Credit card holders squeezed as issuers cut credit limits
Reporting from Washington — Cecil Bello has stumbled into a new corner of the credit squeeze. The 32-year-old management consultant has had the limits reduced on three of her credit cards.
In September, U.S. Bancorp notified the Fairfax, Va., resident that she no longer had a $14,500 limit on a card that had a balance of about $5,000. Her new limit left her just $500 from being maxed out, she said.
Then came an Oct. 26 letter from American Express Co. that said she now had a limit of $14,000, down from $22,000. That letter said her "total debt is too high relative to your payment history with us and other creditors."
Early this month, she received an e-mail from American Express notifying her that the cap on another card with a $5,000 limit had been reduced to $3,000 and that her new cash advance limit was down to $200.
Bello said she had made more than the minimum payments on time each month.
"I am taking responsibility for paying off my debt," she said. "But when credit card companies trap people this way, it's almost impossible to dig yourself out of the hole."
Like many other card users, Bello has learned the hard way that credit card companies are increasingly putting the clamps on their customers. Lenders are taking a wide range of steps to mitigate their risk as unemployment rates tick up and the number of delinquent borrowers grows. Besides cutting credit limits, card companies are raising rates and fees and suspending offers such as no-interest balance transfers. They are also making rewards programs less rewarding and shutting down inactive accounts, industry analysts and watchdogs said.
The signs of the squeeze on consumers are accumulating. Last spring, Capital One Financial Corp. notified customers who had made no transactions in three years or more that their accounts would be closed. On Nov. 1, Discover Financial Services removed the cap it used to have on balance-transfer fees. Average late fees on all cards have gone up about 10% in the last year, according to a review by CardRatings.com.
"What's happening is that everyone is looking at the jobless rate, and there's every indication that joblessness is going to increase well into next year," said David Robertson, publisher of the Nilson Report, a newsletter that monitors the industry. To credit card companies, that means a sharp increase in loans that have to be written off as uncollectable, which are known as charge-offs, he said.
