Bank Credit Card Cancellations and Credit Limit Reductions

During this severe recession, we experienced and extreme credit crunch that basically made all banks stop lending. All credit was literally frozen. That is one of the reasons why we bailed out the banks with taxpayer money. The belief was that the banks could use this money to loosen credit up and get the flow of credit back in the economy and stimulate growth. We had the smartest guys from the Federal Reserve and the US Treasury selling us this crap.

Now we can look at a report to see what has actually transpired. Most of us already know from our credit card limit reductions and cancellations that credit is tight, but now there is a data to see if the banks were being forthright.

Card Ratings:

The Federal Reserve issued a statement this month that essentially agrees with the findings of private studies and journalists about the state of the credit card industry. Releasing results from its quarterly survey of banks to journalists, the Federal Reserve noted that more banks rely on fees and finance charges from cardholders in good standing to offset losses from defaulted accounts.

Therefore, according to the Fed’s survey results, many banks intend to increase annual fees, raise interest rates, and pursue more service charges on most credit card accounts. Some survey respondents told researchers that some of their companies’ actions were prompted by pending credit card regulations. However, most bank officials responding to the Fed’s request noted that credit card account changes were mostly designed to insulate lenders from the effects of a sour global economy.

Roughly one in four banks responding to the Fed’s survey reported tightening their credit card approval standards in the past quarter. While that figure may sound high to casual observers, industry analysts note that a similar survey conducted in the summer of 2008 resulted in a 75% affirmative response to the same question. Lending industry observers note that this trend represents a more prudent approach to offering credit cards and setting credit limits, compared to the loose market of only a few years ago.