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Banks are putting lower limits on new credit cards

Jenny Surane
Bloomberg

U.S. credit-card lenders are beginning to pull back on the business even as consumers keep up with their bills during the coronavirus pandemic.

Total credit on new accounts slumped 8.3% in the second quarter from a year earlier, to $78 billion, the first decline in more than two years, according to data compiled by credit-reporting company TransUnion. The average credit line issued for new accounts fell 9% to $5,257, with declines across all tiers of borrower riskiness, the figures show.

U.S. credit-card lenders are beginning to pull back on the business even as consumers keep up with their bills during the coronavirus pandemic.

“The major lenders have undergone an evaluation of their lending standards – or who they’ll approve – and secondly how much credit they’ll approve,” Paul Siegfried, senior vice president and credit-card business leader at TransUnion, said in a phone interview. “For consumers receiving new credit, they’re seeing lower lines.”

So far, consumers have been able to stay on top of their credit-card bills, with the rate of such loans past due by 90 days or longer falling to 1.47% in the quarter, a decline of 24 basis points from a year earlier, according to TransUnion. And consumers, helped by unprecedented stimulus from the federal government, have paid off more of their card debt.

Firms including Discover Financial Services have said they’ve been closing inactive accounts to avoid being a borrower’s lender of last resort. A separate survey released by CompareCards last month estimated that roughly 70 million people had their card’s limit reduced or their account closed completely in the previous two months.

Customer happiness

American Express Co. reclaimed its top spot in J.D. Power’s credit-card satisfaction ranking, according to results released Thursday. Still, the survey showed that overall satisfaction levels dropped during the onset of the pandemic, and issuers’ moves to lower credit lines now have a greater impact on customers’ happiness with their cards.

“Complicating this further is the fact that customers are looking for credit-limit increases, not reductions,” J.D. Power said.

The pullback comes as lenders reassess the risks they’re facing in their card portfolios, which underwent massive growth in recent years as banks offered customers rewards and perks, and fought over lucrative co-brand card deals with hotel chains and airlines. Now, many lenders aren’t sure how many of their customers even have jobs after the pandemic upended the global economy.

“We don’t have a good benchmark historically,” Matt Komos, vice president of research and consulting at TransUnion, said in an interview. “That’s why it sounds like they’re flying a little blind.”