Leading U.S. Credit Card Issuers Cut Limits by $99 Billion in 2020
As the COVID-19 pandemic began to tighten its grip on the United States, leading to closures and lockdowns across the country, many feared for the economic worst. Indeed, the following weeks brought massive job losses and stock market volatility. Now, figures show that as this economic uncertainty was spreading, creditors were also slashing spending limits for some consumers.
According to a report from Bloomberg, the 14 top credit card issuers in the United States cut customer credit limits by a total of $99 billion last year. Moreover, Capital One’s cuts made up $30 billion of that sum. Meanwhile, both Citi and Chase trimmed limits by $19 billion each. As Bloomberg notes, these figures align with anecdotes from consumers who previously complained of credit limit decreases.
For context, the 14 issuers in question offer an approximate combined total of $4 trillion in credit. However, the bulk of this is given to wealthy and “financially stable” consumers. In contrast, near-prime and sub-prime customers — those with credit scores between 580 and 669 — were the most impacted by the recent cuts, with the latter group losing 30% of its borrowing power. This decrease is especially notable since some of the affected consumers may have been relying on credit cards to help them stay financially afloat until lockdowns lifted and employment rebounded.
Asked by Bloomberg for comment, Capital One spokesperson Sarah Craighill stated that the total amount of credit limits decreased in part because of closures to dormant accounts but that periodical accounts reviews and revisions were common. She also noted, “Last year, all credit limits were kept significantly above the highest balance of the past year to ensure that customers could continue to use the card as they had been.” Elsewhere, Citi told the publication that the largest impact on its total credit allocation was a drop in new credit applications and not cuts to existing accounts. Finally, JPMorgan spokesperson Amy Bonitatibus stated that the bank regularly reviewed accounts and went on to say, “As the economy improves, we expect more customers will be eligible for increases to their credit limits.”
To that point, although issuers may have worried about a financial collapse during the pandemic, many have since begun ramping up efforts to acquire new customers. In fact, the past few weeks have brought a flurry of increased welcome bonuses meant to entice new credit card applications. While many of the cards seeing the largest promotions are related to travel brands, more generic rewards credit products have seen enhanced offers as well.
The good news is that 2008-level financial collapse that credit card issuers and others feared didn’t materialize. Instead, as Capital One CFO Richard Fairbank stated in January, “Strikingly strong consumer credit has persisted throughout 2020. Consumers are behaving cautiously, spending less, saving more, and paying down debt.” Nevertheless, those among the hardest hit financially may have seen their problems exacerbated by the credit limit decreases at the height of the crisis. So, while limits may once again be lifted now, it’s worth reflecting on how these decisions were made and what adjustments in reaction may be warranted in the future.