UK internet bank Egg withdrew the credit cards of customers with
good credit scores because of a credit scoring bungle, two former
employees of the business have claimed.

Egg wrote to 161,000 of its credit card customers in February
claiming they posed a “higher than acceptable risk profile” and
informing them their accounts would be closed. The two ex-Egg
workers, who did not want to be named, told Cards International
they estimated up to 24,000 of those affected may have been the
accounts of people who had simply at some stage had their cards
lost or stolen.

Egg dismissed the claims. A spokesman for the bank said it had
conducted an internal investigation into the matter earlier in the
year and Egg was confident the relevant selection criteria were
properly applied.

According to the sources, Egg, owned by US bank Citigroup, used the
wrong database to work out which accounts to cancel. The CEO of a
separate UK credit card business confirmed that the issue had
appeared at the time as “some kind of data screw up”, and said lost
and stolen cards was the most likely area for this to happen.

But an analyst, who wanted to remain anonymous, told CI he had his
doubts about the claim. He said the portfolio is likely to have
been rescored by Citi when it bought the business from insurer
Prudential in May 2007. The analyst said it would be “odd” if
accounts were being rescored on the basis of records including lost
and stolen cards. But the analyst added that in the UK, it is
common practise to rely on automated scoring with little analyst

Egg, which Citi bought from insurer Prudential in May 2007, uses
the First Data International (FDI) card platform to monitor
customer credit behaviour.

But the FDI system at Egg was used as a slave rather than as the
core customer management tool, according to the former Egg workers.
It was used mainly to produce statements, make authorisations and
post transactions, they said. But it also includes lost and stolen
accounts which gradually move to the bottom of its behavioural
ratings, the area in which Egg was looking to cut back.

One of the sources said it is likely the bank had used this
database, rather than the bank’s proprietary core customer
management system, to axe the 161,000 customers. As a result, the
source estimated between 10 and 15 percent of those accounts would
have been lost or stolen cards. However, of this number, a
proportion would have been customers that had poor credit scores

‘Not everyone was wrong’

The source said: “Not everyone [who had their cards withdrawn] was
wrong, but there are certain things which affect the behavioural
score quite dramatically. For example, if you have a lost or stolen
card, a new card gets issued. If transactions come in on a lost or
stolen card it eventually gets written off as a fraud loss and it
never gets repaid and the debt builds up.

“As a result, the behavioural score calculator gets worse over
time. If you pick the behavioural score of the primary account,
which was the original one issued for that customer, then you get
the wrong score, because it is not the one on their current card.
Essentially, if you pick the wrong one, you have had it.”

An Egg spokesman confirmed the bank had used FDI to cut 161,000 –
or 7 percent – of its customers, but said it was not a slave system
and had been used as the core customer management tool for

The explanation would go some way to unravelling the confusing
message sent out by Egg back in February. The bank maintained it
was withdrawing only the cards of people who had a higher than
average risk of future default even when it became clear some
people with strong credit histories, including, reportedly, three
millionaires, had been told their accounts would be closed.

Analysts second-guessing Egg’s motivation at the time of the
decision thought it might be trying to cut down on transactors,
unprofitable customers who use a credit card but pay off the
balance each month.

William Cain