Friday, 8 February 2008

Are credit card companies over extended?

Are the credit card companies feeling the pinch more than they would care to admit?

In the last decade or so, many of us will have been aware of credit card companies thrusting increased spending limits on people, when they are nearing their current limit and use of the card has slowed.

We are all unfortunately used to what you might call postal SPAM, urging us to take out new cards together with partially completed (where do they get the details?) application forms that we then have to destroy in order to avoid the threat of identity theft.

Recently I have become aware of instances of credit limits being reduced, presumably because of some new panicked arcane algorithms applied to the owners spending habits.

I became aware of a new one the other day though. A credit card actually pulling out of the agreement - for no discernable reason at all. The person pays all their bills on time. In withdrawing the company wrote assuring that there was no problem with the person’s credit record and they could continue to make payments (how kind of them).

Given the current financial climate the owner had prudently cut back on using it and was just making the regular payments in order to reduce it. With the intent of maintain this until some assets were freed up and they could clear the card - though it is surely unlikely the card operator could have known this. Though it does rather smack of breaking up with someone before they can call it off with you.

One can only conclude that the company may be becoming slightly desperate and also possibly needs to look more carefully at it’s computer algorithms as they have lost the sort of reliable customer one would think they would be desperate to hang on to.

Let's hope we arn't going to see any more 'Northern Rocks' too soon - Do we all need to worry more than the Government would have us believe?

It would be interesting to know if anyone can add to this.


Henry North London 2.0 said...

I remember I was once exhorted to take out a Halifax Yahoo card

Never used it they never sent a renewal as they realised Id never used it

Waste of my time and theirs

I was ambushed and told it would cost me nothing so I said Ok

Shades said...

Egg are apparently dumping their bad customers, at both ends of the portfolio (the ones that are. high risk- and the ones that are low margin)

James Higham said...

They should be strangled at birth.

CFD Ed said...

Henry, I hate the way they push the things. They still seem to be doing it. I got an ‘invitation’ (another tree bites the dust) the other day.

Shades, Egg are more or less exclusively internet. Because they are internet a lot of people probably can’t be bothered, or remember how, to vary the payments over the minimum. Maybe Egg is more vulnerable than many other cards because of that.

Credit card companies, by killing the card, with a debt, when the payments are reliable, regular and keeping the minimum payments coming it sounds as if they may cynically be making the mistake of thinking they can have their cake and eat it.

What they may find is people take out another card they can use and they get the debts cleared. Or maybe people will just clear the debt and ‘black’ the card by word of mouth.

One suspects by being ‘clever’ and renaging on what most people see as a simple reciprocal deal (i.e. The card sticks by a limit and makes that available the user pays as agreed ) they may be sowing seeds they will regret later.

BEH, They do only seem to have become ‘concerned’ about the ‘welfare’ of some of their clients since the financial climate got chillier. Strangling at birth seems a bit precipitous, how would you be able to tell they were going to get into that sort of business at birth?

Shades said...

Phil A, it does seem to be chucking the baby out with the bathwater, as the CC Companies also make a percentage on the sales side of things.

CFD Ed said...

Shades, I agree. Maybe egg should switch to selling ‘pork pies’. If they are trying to claim all of the 161,000 customers they pulled the plug on were bad risks, either that or they are demonstrating a worrying lack of ability to tell a bad risk from a good risk.

It has reportedly caused uproar among their Egg's customers, some of who are complaining they have perfect repayment records. On the evidence I am inclined to believe many probably do.

The real logic behind it begins to look more like it is intended to trap (now ex) cardholders who are reliable minimum low payment payers into what amounts to an involuntary long-term loan, on unfavourable terms.

Given how much a part of life plastic is these days they may have to get another card. If Egg were to have done this to people they really believed to be a risk then they would actually have increased the likelihood of a default.

This is rather Machiavellian and against the spirit of the understanding between cardholders and providers. People don’t expect their cards to evaporate out from under them when they have followed the rules scrupulously.

Apparently Egg has no such scruples. Perhaps their remaining cardholders should wonder if Egg can be relied upon to uphold their end of the bargain.