industry was coming up with very creative lending products and then they were leaning heavily on us to find prospects to make the offers to,” said Steve Ely, president of North America Personal Solutions at credit bureau Equifax, in a recent New York Times article. Equifax and other players in the space, the article states, got really good at culling and categorizing information about millions of American’s propensity to respond to a telemarketer’s phone call or a bank’s come-on pitch sent to a mailbox.

But like many things in life, this bank business boom was all too good to be true.

Yet the resultant blame game for the world’s economic chaos has largely spared the underlying IT systems (data-mining technologies and tools) that provided the insight and enabled the industry to expand on this illusion of credit worthiness.

Can we blame the data-mining tools for making the banks ever more eager to sell? Can we blame the analysis tools for not seeing the industrywide trends better, sooner? Can we blame tools at all, when these technology tools, like any other, are dependent on people acting smart and honorably?

“Using techniques that grew more sophisticated over the last decade, businesses comb through an array of sources, including bank and court records, to create detailed profiles of the financial lives of more than 100 million Americans,” writes the Times’ Brad Stone. “They then sell that information as marketing leads to banks, credit card issuers and mortgage brokers, who fiercely compete to find untapped customers—even those who would normally have trouble qualifying for the credit they were being pitched.”

All of this should be unsurprising to anyone connected with IT or who has insight into the power of today’s databases and software tools.

But, in fact, it seemingly is surprising to the average American Joe. “[The banks] get people who they know are in trouble, they know are desperate, and they aggressively market a product to them which is not in their best interest,” notes Jim Campen, executive director of the Americans for Fairness in Lending, an advocacy group that fights abusive credit and lending practices, in the article.

Defenders of data-mining technologies will correctly point out that data mining and analytics programs are simply technology-based business tools. It’s the banks and predatory lenders who are churning out marketing blast after marketing blast in hopes of luring people with high debt, poor credit or bad judgment.

In other words, IT may be providing some ammunition, but the banks are the ones pulling the trigger. And, as the Times piece notes, banks are relying on the IT tools even more now that the economy and many families’ finances are in ruins.

The genie is out of the bottle, of course: there’s no going back to days of “gut decisions” made by ill-informed managers. IT tools and systems now make instantaneous, real-time decision-making standard operating procedure at many companies.

But as we’ve all seen during the past month or so, progress and efficiency from new technologies does come with some steep unintended costs and painful collateral damage.