Summary

With almost 7 million credit card accounts, First Chicago is the seventh largest issuer of credit cards in the country. Concerned with rising losses due to cardholder bankruptcies, First Chicago began in 1990 to look at cutting losses by reviewing credit card accounts earlier than its normal two-year interval. First Chicago's choice of its 1.7 million cardholders in northeastern states for a test was based on data that showed that bankruptcy rates were increasing most rapidly in this region. Through a series of credit screening procedures, First Chicago decided which cardholders' credit would be reduced or canceled. The Office of the Comptroller of the Currency (OCC) reviewed First Chicago's test in the Northeast and concluded that it did not constitute a discriminatory credit practice as defined by current laws and regulations. GAO found that OCC had based its conclusions on a description of the test provided by bank officials and on its analysis of the Equal Opportunity Act and Regulation B, which prohibit discrimination in credit transactions on the basis of race, sex, or marital status. GAO concludes that First Chicago's test--on its face--did not discriminate against credit card holders in the Northeast protected by the act. Although First Chicago used geography in its test, that characteristic is not prohibited under the act. The screening practices could still violate the act, however, if they have the effect of discriminating against protected individuals.

GAO found that: (1) the Office of the Comptroller of the Currency (OCC) concluded that the bank's credit screening process was not discriminatory as defined by the Equal Credit Opportunity Act (ECOA), since it did not include such prohibited characteristics as race, sex, or marital status; (2) the bank's bankruptcy data were, for the most part, consistent with its decision to review credit card holders in the Northeast; (3) although GAO did not believe that the bank's test discriminated against Northeast credit card holders under ECOA, the credit screening procedures could still violate the act if they had the effect of discriminating against those protected by ECOA; (4) the 1989 OCC evaluation did not closely examine the bank's credit practices; (5) OCC examiners essentially limited their review of credit practices to consumers whose credit card applications were rejected; and (6) OCC examiners did not obtain sufficient information to determine whether the bank's test had the effect of discriminating against cardholders whose credit was reduced or cancelled.