WORLD> America
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WORLD> America
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As economy slows, US lenders begin to curb credit cards
(Agencies)
Updated: 2008-10-29 10:23 For less creditworthy customers, issuers are pulling back on promotional offers that allowed borrowers to pay no interest for months as they try to get ahead of stiffer lending rules that have been proposed by federal banking regulators and Congress. The regulations, while beneficial to consumers, will curb profits on card issuers' riskiest customers. JPMorgan said that it was withdrawing some teaser-rate loans that were only marginally profitable. Discover Financial shortened the duration of its zero-balance offers. And lenders, over all, are slowing the flood of mail offers to a trickle with moves that would translate for the average American household into about 13 fewer pieces of credit card junk mail a year than its peak in 2005. Mail offers to new and existing customers are on pace to drop below 8.4 billion pieces, the lowest level since 2004, according to Mintel Comperemedia, a direct marketing research firm. Online credit card applications have fallen for the first time in five quarters, in part because customers are receiving fewer mail offers that drive them to the Web, according to data from comScore, an Internet marketing research firm. "We used to get a couple of offers a week, but I haven't seen a credit card offer in over a year," said Brett Barry, who owns a real estate agency outside Phoenix and described his credit record as strong. "What blows me away is these companies are in the business of extending credit, but they don't want to do it for me." Mr. Barry said that, without any notice, American Express had reduced the credit limit on his business and personal credit card at least four times in the last year, which he said had lowered his credit score. The moves have also made it difficult for him to manage his payroll and budget, he said. "Credit card issuers have realized their market is shrinking and that there is no room for extra credit cards, so they have to scale back," said Lisa Hronek, a research analyst at Mintel. "People are completely maxed out with mortgages, home equity lines and credit card debt." At the same time, credit card profit margins have been narrowing, largely because lenders' own financing costs remain elevated as investors spurn credit card bonds, just as they did mortgages. Another factor is that the interest rates banks charge even creditworthy borrowers have come down after the emergency actions taken by the Federal Reserve to ease the credit crisis. Meanwhile, bank executives say consumers are starting to curb their spending, to an extent that may become clearer Wednesday when Visa reports its third-quarter results. In previous downturns, banks could make up the missing profits by raising fees. This time, there may be less room to maneuver. "The last time credit costs spiked, the late fees were much lower, so card issuers could turn to that and reprice more nimbly," a Morgan Stanley analyst, Betsy Graseck, said. "There is just more scrutiny now, and coming after the subprime mortgage crisis, the world is more sensitive to the way lenders behave." Special Courtesy of The New York Times |
