How Credit Card Companies Prey on Your Basic Needs

You may remember learning about Abraham Maslow's psychological theories back in high school. Your teacher probably drew a pyramid on the board with the five levels of human needs: physical requirements for survival, safety, a sense of belonging and love, esteem/respect, and self-actualization.

Maslow's Hierarchy of Needs is a tidy little theory that helps to explain why so few people are able to achieve self-actualization — that is, the ability to completely fulfill their potential. It's pretty difficult to write the great American novel when you're worried about having enough food (physical requirements) or enough money (safety), or if your wife just left you for your best friend (sense of belonging and love), and she announced the split on a billboard in the center of town that called you bad names (esteem).

While Maslow's theory can help us to better understand the plots to many country songs, it can also be used much more insidiously. In particular, one industry relies on Maslow's Hierarchy to conduct its business every day — credit card collections.

It should come as no surprise that the credit card industry is interested in consumer psychology. I've written before about how companies gather data about you based upon your purchases — and use that data to better market to you.

But, of course, credit card companies do not stop there. The industry uses psychology every step of the way, from convincing you to sign up for a card, to getting you to carry a balance, to hounding you for payments when you get in over your head. (See also: Party Like It's 19.99: The Psychology of Pricing)

Here is what the credit card and collection industries don't want you to know about how they are making their agents into amateur psychologists.

Appeals and Needs

When a debt collector calls for payment on a delinquent bill, there are only so many ways they can go about appealing to the customer for payment. After all, they are bound by both the Fair Debt Collection Practices Act and the fact that it is impossible to force someone to do something (particularly over the phone, since it's much harder use the rack on a victim from a remote location).

In fact, according to a workbook for professional telephone collectors put out by the Association of Credit and Collection Professionals (which for some unknown reason goes by the initials ACA), there are only three main appeals for collection: honesty, pride, and consequences.

Basically, collection agents can appeal to a consumer's honesty by asking them to preserve their integrity by fulfilling this financial obligation. The appeal to pride focuses on how other people will think of someone who reneges on a debt. And the consequences appeal asks customers to think about the very serious repercussions they face by not paying their bill.

These appeals are already pretty psychologically loaded. Collection agents are basing their appeals on how a customer feels about himself and his life and circumstances.

Where it gets even more pernicious is when these basic appeals are used in conjunction with the agent's understanding of Maslow's Hierarchy. According to the ACA workbook, "when these [three basic appeals] are used in conjunction with Maslow's Hierarchy of Needs, they become the single best way to inspire consumers to pay their bills." (Emphasis theirs.)

In short, customers are being psychoanalyzed by their collection agents to determine what kind of appeal will most likely "inspire" payment. That feels a little creepy, no?

The Collection Agent Is Your New Best Friend

While the intimidation tactics we are most familiar with in collection agents are certainly still being used with regularity, credit card companies and others in the industry are now developing different strategies for extracting payment. In particular, they are following the age-old wisdom about catching more flies with honey than vinegar.

Charles Duhigg reported in New York Times magazine that even the job title of "collection agent" is getting a makeover in many companies:

It was the first day of training for Bank of America's newest credit-card customer-assistance employees, and some of the 12 new hires sitting around the classroom were a little confused. At another company, these employees…might be called "collection agents" or "at-risk account reps." But at Bank of America, "our whole program is built around assisting the customer," explained Ric Struthers, president of the credit-card division. "We call it assistance, because we're here to find a solution."

From day one, brand new collection agents are trained to treat their customers in a friendly way and to build a sense of trust. Then, when the appeal to pay comes along, you're much more likely to listen.

This is a familiar tactic to anyone who went to college in the bad old days when credit cards were still allowed to solicit college students. I remember one persistent telephone solicitor who claimed that I shared a birthday with his little sister. I found myself signing up for a card I didn't want because I was reluctant to disappoint my new "friend" who sounded so fond of his sister who was a fellow Aquarius.

Applying Maslow's Hierarchy

Duhigg goes on in his article to tell a fairly chilling anecdote about a collection agent using Maslow's psychology against his customer. This particular customer called to offer $10,000 to settle his $29,000 debt. It's important to note that by the time debts reach the collection stage, debtors can often settle for much less than they owe because the creditor would prefer some money to none. Nearly every debt expert and reputable credit counseling service will advise their clients to take this route if it's possible, as it can end the debt mess.

However, this particular debtor's offer was refused, even though his collection agent had been advised to allow settlement for no less than $10,000. Instead the agent — who had spent several weeks getting to know the debtor over the phone — "diagnosed" the unfortunate man as being in the esteem phase of Maslow's hierarchy. The agent appealed to the man's pride, asking him if he wanted to be the type of person who broke his promises. It worked. The debtor called back with an offer of $12,000.

This also meant that the agent enjoyed a higher commission — which was information he did not share with his good buddy the debtor.

Inverting Maslow's Hierarchy

The problem with credit card companies using psychology to extract payment goes deeper than the issue of having amateur psychologists pushing your buttons. The real problem is that these tactics can end up confusing consumers as to what their financial priorities should be.

In particular, those who get in over their heads with credit card debt are often also experiencing financial woes elsewhere in their lives. When having to make the choice between paying the mortgage or paying your credit card bill, it should be obvious that keeping a roof over your head is more important. After all, that's a basic physical need and the very foundation of Maslow's Hierarchy. Without that, there can be no safety, belonging, esteem, or self-actualization.

But collection agents don't care about your mortgage, no matter how much they may pretend friendliness. Their goal is to get you to pay your delinquent credit card bill — and earn their commission. If you are concerned about money (safety) and worried about what people will think of you for falling behind (esteem), you could easily fall victim to an agent's appeal, even though you really do need to prioritize your mortgage.

Since consumers haven't received background training in psychology, they're at a definite disadvantage.

Know Thyself

While all consumers need to be better informed about the practices used by the credit card industry, the best defense against these sorts of tactics is to be well aware of your priorities. Whether you've never missed a payment in your life or you are chewing your fingernails because you're not sure how to get out of debt, you need to know what is most important to you.

That starts with recognizing that some bills might need to take precedence over others in the case of financial hardship. But in the modern world, knowing your priorities can also mean remembering the difference between wants and needs. No one wants to be the one pleading poverty to a collection agent while talking on an iPhone and drinking a Starbucks coffee.

Maslow would certainly hope you could recognize where those luxuries fit in the hierarchy of your life.

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How Credit Card Companies Prey on Your Basic Needs

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