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Egg - Greed or Prudence?
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Posted by: forwardone
Anger at Egg ban on prudent customers.
Senior MPs are demanding an Office of Fair Trading investigation into greedy banks after Egg's decision to ban 160,000 customers from using their credit cards dramatically backfired.
Egg's move was initially interpreted as a prudent decision to curb overspending in the light of worsening economic conditions. But hundreds of customers have bombarded internet message boards complaining that they are not 'high risk' but settle their debts every month and incur no banking charges. They claim they are being axed because they do not make any money for Egg, recently taken over by US giant Citigroup.
The revelations created a storm of protest, with MPs demanding an investigation amid concerns that banks prefer debt-prone customers who are more likely to run up high bank charges.
John McFall, chairman of the powerful Treasury Select Committee, said: 'The motives of Egg need clear explanation if this a case of them ditching long-standing creditworthy customers because they make no money out of them. Perhaps this is an issue that requires an Office of Fair Trading investigation.'
Last October The Observer revealed how consumers with blameless credit ratings are being refused credit cards and consumer groups report that the practice is spreading.
Peter Thornton, a Liberal Democrat councillor in the Lake District, has been an Egg customer for over five years. He received a letter terminating his credit card on Friday. He said: 'This is more than an amazing PR blunder. There's a huge amount of people in my position. I'm on a lower interest rate because presumably they've assessed me as a good risk. Every business would benefit from losing 10 per cent of the least profitable customers, but the rest of us realise we can't do that because it would be a PR disaster. They're on the radio saying it's just bad risk people they're getting rid of. I feel slandered by that.'
Tim Farron, a Liberal Democrat MP, said: 'What this says about the irresponsible lending culture is horrific. An OFT inquiry would be sensible and overdue.'
Egg was bought last May, just before the credit crunch gripped the world, by Citigroup for £575m. A spokesman said that after buying the bank Citigroup reviewed its customer base to assess its credit worthiness. 'We are sorry and can understand that customers receiving letters are hurt and upset by this, but we stand by our decision. I'm confident the review undertaken was done in the best way possible and was effective in its findings. We are not getting rid of customers who don't make us money.' But he ruled out the prospect of axed customers with decent credit ratings getting new cards if they are found to be low risk.
A senior executive with a rival bank said: 'They're saying they're culling people because they've got poor credit history, but that's not what they're doing; that seems duplicitous.' But he added that Egg is recognised in the banking world as having a large number of customers with high debt.
A spokesman for the British Bankers' Association said: 'It's conceivable that with that number of people there are some who have been wrongly contacted. Anyone who believes this should contact Egg.'
Guardian.co.uk
Posted by: forwardone
http://blogs.reuters.com/uknews/200...uld-be-a-bonus/
Egg’s move to withdraw credit from seven percent of its customer base - a total of 161,000 people - serves as a stark reminder of the severity of the credit crunch, and how it is impacting the man and woman on the street.
A quick ring-around other main players in the credit card market - Barclaycard, MBNA, Halifax and Capital One included - did not uncover any other plans to mass-close accounts. But few can deny that the liquidity crisis is continuing to have an impact on consumers.
One in 100 card holders have had their cards cancelled, according to a recent poll by personal finance Web site Fool.co.uk, and by all accounts lenders are continuing to tighten up their lending criteria for riskier customers. Barclaycard has reduced the credit limit of “some people who are over-indebted” and put a stop to cash withdrawals for “those showing signs of distress”, while the Halifax says it is tightening the reins on those exceeding their credit limit and missing monthly repayments - something, a spokesman says, the company has always done.
While that will make black marks on your credit rating, there is some solace for those who have the door closed on their spending on plastic. Cancellation of a credit card will not have a detrimental impact on borrowers’ credit ratings. Instead, this will show up as a “settled” account once any outstanding balance has been cleared (and Egg is not asking for immediate payment of accounts) - exactly the same as if they had cancelled the card themselves.
“Lenders can’t see which organisation issued any cards you have currently or have had in the past or why an account has been closed,” says James Jones, consumer education manager at credit reference agency Experian. “They all make their own decisions on whether they want to grant credit or a credit card, based on credit reference agency information and other information provided by applicants.
“In fact, depending on the circumstances of the individual and policies of the lender, it could have a positive effect on your credit rating, as a lender might view an application from someone with a lower number of cards as more attractive.” Every cloud has its silver lining.
Posted by: golddust
This situation presents an interesting paradox. People with high debt and probably too much credit, likely maintain a higher standard of living through credit card purchases, and are just happy to have them.
People with good credit are penalized by having their cards taken, and then finding it more difficult to obtain a card elsewhere, due to higher credit standards. However, people with good credit probably have a stack of other cards to use.