Credit card limits – why is it the CC companies fault…

…in the news today credit card companies are being told off for upping limits on credit cards, I don’t get why they should be told off, if you’ve got a credit card take control of what you’re buying/spending ! Just because it has a higher limit doesn’t mean you have to spend it !

Ive been in debt, paid it back now live within my means whilst saving.Taking responsibility for ones’ actions. Now that is a novel concept!

I doubt it will catch on though.

If the big UK banks took responsibility for their actions from 2000ish to 2008 they’d mostly all be bust. So if the people the banks offer unsustainable credit to “take responsibility” then the banks make money. If they don’t, and default, the banks get bailed out and continue to make money. Brilliant.

Edit: the point is banks are scum. Scum that can’t be trusted.

teamhurtmore – Member

If they target people who manage money well, leave zero balance each month, and minimise their debt, there is no business model. That’s just free credit (if no annual fee).

Correct- the business model is all about irresponsible lending and tempting people you know you shouldn’t, which is why it’s right that they be held responsible for that.

Having worked in a bank (Barclays) for just over 3 years back in the bad times (’05-’08) I have no sympathy for the credit card companies on this.

As others have said above, they use the continuously increasing credit limit as a way of tempting you to always be paying interest on as large an amount as possible. I saw first-hand the way they would start someone off with a small limit, say £500, then up it over time so that people would use it. If the amount got a bit too much to cope with ie minimum payments weren’t being met they would then call the customer and try an get them to convert their balance into a loan as that way they would be paying it off. But they wouldn’t cancel the credit card or reduce the limit so the whole cycle would start again. It was my refusal to be a good boy and push sales on people who couldn’t afford it that lead to me leaving.

I bought into this debt cycle when I was young and, as I’ve said on here before, ended up with a lot of debt and very little to show for it. I had two cards that had credit limits double my annual salary ON EACH ONE!! It took a long time to pay it all back, with lots of sacrifices made along the way.

I changed banks a few years ago and one of the criteria I used to decide which one was their attitude towards debt and saving. Only one stood out as responsible: Nationwide. They don’t like to see large loans or big credit card limits. They don’t incentivise staff to sell loans etc, they reward good customer service so I went with them and they have yet to try and get me to take out a loan, credit card or overdraft.

We as a society need to take steps to protect the people who cannot or refuse to see the problems they are leading themselves into. There are enough ways for people to buy stuff on credit with 0% on sofas, TV’s etc (even credit on cheap stuff at Argos!!) to get them into trouble without encouraging them to live on credit for food, fuel and small purchases as a way of life. Sorry to rant but I feel very strongly about this.

f the big UK banks took responsibility for their actions from 2000ish to 2008 they’d mostly all be bust.

Mostly is an exaggeration

Correct- the business model is all about irresponsible lending and tempting people you know you shouldn’t, which is why it’s right that they be held responsible for that.

No it isnt – and IIRC you worked for one of them (that did need help again IIRC) so you should know.

They are providing unsecured credit. By definition, that is going to be more expensive than secured credit. If they do this irresponsibly they get burned (but it is a tiny part of UK credit and a lot provided by non-banks right now).

[but accept that they do behave irresponsibly at times- but its a wild exaggeration to say that this is their business model]

We’ve got the went-too-far-in t-shirts – took a sizeable loan from the inlaws to clear it and make headway into repayment.

Believe me, owing money to your inlaws is WAY worse than a faceless corporation who won’t use every opportunity to remind me of my impecunious past. Even years later.

Now, these days I earn the sort of salary that permits the lifestyle I aspired to back then. And I’m not afraid of credit (just spent a large amount on something and have used a zero percent, zero fee card to pay for it – because I want to keep the cash in the bank for a rainy day).

I’m lucky – I earn a decent amount more than average and have been lucky to learn my lesson and survive it.

Not everyone is in such a fortunate position – so yes, the banks are irresponsible.

teamhurtmore – Member

[but accept that they do behave irresponsibly at times- but its a wild exaggeration to say that this is their business model]

You literally just said it was- “without targeting people who don’t manage their money well there’s no business model”

No I said this (although I appreciate that you do like to misquote to create a false argument):

If they target people who manage money well, leave zero balance each month, and minimise their debt, there is no business model. That’s just free credit (if no annual fee).

…which is correct.

If you manage you money well you would never borrow on an unsecured basis. You would simply use the credit facility. Why not? Its free and very convenient and improves personal cash flow. Borrowing on a CC is a last resort – leaving aside shadow banking – because is is very, very expensive, especially now.

If you leave zero balance, the bank is effectively paying you to take its credit. Yippee, free money from banks. How often do you get that?

So we see, the business model is very clear. I take it back about thinking you worked for HBOS before, excuse me.

There was no misquote, I paraphrased for breviity but here are the 2 statements:

“If they target people who manage money well, leave zero balance each month, and minimise their debt, there is no business model.”

“without targeting people who don’t manage their money well there’s no business model”

No misquote, no misrepresentation. Not for the first time I have to tell you to stop lying about what I’ve said. Now let’s get to the point:

Targeting people who don’t manage their money well, and encouraging them to borrow more at high rates, is irresponsible, as Citizen’s Advice have said. And you admit that the business model is targeting people who don’t manage their money well.

You say, “If they do this irresponsibly they get burned” but that’s simply not true. Often a bank can lend irresponsibly and it’s the customer that gets burned, not them. Are you working to a definition of “irresponsible” that means “bad for the bank”?

“Not for the first time, i am lying about what you said”, is what you mean. But if it makes you feel better, carry on. The misquote is obvious, and I assume the (mis)use of the word literally was intentional too.

You could have said:

“You literally (sic) said, if they target people they have no business model.” It’s as (in)accurate as the rest of your post.

I forgot that you didn’t work for a bank. When someone defaults, the loan becomes non-performing, they don’t get paid and they have to put 150% capital against the exposure. In my mind that is getting burned, but I appreciate that you have different interpretation of reality and what people say (or to be more accurate, don’t say).

Tell me where I misquoted or misrepresented you. If it’s so obvious then why can’t you do it? The 2 statements are right there side by side, everyone but you can see that I represented your comment accurately.

The last paragraph is just classic THM dancing away from the point while pretending you’re addressing it. You said

“They are providing unsecured credit. By definition, that is going to be more expensive than secured credit. If they do this irresponsibly they get burned”

I pointed out that this isn’t true. You’ve come back with an irrelevant diversion, and just avoided actually dealing with what I said, which is that contrary to your post a bank can lend irresponsibly and not get burned.

Well done. In addition to badly and incorrectly paraphrasing what I said* – deliberately or otherwise – you are now simply demonstrating a remarkable failure to understand howcredit card markets work and what happens when they don’t. Bravo that’s quite an acheivekmemt is such a few posts.

* a common theme now, so not unexpected.

Just as expected, can’t actually say where this supposed misrepresentation is.

And the rest of the post is more of the same, just sneering while you refuse to engage, as if it’s somehow the other person’s fault that you can’t address the actual point, which is that companies obviously can lend irresponsibly and not be burned. Irresponsible doesn’t mean “leads to a loss”.

😯

What sort of business model is the 25 Month interest free card? I’ve used one already and probably only paid interest for a couple of months at the end until I had it paid off. I’ve just taken out another which will be used in much the same way. I guess they might have made about £100 in interest on the first one, and would probably make something similar on the second. Do they make a commission on transactions or something?

For every astute person who pays off the balance and effectively enjoys free money, there will be many others who take the money and just pay the minimum balance, or who find their ability to repay isn’t as much as they thought. These people, some of whom get trapped paying SVR on massive balances, are the cash cow for the CC companies. Even if some of them default entirely, the constant stream of fees and interest from the others significantly outweighs this.

The people exploiting the interest-free periods are the loss-leaders.

Will you two just get a room 😆

We could, Binners, but NW would misread the room number and end up arguing in the empty room the floor below 😉

Indeed Martin – plus transaction fees (interchange fees) which are typically 1-3% of the transaction.

CC companies make money in three ways

1. Interest
2. Fees charged to cardholders
3. Transaction fees paid by business that accept credit cards
4. being irresponsible

I pay off every month, the card I have is for internet and phone use only. The issuer did offer to increase the limit – I declined for just this reason. I’m sure the bank also makes money by charging the shop or supplier a percentage, and perhaps there’s the slightest delay in crediting them the money.

Can anyone confirm, or am I sponging off bank’s shareholders and their in-debt customers?

1. Interest
2. Fees charged to cardholders
3. Transaction fees paid by business that accept credit cards
4. being irresponsible

The point being that it is clearly in the CC company’s interest to maximise the number of cardholders who are not in the position to clear their balance in a timely way, but who can service the debt on a monthly basis. And it is in their interest to bring the level of this debt to the maximum that individual cardholders can service without defaulting.

Also, if you increase the available balance, some of those who previously were clearing it easily (and earning nowt for the CC co.) may overstretch slightly and find themselves merely servicing it, which draws them into the cycle of monthly balances and profit.

I daresay there will be some finely-crafted algorithms picking out those who are most suitable and how much they should be offered.

It may not be publicly acknowledged, but converting solvent households into servicers of barely-manageable debt is clearly the aim of the industry’s marketing practices.

Sadly, it is the role of govt and the regulator to drag lenders to heel every now and again, as they did with payday lending a few years back. The CC companies are being irresponsible, but socially rather than to their own shareholders.

The Payday lenders missed a trick. Had they made themselves ‘too big to fail’ then they’d still have been allowed the freedom to do what the bloody hell they like, with the taxpayer there as guarantor.

The idea, given their practices, that the banks are in any way morally superior to payday lenders is ludicrous!

The PPI scandal (amongst many other things) happened because the banks, having purged themselves of anything remotely resembling principles decades before then arrogantly adopted the same attitude to legality.

And having effectively got away with that, and crashing the entire global economy, with absolutely no sanction, I don’t think for a second their attitudes have changed, hence once more plumbing the depths.

It’s still the same ‘who gives a ****’ attitude to the consequences because for them there are no consequences. They know that if they repeat the same reckless folly that led to the last crash, they’ll be bailed out just the same, as absolutely nothing has changed. The taxpayer is still ultimately on the hook for the bill. So they can still do what they damn well like.

As well as credit cards, they’re also fuelling a pretty murky ask-no-questions attitude to PCP car finance, which some financial experts are warning is storing up another potential ‘sub-prime’ mortgage style disaster

The point being that it is clearly in the CC company’s interest to maximise the number of cardholders who are not in the position to clear their balance in a timely way, but who can service the debt on a monthly basis. And it is in their interest to bring the level of this debt to the maximum that individual cardholders can service without defaulting.

Clearly. Income source (1) is critical. It’s the majority of income for CC companies. Their business model doesn’t work if people pay of their balances in total very month.

Having people who clear their balance every month cuts (1) and having people who cannot service their debt cuts (1) and leads to the problems I listed above

FWIW the BoE and the PRA have published their analysis on the cc market several times in the past few months.

You would hope that regulators are getting better at spotting the point at which ‘mere’ social irresponsibility becomes market irresponsibilty.

teamhurtmore – Member

We could, Binners, but NW would misread the room number and end up arguing in the empty room the floor below

Nice, so you’re going to refuse to actually answer the questions, fail to point out where this supposed misquote is, fail to address the point that irresponsible lending doesn’t necessarily lead to a loss for the bank- but still somehow find the time to make snide digs. Pathetic.

I am arguing in an empty room but only because you prefer to stand in the street outside and tell everyone about how you’d be winning, if you only turned up.

morally superior

You know what really really twists my tits? The current round of adverts from banks purporting to be “with you through thick and thin”. They even tell us they have specialist teams to help with cancer patients.

Shame they are not in the least bit interested when their actions get people into unmanageable debt.

Its coming.. all over again…

They are flagging their concerns right now, Martin. As I said both the BOE (see their latest Financial Stability Report) and the PRA which is very clear where the risks are. The are requiring submissions from CC companies now and are highlighting that lenders are more vulnerable to losses right now. They are also specific of the risks associated with long term 0% promotional offers.

Sorry NW you are still on the wrong floor, asking the wrong question. Plus ca change

They are also specific of the risks associated with long term 0% promotional offers.

Problem is that the bubble is now reliant on the free flow of new credit deals to keep those at the default boundary ticking over. BoE/PRA can only lever the situation by drying those up which will send defaults through the ceiling as customers who can’t afford SVR end up trying to pay it.

The lack of restraint (irresponsibility) on the part of the CC industry may be irreversible already.

Its coming.. all over again…

Time to roll out…the eyebrows!

Perhaps, we shall see. But looking at the data right now (updating databases after hols)

CC growth peaked already (but remains fastest growing segment of UK household credit)
It represents only 2% of outstanding credit
The bigger risks probably lie in the motor finance segment not CC. The former is the fastest growing segment in UK household credit right now and looks vulnerable to losses to me. Beware the second hand car market!!!

teamhurtmore – Member

Sorry NW you are still on the wrong floor, asking the wrong question

And you are just repeating yourself and evidently don’t have anything of substance to back up your false allegations. but lack the integrity and selfrespect to apologise. It wasn’t always thus

😯

Basement now.

Been spend a fair bit on the credit card this month, holiday and new bike for mrs plus car insurance. As usual it will all be paid off at the end of the month but a letter arrived today saying my limit had been upped. Looks like they are trying to draw me into paying interest!!!