Credit Card Companies Are Reducing Credit Lines. Why?

30 Jun Credit Card Companies Are Reducing Credit Lines. Why?

Just when you thought you had heard it all in the world of credit card rip-offs, debt collection and bankruptcy, something interesting happened in the office last week.  I met with two different potential clients who stated that their credit cards were cancelled, despite the clients having zero balances on the credit lines and decent credit scores.  

When I asked why that happened?  Their responses were both the same: I have no idea.  The card had not been used lately, and there was no abuse.  So, it must have been either one of two things that can be happening that I could think of: 

First, the banks are starting to close down credit lines before they become a problem, or second the lenders underwriting the department store cards are requiring the retailers to start monitoring their existing credit lines and tighten up the available credit lines now, in an effort to stop the bleeding.  I actually laughed a little at this.

It seems that the retailers are working on more than selling their wares these days.  As Americans are tightening their belts and losing more of their hard earned dollars at the grocery stores and the gas stations, it seems that Americans now have to worry whether the credit card that they kept just for emergencies will have an available balance at the time that they need the available credit the most.

Likewise, the reduction of their outstanding credit lines is going to ding their credit scores and make any future credit more expensive.  So, the retailers are going to have to find ways to keep the consumers coming to their stores.

The big question is:  Is it really worth it to the retailers, or do they even have a choice?  I  cannot answer this question at this time, but it seems like an extreme measure.  Unless there is an underwriter behind the scenes calling the shots, why would a retailer take the risk of shutting off a consumer who has been good to them, has not abused the credit given, and was a good customer. 

Usually, a creditor would be more worried about the receivables and how many loans are 30 days past due, 60 days, etc.  Here, it seems like they are taking a pre-emptive strike that will not only harm the consumer but kill the existing relationship between the consumer and loyalty to their brands. 

I can tell you that neither consumer that I spoke with will ever hold that store’s cards anymore, and both feel that they were treated very badly.  I am willing to bet that we see more of this in the future.

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Carmen Dellutri is a proud member of the Florida Bar, and he is a Board Certified Consumer Bankruptcy Attorney, Certified by the American Board of Certification. He practices in the areas of Consumer Bankruptcy and Plaintiff's Personal Injury. He is the principal attorney at The Dellutri Law Group, P.A. The firm supports many charitable and civic causes by donating time and much needed capital to our community. Mr. Dellutri and the other attorneys in the firm routinely speak to students of all ages about various legal and societal issues.
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