Image: Target credit card © Bloomberg, Getty Images

Target REDcard credit and debit cards offer a generous 5% discount on your purchases, along with other benefits like free shipping for online orders at Target.com. But the discount comes with a price. Information about your purchases will be sliced, diced and combined with other personal information to create a profile that the retail giant will then use to try to entice you to buy more stuff from it.

While Target isn't alone in using customer spending data this way, it happens to be very, very good at it, as a recent, much-discussed New York Times story documents.

Given all that, it's no surprise that a reader named John wrote me with the following question:

Hi Gerri, I just read your two-part blog on the Target REDcard. There is no mention of what Target gets out of this deal, although I can guess customer loyalty and maybe credit history, which they then sell to other organizations?

I know for a fact that businesses like Target do not do anything for the sheer benefit of the consumer, there is a hidden benefit for Target somehow.

Can you explain? --John

It's a great question. The Target REDcard 5% discount on virtually all purchases is more generous than other loyalty reward programs and general purpose credit card reward programs, and is certainly better than other debit card reward programs, many of which are no longer around since the Durbin amendment limited debit card swipe fees. On top of that, Target will donate 1% of the amount you purchase on one of these cards to a local school you designate. Target wouldn't continue to offer those rebates if the program wasn't lucrative for it.

John's thinking -- that customer loyalty and information must be worth something to Target -- is logical. So what kind of information is it collecting from cardholders, and what does it do with it?

The first place to look is, of course, the privacy policy. As required by law, Target sends cardholders a privacy notice each year. I have one of these cards myself and recently received the privacy policy in the mail. It is also posted on Target's website.

To summarize, Target says it may share personal information gathered in the course of using your Target REDcard (credit or debit card):

  • Our everyday business purposes -- such as to process your transactions, maintain your account(s), respond to court orders and legal investigations or report to credit bureaus.
  • Our marketing purposes -- to offer our products and services to you.
  • Joint marketing with other financial companies.
  • Our affiliates' everyday business purposes -- information about your transactions and experiences (Target defines its affiliates as companies related by common ownership or control, including Target National Bank, Target Bank, Target Stores and websites and Target Commercial Interiors).
  • For nonaffiliates to market to you.

Target's privacy policy says it does not share information "for our affiliates' everyday business purposes -- information about your creditworthiness." In other words, while Target may share credit information with the credit-reporting agencies, it doesn't share it directly with affiliates. And although it's not stated in the privacy policy, credit card activity is reported to the credit-reporting agencies but debit card activity typically is not.

Unfortunately, you can't opt out of having your information shared for any of the above purposes, with one exception. You can instruct Target that you don't want it to share your information with nonaffiliates in order to market to you. Everything else is fair game.

What's it worth to you?

But is it really so bad for Target to collect and use your information for marketing, either internally or with other companies? The recent New York Times article, by Charles Duhigg, suggests Target places a lot of value on your personal information. He writes:

"For decades, Target has collected vast amounts of data on every person who regularly walks into one of its stores. Whenever possible, Target assigns each shopper a unique code -- known internally as the Guest ID number -- that keeps tabs on everything they buy."

Duhigg reports that Target will collect information from credit card purchases, coupons, surveys -- and presumably your REDcard -- and supplement that with demographic data it may gather from other sources, all in an effort to understand what you buy and to find ways to encourage you to buy more at Target.

To be fair, this may not be that different from what other retailers do through loyalty programs and the like. But the article implied that Target is very, very good at mining and using data. The article gave an example of a father who found out about his teen daughter's pregnancy after noticing that Target was sending her coupons for maternity and infant products and then confronting her with that information.

For this story, Target declined to elaborate on its privacy policy or share any additional information about what type of information it gathers through the use of a REDcard, or how it uses that information.

The Target REDcard privacy policy is not so different from those of other issuers. When you compare it with that of Chase, which issues an Amazon.com Rewards Card, the two policies are almost identical. The exception is that Chase does share information about cardholder's creditworthiness with affiliates.

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