Are banks using sneaky tactics to make more money?
March 11, 2008
Recently the online lending giant Egg delivered news that shocked many of its customers – new of its intention to withdraw credit card facilities from around 160,000 customers. The lender claimed that the customers that would be affected were those whose credit rating had deteriorated since they had opened their credit card accounts.
Following the announcement the lender stated: “We are sorry some customers are upset after receiving notification we are ending their credit card arrangement, but they are people we do not feel it is appropriate to lend any money to.”
Egg officials added: “The decision was taken after an extensive one-off review of our credit card book following acquisition by Citigroup.”
However, despite the statement from Egg, many of the customers that were informed of the lender’s decision to withdraw their credit card facilities were outraged, stating that they had always had excellent credit and that their credit rating had not deteriorated since they took out their Egg cards. Egg’s actions were described as unacceptable by one MP, and the case has even been referred to regulators now in order to determine whether an investigation should be launched.
In the meantime speculation from one MP has fuelled concerns that the move by Egg may mark the start of a spate of card withdrawals by lenders, with the main aim being to increase revenue by weeding out the customers that do not make them enough money.
John McFall from the Treasury Select Committee is concerned that what banks are actually doing is taking credit card facilities away from those that pay up each month and giving these facilities to those that have to pay a high amount of interest on their borrowing, thus increasing profits for the lender.
This allegation has been denied by the banking industry, but Mr McFall does not appear to be convinced. He said recently: “Are we witnessing a situation where credit card companies are taking cards away from perfectly safe customers who pay their bill in full every month on the same date for years - and giving it to customers who are riskier? And if they are doing so, then their methods have to be called into question.”
Officials from APACS stated that this is not the case. One official said: “A credit card company is a business and it will always be looking to do one of two things: either making sure that it’s lending money responsibly to people who can afford to repay any money that they’re borrowing, and secondly, as a business that needs to make a profit, deciding whether it wants to give you and I a card.”
Mr McFall claim does seem all the more credible given the fact that many of the Egg customers that had their credit cards withdrawn were those that always paid on time, never missed a payment, had excellent credit, and were on a decent income.
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