Target REDcards Give You a 5% Discount: But At What Cost?

[Update: Some offers mentioned below have expired. For current terms and conditions, please see card agreements. Disclosure: Cards from our partners are mentioned below.]

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 them.

While Target isn’t alone in using customer spending data this way, they happen 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, 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 them.

John’s thinking—that customer loyalty and information must be worth something to them—is logical. So what kind of information are they collecting from cardholders, and what do they do with it?

The first place to look, of course, is at 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 their website. Here’s an excerpt:

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

For 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
For our marketing purposes—to offer our products and services to you
For joint marketing with other financial companies
For 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 them 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? A recent New York Times article, How Companies Learn Your Secrets, 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 seemed to imply that Target is very, very good at mining and then 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.

Target declined to elaborate on its privacy policy or share any additional information about what type of information is gathered through the use of a REDcard, or how that information is used, for this story.

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

“When you use your credit card, that creates valuable information about your spending habits,” says Credit.com’s Credit Expert Beverly Harzog. “Banks collect this information and sell it to merchants and others who find the data valuable for marketing purposes.”

How much is your information worth? A lot, believes Eduard Goodman, chief privacy officer at Identity Theft 911, Credit.com’s sister company. “Your coming back, your buying stuff, and their being able to target you to buy more stuff is worth more than a 5% discount,” he says, adding: “A one-time sale is one thing, but reaping information to get you to spend more in the future is worth a lot more.”

It’s OK—American, Even

“The reality is from a privacy perspective, Target is still pretty good, all things considered,” says Goodman. “They are not doing anything that would be considered illegal here in the U.S.”

But he explains that Americans are generally casual about allowing their personal data to be tracked, shared or sold. “If you look at privacy in the United States it’s really nothing more than a consumer protection,” he explains, “whereas in Europe it’s more of a human right.” He notes that surveys have found when most Americans are queried about these kinds of practices, they tend to expect that companies have their customers’ best interests at heart.

But a lot of information that can be gleaned from Target REDcard purchases alone, and when that information is combined with all the other data Target has at its disposal, “It’s just potentially at or crossing the ‘creepy barrier,'” notes Goodman. Of course, any loyalty program is about collecting and mining data, he explains. Target just happens to be particularly good at it.

Should You Be More Careful?

Are privacy policy disclosures enough? Some advocates say no. “For starters, national law and retailers’ voluntary policies need to guarantee that consumers can see any and all information a company keeps about them,” says Evan Hendricks, Editor/Publisher of Privacy Times and author of Credit Scores and Credit Reports: How The System Really Works, What You can Do. “Until that happens, consumers will be haunted by what essentially are secret files that can be used to manipulate them. We have strong rights of access under the [Fair Credit Reporting Act]. Those rights need to be extended across the board.”

In the meantime, if you don’t want Target to collect information about your purchases, John, you’ll have to forgo the REDcard discount—and pay for all your future purchases with cash.