Banks don’t want our business anymore…

With credit card deliqnuincies approaching a 3 year high, banks are getting a little skittish about who they lend money to. Raising rates and fees, suspending 0% balance transfer offers, and now a tsunami of credit limit decreases – all tricks designed to deter us from using the very products they’ve been busy shoving down our throats for the past decade.

In other words, if you feel like you’re being screwed a little more than usual, you’re not imagining it, and the mainstream media has begun to pick up on it.

Last week ABC ran a story entitled Credit Card Companies Slash Spending Limits:

Without even warning their customers, some credit card companies are slashing the maximum spending limits.

American Express, Bank of America, Citibank and Discover are among the major issuers who are lowering credit lines.

“Good Morning America” technology contributor Wendy Bounds stopped by the show today to explain what this could mean for the consumer.

Who’s at Risk

“The first people in the line of fire will be those who have high balances, people who have low credit scores and are not paying off their bills on time,” Bounds said.

But the pain is spreading to those with average or even good credit scores.

“Even those who are paying off in full, they are in the line of fire as well,” she said. “The banks don’t just look at the one card that you have, they look at your entire credit history. Having problems elsewhere? They know it. That could hurt you as well.”

The Consumerist also ran a story on Citibank raising rates on millions of its card-holders, often for no apparent reason. This comes literally days after the Treasury injected a further 20 billion dollars into the ailing bank.

In a statement, the company offered few details but acknowledged that it was “repricing a group of customers” in order to “continue lending in this environment.”

Those who pay their balance in full each month have nothing to worry about. And from what we can tell, “promotional balances” – such as that 1.9% balance transfer you might have taken advantage of – are not affected.

Based on admittedly-unscientific online discussions, customers across the risk spectrum have been targeted – including, most oddly, lowest-risk customers with top FICO scores who don’t carry balances. This would seem to indicate that the repricing is more widespread than Citi has indicated.

This deals an embarrassing death blow to the company’s enthusiastic promises last year, when Citi Cards CEO Vikram Atal told the United States Senate that they would abandon the practice of hiking rates on existing balances. Atal said the company was “giving up that practice,” and

“…will not voluntarily increase the rates or fees on the account until the card expires … the only reason we would consider increasing the rates or fees before the card expires would be if a cardholder pays Citi late, exceeds the credit limit, or pays with a check that bounces. We believe we are the first bank to adopt this policy.”

Citi claims that the rate increase will affect only 20% of its customer base, but anecdotal evidence would indicate that this number is much, much higher.

Anyone received the dreaded rate-jack letter from Citibank (or any other card issuers, for that matter)?

10 thoughts on “Banks don’t want our business anymore…”

  1. Regarding “credit card deliqnuincies approaching a 3 year high,” it looks to me like it’s a case of the chickens coming home to roost.

    Banks and credit card companies bear a lot of the blame, as their have in the past relaxed requirements and pushed their product onto people who probably shouldn’t have qualified. It’s a similar situation to the mortgage lending crisis.

  2. Steve, I think you’re spot on about banks and credit card companies bearing a big chunk of the blame. Unfortunately, I’m not sure just how much the chickens will come home to roost for them – so far the tax payer has been the one paying for their mistakes.

  3. Jonathan – good point about the bailouts. I had blocked that unfortunate assault on the free market from my mind (aparently a subconscious defense mechanism on my part!)

    But that’s another post subject altogether…

  4. Steve, I’d repress it all if I could!

    What really makes me angry is that now the banks know, without a doubt, that they can get away with incompetence and greed. Where’s the incentive to lend responsibly when you’re ‘too big to fail’?

  5. No doubt, these companies are all trying to limit their risk – and all of this unsecured debt is a HUGE risk. They’ve been drunk on debt for years. And the sobering conclusion is that despite the new bankruptcy laws, when enough people don’t pay, it screws up your cash flow.

    The reason you are seeing these changes across the board is certainly not based on anything the consumer has done. Rather, they are fearing what will happen, and tying to head another wave of delinquencies off at the pass.

    Consumers haven’t figured it out yet, but the banks have known all along – even those who pay in full each month are huge risk. They are not immune to layoffs. It’s not impossible for them to fall behind. There is no reason to assume that they are any less a liability than say… a more casual user with casual payment habits.

  6. I got a frickin’ letter today from Chase saying they jacked my rate to 30%. ‘Scuse me? I don’t think so! I called to complain and the best they said they could do was take it to 25%. Wow…five whole percentage points…just for me? Awww…go stuff it in your ear! I’ve only been with them for 7 years or so. And all of my other cards are less than 10%. I’m not paying 25%, but it’s the card I’ve had the longest. So, my options are to close the card and let my score drop…or wait it out and see if they come to their senses. I’m going for the latter as I don’t carry balances on the card anyway. But, frankly, it’s annoying that we have to pay for the mistakes of others. *sigh*

  7. I am one of those who received a letter. I haven’t carried a credit card balance since 1987. My credit score is 786. The change is apparently unrelated to risk and is strictly a money grab. Like others I am electing to shelve the card for now. I have until 1/31/09 to decide whether to let the card expire at the end of its term.

  8. Dan, that’s unbelievable. Think seriously about dumping the card – with that kind of credit score, they have no right to treat you with such disdain.

  9. Well sure they do, Jonathan. They have every right – contractually and logically. Dan is a risk. Kristy as well. You are too, as well as myself (if I carried a card, that is). The risk that they are adjusting for is independent of your FICO score, spending habits, and payment history. It’s the risk of the economy. The issuer has less tollerance for all of this unsecured debt. There is a much greater risk that folks who typically pay it off each month will loose an income and not be able to pay up.

    There has been a misconception that those deemed “credit-worthy” by FICO are somehow impervious to risk. This has not held true in 2008.

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