NYT: Banks Trimming Limits for Many on Credit Cards

[BobWang]

Banks Trimming Limits for Many on Credit Cards

By ERIC DASH

Published: June 21, 2008

 

The easy money that led Americans to depend on credit cards to pay their bills is starting to dry up.After fostering the explosive growth of consumer debt in recent years, financial companies are reducing the credit limits on cards held by millions of Americans, often without warning.

 

Banks that issue cards like Visa and MasterCard, as well as the American Express Company, are cutting the limits for customers who have run up big debts, live in areas that have been hit hard by the housing crisis or work for themselves in troubled industries.

 

The reductions come as American consumers, squeezed by a slack economy, a weak housing market and rising unemployment, are falling behind on monthly credit card payments in growing numbers. Credit card lenders are also culling their accounts ahead of new rules that are intended to benefit consumers but could limit the profits on customers deemed bigger risks.

 

Many Americans have come to rely on credit cards to cover everyday expenses like groceries, gasoline and medical bills, in addition to big-ticket items and luxuries.

 

While consumer spending, the nation’s economic engine, has been surprisingly resilient of late, a more sweeping reduction in credit card limits could pose serious challenges for hard-pressed consumers and, in turn, the broader economy.

 

Many are already feeling pinched. Pamela Pfitzer, a family therapist with a stable six-figure income, was stunned when she went to a garden center near her home outside Sacramento in early April and tried buying about $30 worth of flowers with her American Express card. Her transaction was denied, she says, even though she had just made a $1,000 payment and almost never missed one in her life.

 

It turned out that shortly after falling behind on a mortgage payment and being hit with a tax lien, American Express had lowered her credit limit to $900 from $2,300. The flowers pushed her over the new cap.

 

Then last month it happened again, she says, when she tried to buy office furniture with her Wells Fargo Visa card. Although she had just made a payment of about $700, Ms. Pfitzer found out that her credit limit had been lowered to $2,000 from $2,800.

 

“In all the years I have had credit cards, I have never had this happen before,†Ms. Pfitzer said. “Now it has happened twice in the last few months.â€

 

Banks and mortgage companies are required by law to notify customers within three days of changing the limits on a home equity line of credit, and many have been aggressively lowering them. But credit card lenders have 30 days to notify their customers, and often do so only after taking action.

 

Such moves can cause a consumer’s credit score to drop, forcing the person to pay higher interest rates and making it harder to obtain new loans.

 

Even so, disclaimers in the fine print of credit card applications typically stipulate that the issuer can cancel or alter credit limits at any time, regardless of customers’ payment or credit history.

 

Washington Mutual cut back the total credit lines available to its cardholders by nearly 10 percent in the first quarter of the year, according to an analysis of bank regulatory data. HSBC Holdings, Target and Wells Fargo each trimmed their credit card lines by about 3 percent.

 

Among those four lenders, that amounts to a reduction of about $15 billion in three months. Over all, the amount of available credit for the industry appears to be about flat, with the three biggest issuers ��" Bank of America, JPMorgan Chase and Citigroup ��" slightly increasing their overall credit lines. But even they are trying to rein in risky individual accounts.

 

Big banks face intense pressure on their balance sheets as they bring on billions of dollars worth of complex mortgage-related investments and other loans they are struggling to sell. Meanwhile, they are bracing for a surge in credit card losses as the job market and economy get worse.

 

Consumers are reaching deeper into their pockets to pay for groceries and gas. Last year, as many as half of all those who took out home equity loans used the money to help pay down their credit card debt, according to J.D. Power research. But home equity is no longer an easy source of financing. And month after month, cardholders keep falling behind on their bills.

 

“This downturn is the perfect storm where the consumer is getting squeezed from all levels,†said Michael Taiano, a credit card industry analyst at Sandler O’Neill. He projects that credit card loss rates for lenders, now around 5.7 percent, could go as high as 10 percent in next 18 months. That would be higher than the peak levels

 

reached after the 2001 technology bust.

 

Since borrowers typically run up their balances before they stop paying, issuers have started cutting lines of credit. Often, lenders will lower customers’ credit limits as they pay down their debt ��" a technique known in the industry as “chasing the balance.†This way, they are on the hook for less money if borrowers default.

 

“They are trying to cut their risk exposure,†said Bill Ryan, an analyst at Portales Partners. “The consumer that used to use his house as an A.T.M. is now starting to use their credit card as an A.T.M.â€

 

American Express is reducing credit lines for customers holding subprime mortgages and small business customers in industries tied to the real estate market. And Chase Card Services, the consumer arm of JPMorgan, is taking similar action on distressed borrowers, especially in places like California, Arizona and Florida where home prices have declined sharply. Washington Mutual, HSBC, Target, and Wells Fargo all acknowledged they were pulling in lines of credit as part of broader strategy of reducing risk.

 

None of the lenders, as a matter of policy, would comment on individual customer accounts.

 

Cardholders in places like Orange County, Calif.; Las Vegas; and Phoenix have noticed their credit lines shriveling up.

 

John D. Craig Jr., a college administrator from outside Buffalo, said he had regularly been paying own his balance on a rarely used card when Chase informed him they were reducing his credit limit to $4,000 from $20,000. The news took him by surprise.

 

“For two or three years, it was, ‘We are going to give you more credit, more credit more credit,’ †he said. “Now, in the last two or three months, it has been the exact opposite.â€

 

Those who work in real estate-related fields say they are being pinched by the credit card lenders at a time when they most need to have money available. .

 

In Seattle, Phillip Rodocker, a sales associate for a large residential real estate firm, said that the credit limit on his Citi Visa platinum credit card had been reduced in April to $4,800 from $8,000 even though he says he never missed a payment and had no recent credit blemishes.

 

Leslie Sherman, the owner of Realty Executives in Las Vegas, said American Express reduced the credit limits on several personal and business cards virtually at the same time.

 

“It has definitely made me spend less,†she said. But Ms. Sherman said that it had been a blow to her ego, too.

 

“It made me feel like I wasn’t responsible. I know when to put my reins on and when not to,†she added. “I didn’t appreciate someone thanking me for always paying my bills on time and being a good customer by dinging my credit.â€

 

Meredith Whitney, an Oppenheimer banking analyst, said the impact of the recent regulatory proposals on lender profits could be so severe that she expects the industry to pull back $2 trillion in outstanding credit lines by 2010. That would be a 45 percent reduction in credit currently available to consumers. Risky borrowers would be squeezed the most.

 

Customers with stronger credit histories have probably noticed few changes. But card issuers are also becoming pickier about whom they approve. In April, nearly 30 percent of senior loan officers said they were tightening their credit card lending standards this winter, according to a Federal Reserve survey. That was about three times as many who said they did so in the fall.

 

Lenders are also sending fewer offers in the mail. The volume of direct mail promoting credit cards fell nearly 19 percent since last October, to about 900 million pieces, according to Mintel Comperemedia, a marketing research company.

 

And borrowers already in debt, once courted by card companies, are being shunned.

 

Zero-balance teaser rate offers have fallen by about 15 percent over the last year, according to Mintel.

[toopooor]

Many are already feeling pinched. Pamela Pfitzer, a family therapist with a stable six-figure income, was stunned when she went to a garden center near her home outside Sacramento in early April and tried buying about $30 worth of flowers with her American Express card. Her transaction was denied, she says, even though she had just made a $1,000 payment and almost never missed one in her life.

 

It turned out that shortly after falling behind on a mortgage payment and being hit with a tax lien, American Express had lowered her credit limit to $900 from $2,300. The flowers pushed her over the new cap.

 

Then last month it happened again, she says, when she tried to buy office furniture with her Wells Fargo Visa card. Although she had just made a payment of about $700, Ms. Pfitzer found out that her credit limit had been lowered to $2,000 from $2,800.

 

1. damn, she has low CL

2. 6 figure income and behind on a mortgage and have a tax lien? Gosh, i wonder if amex and WF was justified?

Edited June 20, 2008 by toopooor

[BobWang]

Many are already feeling pinched. Pamela Pfitzer, a family therapist with a stable six-figure income, was stunned when she went to a garden center near her home outside Sacramento in early April and tried buying about $30 worth of flowers with her American Express card. Her transaction was denied, she says, even though she had just made a $1,000 payment and almost never missed one in her life.

 

It turned out that shortly after falling behind on a mortgage payment and being hit with a tax lien, American Express had lowered her credit limit to $900 from $2,300. The flowers pushed her over the new cap.

 

Then last month it happened again, she says, when she tried to buy office furniture with her Wells Fargo Visa card. Although she had just made a payment of about $700, Ms. Pfitzer found out that her credit limit had been lowered to $2,000 from $2,800.

 

1. damn, she has low CL

2. 6 figure income and behind on a mortgage and have a tax lien? Godh, i wonder if amex and WF was justified?

You're just spoiled, TP.

Bob

[toopooor]

You're just spoiled, TP.

Bob

 

Not really- i'm not like some of you guys and want huge limits, i'm happy with my 10K limits - heck i was happy with my discover - it was 6600 from about 2000 until 2006. I just thought it odd that she had two cards with low limits. Maybe she has others and they are maxed... since it looks like she pays these off so she can charge more.

[BobWang]

You're just spoiled, TP.

Bob

 

Not really- i'm not like some of you guys and want huge limits, i'm happy with my 10K limits - heck i was happy with my discover - it was 6600 from about 2000 until 2006. I just thought it odd that she had two cards with low limits. Maybe she has others and they are maxed... since it looks like she pays these off so she can charge more.

toopoor:

A few days ago, I happened to glance at your siggy, and went "WOW, it's been over a year since her last app."

Then, I looked more closely, and saw the 2008.

Bob

[toopooor]

You're just spoiled, TP.

Bob

 

Not really- i'm not like some of you guys and want huge limits, i'm happy with my 10K limits - heck i was happy with my discover - it was 6600 from about 2000 until 2006. I just thought it odd that she had two cards with low limits. Maybe she has others and they are maxed... since it looks like she pays these off so she can charge more.

toopoor:

A few days ago, I happened to glance at your siggy, and went "WOW, it's been over a year since her last app."

Then, I looked more closely, and saw the 2008.

Bob

My last 2 had good limits - 18K and 15K. I also got a 3rd juny for 9K about the same time. The 18K is a visa sig, so the CL won't report, the other two are biz cards so they don't report. I'm just as happy with the 9K as i am with the 18K - because i won't charge near that much (espeically without checking my CL before using it ). I will never be declined for going over my limit unless they CLD me 75% or more.

[countkim]

She missed a mortgage payment, and has a tax lien....and she was "stunned" about receiving AA......right....

 

I don't think she's PIF either...her payment amounts are too rounded. I'd guess that she's paying enough to free up her CC for monthly purchases, then maxes out again. The cc co's are justified in her particular situation...and I can imagine all the other customers in the same boat.

[firefighter 161]

I recently noticed "Capital One A/R" soft pulls on my report.

[badcredyo]

You'd think the NYT could find a better example of strange AA than this deadbeat. Get with it Fitzy!

[Credit Matters]

My credit limits have actually moved higher during this credit downturn. Haven't seen any of my limits trimmed.

 

I am sure that not carrying balances helps my situation. What's more, I do not live in a high-risk housing market.

 

If card companies do cut back limits by some 45% during the next two years, I would still be sitting pretty.

 

Just another reason that I got credit when I could (over the past several years), and not when I had to.

 

This lady interviewed in this story wouldn't have been my ideal interviewee. I would have found someone who did not deserve adverse action. She clearly did.

[Shawnee]

My credit limits have actually moved higher during this credit downturn. Haven't seen any of my limits trimmed.

 

I am sure that not carrying balances helps my situation. What's more, I do not live in a high-risk housing market.

 

If card companies do cut back limits by some 45% during the next two years, I would still be sitting pretty.

 

Just another reason that I got credit when I could (over the past several years), and not when I had to.

 

This lady interviewed in this story wouldn't have been my ideal interviewee. I would have found someone who did not deserve adverse action. She clearly did.

 

Did you see the part where a Citi cardmember was cut who claimed he had no credit blemishes? Turns out he was late six out of the last twelve months. As far as AMEX they've been doing that sort of thing on a regular basis for over two years.

 

In any event I'm hedging my bets with CUs even if I have to go to the trouble of documenting my complicated financial situation.

[Big-Daddy]

My credit limits have actually moved higher during this credit downturn. Haven't seen any of my limits trimmed.

Same here, in fact i just did a tradeline tracking sheet last night that reflected i've received over 75K in Credit line increases alone in the past 6 months. Yes we're in a credit crunch, however some lenders are also looking to, and need to loan or extend money to those they feel they have long time 'problem free' relationships with.

 

This lady interviewed in this story wouldn't have been my ideal interviewee. I would have found someone who did not deserve adverse action. She clearly did.

Not only that, i wonder about some of the stories, and interviewees, sometimes people can't help but to see things from their own personal point of view for the most part, often in unfavorable situations people tend to fail to see any wrong doing on their parts, its hard for some to see things clearly or unbiased when they are distressed or at a loss ;)

Edited June 21, 2008 by Big_Daddy

[toopooor]

Did you see the part where a Citi cardmember was cut who claimed he had no credit blemishes? Turns out he was late six out of the last twelve months. As far as AMEX they've been doing that sort of thing on a regular basis for over two years.

Where did you see that?

 

It goes along with my assertion that going public about Amex FR will only work if the complainee is willing to bare their CR so everyone can see they have perfect credit and are the PIF type of guy. Anything less will make people wonder if Amex was justified, as they were with the woman in the story and which citi was, if the lates are true.

[Shawnee]

Did you see the part where a Citi cardmember was cut who claimed he had no credit blemishes? Turns out he was late six out of the last twelve months. As far as AMEX they've been doing that sort of thing on a regular basis for over two years.

Where did you see that?

 

It goes along with my assertion that going public about Amex FR will only work if the complainee is willing to bare their CR so everyone can see they have perfect credit and are the PIF type of guy. Anything less will make people wonder if Amex was justified, as they were with the woman in the story and which citi was, if the lates are true.

 

In Seattle, Phillip Rodocker, a sales associate for a large residential real estate firm, said that the credit limit on his Citi Platinum Select Visa card had been reduced in April to $4,950 from $6,720 even though he says he never missed a payment and had no recent credit blemishes. A Citi spokesman, Samuel Wang, said Mr. Rodocker had made six late payments within the last year.

[toopooor]

Not only that, i wonder about some of the stories, and interviewees, sometimes people can't help but to see things from their own personal point of view for the most part, often in unfavorable situations people tend to fail to see any wrong doing on their parts, its hard for some to see things clearly or unbiased when they are distressed or at a loss

 

It's hard for a lot of people to look at their own situation with a critical eye.

[goldtrad]

Not only that, i wonder about some of the stories, and interviewees, sometimes people can't help but to see things from their own personal point of view for the most part, often in unfavorable situations people tend to fail to see any wrong doing on their parts, its hard for some to see things clearly or unbiased when they are distressed or at a loss

 

It's hard for a lot of people to look at their own situation with a critical eye.

 

 

Well you have either been late paying or you haven't.

[Xecuter2]

LOL. The people that were complaining about credit card terms and conditions just can't catch a break. Now they're going to be fighting just to be approved for a card.

[toopooor]

In Seattle, Phillip Rodocker, a sales associate for a large residential real estate firm, said that the credit limit on his Citi Platinum Select Visa card had been reduced in April to $4,950 from $6,720 even though he says he never missed a payment and had no recent credit blemishes. A Citi spokesman, Samuel Wang, said Mr. Rodocker had made six late payments within the last year.

thanks. It wasn't in the version i read yesterday.

[Shawnee]

In Seattle, Phillip Rodocker, a sales associate for a large residential real estate firm, said that the credit limit on his Citi Platinum Select Visa card had been reduced in April to $4,950 from $6,720 even though he says he never missed a payment and had no recent credit blemishes. A Citi spokesman, Samuel Wang, said Mr. Rodocker had made six late payments within the last year.

thanks. It wasn't in the version i read yesterday.

 

Along the same lines as my sister. She tells people that she has "great" credit because she can buy a new car at 20%. She has at least seven COs and eleven collection accounts and she doesn't care as long as she can buy a new car every three years.

[Xecuter2]

...he says he never missed a payment .... A Citi spokesman, Samuel Wang, said Mr. Rodocker had made six late payments within the last year.

This is a WTF kind of moment. Is the guy in denial?

[toopooor]

Not only that, i wonder about some of the stories, and interviewees, sometimes people can't help but to see things from their own personal point of view for the most part, often in unfavorable situations people tend to fail to see any wrong doing on their parts, its hard for some to see things clearly or unbiased when they are distressed or at a loss ;)

 

It's hard for a lot of people to look at their own situation with a critical eye.

 

 

Well you have either been late paying or you haven't.

But they don't think of it like that - they think 'so what if its late, i always pay more than the min, and sometimes PIF, a few day after the due date and i don't have any 30 days lates reporting on my CR, so its cool"

 

How many times does someone report AA here and say they were never late or it was otherwise unjustified? No card spokesman comes by to clarify the situation and anyone who questions the justification of the AA needs a flame retardant suit.

[Big-Daddy]

...he says he never missed a payment .... A Citi spokesman, Samuel Wang, said Mr. Rodocker had made six late payments within the last year.

This is a WTF kind of moment. Is the guy in denial?

Thats what i'm think'n, talk about not being honest with yourself.

 

For some of us this is all very black and white, (cut and dry) others see things grayscale, i''ve learned not to be easily surprised by anecdotes.

 

 

Its not uncommon for people to rationalize their mistakes (of flat out lie) its very hard to learn a lesson though if your never wrong. - This poor guy may be making late payments for the rest of his life.

[Big-Daddy]

Not only that, i wonder about some of the stories, and interviewees, sometimes people can't help but to see things from their own personal point of view for the most part, often in unfavorable situations people tend to fail to see any wrong doing on their parts, its hard for some to see things clearly or unbiased when they are distressed or at a loss ;)

 

It's hard for a lot of people to look at their own situation with a critical eye.

 

 

This is sort of what protects us but it can also keep us down. I've learned in the past few years that i do better to say this an area where i'm weak and need some improvement, its taken me a while for certain lightbulbs to finally go off. If i wasn't honest with my self about my shortcomings i'd still be where i was 5 or 6 years ago creditwise or worse. Finally getting past kicking myself in the tail for mistakes or missed opportunities seemed to be one of the other important keys.

 

 

I like the way you think toopooor, i've read a lot of your posts and your generally very down to earth IMO. Another thing i thought of was that some of the good people (most humble CP's & CW's) here are bliss to certain things that they haven't had to deal with, and may never have to, they just have less diversity in their knowledge and understanding based on experience, which is all good but something i consider as i read the boards.

[BobWang]

In Seattle, Phillip Rodocker, a sales associate for a large residential real estate firm, said that the credit limit on his Citi Platinum Select Visa card had been reduced in April to $4,950 from $6,720 even though he says he never missed a payment and had no recent credit blemishes. A Citi spokesman, Samuel Wang, said Mr. Rodocker had made six late payments within the last year.

thanks. It wasn't in the version i read yesterday.

Heh, heh.

Citi must have called in after the first version was posted, to tell the "story behind the story."

The highlighted sentence had been added to the online version I grabbed.

Bob

[Shawnee]

In Seattle, Phillip Rodocker, a sales associate for a large residential real estate firm, said that the credit limit on his Citi Platinum Select Visa card had been reduced in April to $4,950 from $6,720 even though he says he never missed a payment and had no recent credit blemishes. A Citi spokesman, Samuel Wang, said Mr. Rodocker had made six late payments within the last year.

thanks. It wasn't in the version i read yesterday.

Heh, heh.

Citi must have called in after the first version was posted, to tell the "story behind the story."

The highlighted sentence had been added to the online version I grabbed.

Bob

 

That's what I'm thinking. Some people think of credit card accounts as installment loans. Credit cards do not have a grace period after the due date. Unfortunately a good portion of consumers don't understand the important difference.