Capital One cuts credit limits as millions struggle with income cliff

[left-of-center2012]

Capital One is cutting the credit limits on some credit cards, with some consumers reporting on social media that their credit limits have been cut in half by the card issuer. The company said it's making the decision based on the customer's account activity in the last year.

Capital One, the third-largest card issuer, is trimming consumers' credit lines just weeks after the extra $600 in weekly unemployment benefits expired, a benefit that more than 27 million out-of-work adults had relied upon. That income cliff "will depress consumer confidence and spending and weigh on the broader economic recovery," even as consumer spending remains 5% below pre-pandemic levels, according to Oxford Economics.

The result: Credit-card issuers are tightening the reins because they're fearful that more households could face financial difficulties in the coming months, experts say. Almost one-third of U.S. credit card users had had their accounts closed or their credit limits reduced involuntarily since mid-May, CompareCards found in a July study.

Consumers should also start using their dormant cards, with Matt Schulz, chief industry analyst at CompareCards.com recommending placing a small recurring monthly charge on them, such as a Netflix subscription. He says, "That keeps the card active without breaking the bank. "

https://www.cbsnews.com/news/capital-one-lowering-credit-card-spending-limits/

[BKDem]

1. What's in your wallet?

A big "fuck you" from your financial overlords.

[former9thward]

2. If "millions struggle with income cliff"

then credit card companies should cut their limits. Why wouldn't they? Should they take the loss?

[BKDem]

4. Should banks get bailouts when they make bad mortgage loans?

Hint: they do.

[former9thward]

7. Then the complaint is made banks are not loaning to "under served" areas.

Right? People want to have it both ways.

[Freethinker65]

5. Unfortunately I agree. Those are unsecured loans.

The original limits were based on what they believed could be repaid over time making minimum payments.
What is odder is that my young adult boomerang kid with a close to minimum wage no benefit job is suddenly getting inundated with credit card applications! (He currently has only one credit card and primarily uses a debit card, and has no need to get another card.)

[former9thward]

9. A difficult situation.

Because young people need to establish credit for when they want to make big purchases like a car or house.

[Klaralven]

3. Unused credit on credit cards affects bank's capital requirements

Banks need to keep reserves and capital to cover unused credit in the event that it is used. If banks are having to write down other lines of business, such as auto, mortgage, and commercial lending, they have shrinking reserves and need to cut unused credit limits to compensate.

Since they are not collecting all their mortgage payments due to moratoriums, they are probably looking for ways to compensate and unused credit card limits are a pretty easy fix.

[Freethinker65]

6. Interesting

[Klaralven]

8. Some banks have stopped originating HELOCs for similar reasons

[Freethinker65]

17. +1

[left-of-center2012]

10. Target threatened to cut off my Master Card

(The Target 'Red card' is a Master Card)

This was last year,
I'd paid off my account and had not used it lately.

They emailed me to say if I didn't use it within 60 days they'd close the account.
Not sure how a closed account might affect my credit rating,
I put my $8.99 a month Netflix on the Target card.

Target then increased my credit limit an additional $5,000.

[LuckyCharms]

11. Key Bank closed a card on me a few weeks ago...

that had a $14,000 limit on it. I had not used the card in few years, so they closed it. Because of the closure, my credit score dropped about 12 points.

One of the measures they use to determine your creditworthiness is the amount of debt you have outstanding vs. the amount of credit you have available to you, as a percentage.

When a card gets closed, your available amount of credit decreases, therefore increasing the above percentage, therefore reducing your credit score.

My card was closed without warning.

[fescuerescue]

12. Many would take issue if Capital One started increasing limits

The accusation would be that they are taking advantage of people income struggle and are trying to hook them.

[roamer65]

13. I wonder how many will find their cards maxed out because of the cut.

That will be effectively shutting off their credit.

[Baked Potato]

16. Yes, this, it's shitty.

[Totally Tunsie]

19. Shutting off their credit and screwing their credit score

by raising the utilization rate, which is a major determinant of credit score. For some, the damage can take years to repair.

[Yavin4]

14. I pay off my entire balances every month on the first day of the billing cycle

And yet my credit rating was still down graded. I use only one card and have no other debts at all. None.

Credit ratings are meaningless in this country.

[Baked Potato]

15. A few years ago Target kept lowering my limit every few months,

which lowered my scores because it looked like I was always maxed. After two times I closed the card and paid it down and off. Cap one is screwing customers. I had one of their cards long time ago, it took 6 months to close it, terrible service then.

[Awsi Dooger]

18. American Express cut my Cash Magnet limit by 87%

Two weeks ago, from $13,800 to $1800. I was flabbergasted. I have never missed a payment on any card. I had a 6% balance and was paying off monthly in full, other than some small "Plan It" balances from 2019.

They didn't give me a competent explanation. But I think I know what happened. In March when the stock market plunged I had existing 0% balance transfer offers from Bank of America and Citi. I said what the hell...the market can only go up from here. So I took the balance transfer offers as a direct deposit, then transferred that money immediately to the stock market.

It has worked out great. The Fidelity mutual fund I chose FSPTX has soared from 17 to almost 28. I wasn't thinking about those balances at all since I don't have to pay them off until well into 2021. But apparently the high usage on those two cards -- like 93% and 88% -- must have spooked something in the American Express system and it panicked.

As a gambler I have stuff like this all the time. More stories to tell