Credit card companies, some of the same banks that received huge amounts of federal bailout money, are reducing credit card limits and charging “over-the-limit” fees, while waiting weeks to notify customers.
The companies are able to take this action without prior notification because regulations were loosened during the George W. Bush administration.
Federal Reserve rules requiring lenders to give cardholders 45 days notice before reducing a credit line to the point that it would trigger penalties won't go into effect until July 2010.
Credit card companies are worried about their profits, a program on National Public Radio’s KCRW reported today. Delinquent payments are up substantially, and the companies want to get rid of customers who may not be able to make their payments.
The companies are interested in profits, not the retention of customers, said Kelli Grant, senior consumer reporter for Smart Money.com, a guest on the To the Point program. The companies want customers who pay off their balances every month.
Citibank, Wells Fargo Bank, Wachovia Bank, American Express, and Chase Bank are among the companies engaging in the practice, said Grant. American Express is offering $300 to people who pay off their card balances.
In addition to being charged fees or having your interest rate to up when your credit card limit is reduced, your credit score could also be lowered.
Another guest on the program, Robert D. Manning, Ph.D., finance professor at Rochester Institute of Technology and author of “Credit Card Nation: The Consequences of America’s Addiction to Credit,” suggested consumers could switch their funds to credit unions, which aren’t reducing credit limits without notification and don’t charge high overdraft and other fees.
For details on the KCRW program, listen to “The Credit Card Economy Comes Home to Roost.”
For additional information on credit limit reduction, see:
“How to Blow Your Credit Limit Without Spending” – Smart Money.com
“Your Credit Card Limit Can Be Reduced Below Your Current Balance” – The Consumerist
“City Group Master Card” – Complaints Board
“New Bank Credit Card Policies Could Send Your Credit Rating Spiraling” – Wallet Pop
“American Express Kept a (Very) Watchful Eye on Charges” – The New York Times.com
One of the reason from reducing the credit limit is because some credit card companies are afraid that their customers used it and hide from them. The lower the credit limit, the lower they will lose their income.
Hi Best Credit Cards in Australia,
Yes, precisely. But credit card companies shouldn’t be cutting limits with at least notifying consumers.
Hopefully, federal regulations will catch up with this unfortunate business practice.
Rita
I’m glad this hasn’t happened to me. I was very upset when my home equity loan, which was attached to my checking account as overdraft protection, was canceled without any notice to give me a chance to set up alternative overdraft protection.
Hi,
I hope it won’t happen to you. Many credit card companies are lowering limits, with some dropping them to $500. Then you owe the balance AND have to pay fees.
Rita