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Posted on 12/29/2008 2:26:43 PM PST by rabscuttle385
Credit line reductions, account repricing, and other steps that card issuers are taking to control risk could soon start causing their customers to do something many homeowners did this year: walk away from their obligations.
In the past month current and former industry executives and observers have raised concerns that prevalent risk management tactics may spur such behavior — even among customers who still have the capacity to pay.
For example, some observers said aggressive repricing could lead to a spike in "bust-outs" — when cardholders decide to run up as large a balance as possible before abandoning the account. In the past, bust-outs have typically been perpetrated by fraudsters who always planned to default, but they may soon become more common among regular consumers who obtained their cards in earnest, these observers said.
One way to prevent this from happening is by reducing credit limits, but that also can have unintended consequences.
"The question always happens, and it happened in the crisis of '92, '93 … if you're having to reduce people's credit lines, does that give them more incentive to pay, or less?" said James L. Bailey, a former Citigroup Inc. executive who ran its North American consumer banking and credit card business in the 1980s and '90s. Cardholders whose credit limits are cut down to their existing balances may decide that their card bill is no longer a priority for payment, "because that card has no utility for me anymore," said Mr. Bailey, who is retired.
When compared to home or car loans, or to other household expenses, a card with no purchasing power ranks especially low in a consumer's "payment hierarchy," he said.
(Excerpt) Read more at americanbanker.com ...
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Heard of at least 2 different people this weekend complaining of this.
One guy with an American Express (must be paid off every month) $50,000 limit reduced to $5000. He couldn’t fill his trucks with gas for daily ops.
I predict the next major mass murder to be at a financial institution.
One guy with an American Express (must be paid off every month) $50,000 limit reduced to $5000. He couldn’t fill his trucks with gas for daily ops.
I predict the next major mass murder to be at a financial institution.
I don't understand. If your credit line is being reduced, why not get more credit cards. I currently have three cards and am always receiving advertisementd for more.
I know of another business that AmEx messed with by aggressively lowering their credit limit. The company was always current with their payments and their credit was good. It caused a major headache for the company and cash flow had to be restructured because the cc was being used for multiple purposes. AmEx shot themselves in the foot because now the company doesn’t use the AmEx card as much, so they’re missing out on the merchant fees from the inventory and other things the company was using the card for (which is how AmEx makes a lot of it’s money since you can’t carry a balance their $$$ doesn’t come from interest payments.)
This notion of a “premeditated bust out” where someone runs up a card with no intention of paying it amazes me. I can understand that some people commit fraud and do this, but the idea that the average American would do something like this is sad. More evidence that we have lost the notion of personal responsibility in our culture. Give me something for nothing—that’s the new American Way.
I know many businesses that no longer take credit cards because of the high user fees. It’s cutting into their profits.
In this economy (LOL!) not using credit cards = good idea.
They aren't doing this to late pay customers, these are happening to long term customers with excellent records. Most of them find out about the cut when they attempt to purchase something. They are not even given advanced notice.
those days of give-away cards may be numbered.
I wasn’t talking about credit cards, I was talking about a real multi-million dollar corporate credit line. You responded to the wrong post.
Did GMAC get a “bail out” today. I just found out our Church has some funds there but only a small amount compared to last year at this time when they spent most of it on a addition.
Amex does have cards that works just like a credit card with interest, etc. Not all are a “charge card.”
I’m talking about businesses though that rely on business AmEx cards for things like paying for Google or Yahoo advertising (the only way you can pay for it is by a CC) or put their inventory on a CC in order to expedite it’s delivery. Even UPS (if the company does shipping) requires that a CC be used for payment. So those types of charges are no longer being put on the AmEx card and AmEx is missing out on the fees the would be collecting, from google or UPS (the merchant fees.)
While the CC companies care more about bust outs, that is a criminal or civil matter. Far more commonly, if one credit card becomes intolerable, consumers just switch to a different card.
For example, recently AMEX got into trouble because of questionable business practices, so it tried raising fees both to cardholders and to retailers. While they lost cardholders, the real pain there comes with the loss of retailers who will accept AMEX.
I heard one of the talking heads on CNBC declare that the banks have every right to hike an interest rate to 30% if they want to “...because you signed their blank check application and they need the money.”
We need the money, too, so I guess the bank will understand when we file bankruptcy and walk away from their theft ring.
And I fully understand the poster who opined that there will probably be murderous rampages at financial institutions by deranged borrowers who have been pushed to the wall and have nothing else to lose.
that is because “bustout” is a bunch of BS.
In bankruptcy, ANYTHING you do three months before you file bankruptcy is PRESUMED you have the knowledge you are going to file bankruptcy.
There is a ONE YEAR preference period where your transfers of assets to family and insiders (business partners) is supect and reversable.
Finally there is a FOUR YEAR statute of fraud period.
there are other date highlights but this are the major ones.
The notion of going to disney or a cruise then filing bankruptcy of utter BS. All the charges made there would become non dischargable.
What is really killing the credit card companies now is they are not able to sell off the bad debt AND people have grown wise to the credit consolodator scam. (aka glorified collection agencies who hurt more than help)
The credit agencies and banks saw this storm comming so they tried to prevent bankruptcy protection for these people.
Because your FICO score is partially based on how much available credit you have (as a ratio), when the amount you can borrow is lowered, your FICO score goes down. When your FICO score goes down you pay MORE for credit. Even if you do get a new card, there's a good chance the interest rate you'll be charged will be higher. And even worse, when your FICO score goes down, all your current credit cards can raise their rates.
Because your FICO score is partially based on how much available credit you have (as a ratio), when the amount you can borrow is lowered, your FICO score goes down. When your FICO score goes down you pay MORE for credit. Even if you do get a new card, there's a good chance the interest rate you'll be charged will be higher. And even worse, when your FICO score goes down, all your current credit cards can raise their rates.
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