Online Bank Cancels Cards On "Risky" Customers

Egg, a Citibank-owned online bank in the UK, announced this past weekend that it’s canceling the accounts of 161,000 of its customers after “conducting a one-off, extensive risk review.” The future ex-customers will be able to pay off their balances according to current agreements, but in a little over a month the accounts will be deactivated.

The company has given seven percent of its credit card customers 35 days’ notice that it was ending their card agreements, [an Egg spokesman] said. “The credit profiles of affected customers had deteriorated between the time they joined Egg and the acquisition (by Citigroup) in May [2007].”

We wonder if this is an isolated event to reduce Egg’s risk, or if other financial institutions will implement this sort of pre-emptive strike against customer defaults?

“Web bank Egg withdraws cards from riskier customers” [Reuters]
(Egg: Getty)

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  1. KJones says:

    Customers should tell these Rotten Eggs, “No card, no payment”.

    Legally, of course, that’s bad advice. But it might make for an interesting case if all the cancelled cardholders refused to pay any interest, paying off only the outstanding principal.

    I wonder if the argument, “You cancel my credit, you cancel the interest charges” could stand up in court. It would be interesting (no pun) to see.

  2. Eliamias says:

    I’ve read some complaints by some people who were canceled. They were panicked because they thought they had decent credit and feared they were victims of identity theft. It would appear that by ‘risky’ they mean unprofitable. Most I’ve seen talk of being canceled are those that pay their balance in full every month.

  3. nursetim says:

    @Eliamias:
    Sounds like they were risky to the bottom line.

  4. skwidspawn says:

    I don’t really see the problem with this. If the company has deemed that it is a waste of resources to provide a line of credit to these people they should be able to close their accounts. You have two reasons for this: a)These people are missing payments or not paying the minimums, or b)They don’t carry a balance, or use the card at all, just a name on paper that they have to expend resources on.
    Either way I don’t see anything wrong with it, or the way the card cimpany is handling the issue. The interest question though does ‘interest’ me.

  5. bohemian says:

    @Eliamias: I assumed it was people running up large balances without the ability to pay them down that were cut off. So now being responsible with your credit card will get you treated as a bad customer? Wow.

    What I want to know is how this is going to impact their credit score? I’m guessing the UK has the same FICO garbage going on over there.

    On a similar note our regional bank that we use instituted some new policies made to increase the chances people would overdraft their checking account. I think we will see more of this kind of thing as banks scramble to slow their money hemmoraging.

  6. ihateauditions says:

    I had a similar thing happen from Bank of America.

    While moving into a new house, I ran my monthly bill up to $45k. Along-side this, I had an identity theft issue.

    I then paid off my BoA balance in full, went to use the card again, and discovered that they’d reduced my credit line to an unusably small level because of unrelated issues on my credit history.

    I owe BoA a debt of gratitude. Without their awful customer service, I might not have bothered opening a credit account at USAA.

  7. Erwos says:

    @KJones: The fact that you’re upset with the bank doesn’t give you carte blanche to just ignore your obligations towards them. If you canceled your account with the bank for no apparent reason, would you be OK with them withholding the money in that account from you?

    In any event, if these people have genuinely good credit, they’ll have no problem getting a card elsewhere.

  8. forgottenpassword says:

    @bohemian:

    I wonder if it DOES negatively effect their credit score…. then could they possibly sue the company for negative affects due to no real reason or fault other than being a customer who pays their bills on time/never carries a balance & they are unprofitable to the company? Its like being punished for being a good customer which would affect their credit score negatively.

    Its like insurance companies only wanting clients that always pay premiums & never file a claim and dropping the ones who do due to no fault of their own (“acts of god” weather damage claims).

  9. bohemian says:

    @ihateauditions: Is there a way to join USAA without the “you just got out of the military requirement”?

    When we looked they said you had to have left the military within a set period of time, after that you couldn’t join anymore.

  10. SpecialEd says:

    It’s been known for a while that CC customers that pay off the bill every month are known by the industry as “deadbeats”. This is how screwed up things have gotten. Good customers that pay on time can’t be bled dry so they call you a deadbeat and cancel you. Screw them. Pay it off and find a decent cc company.

  11. bohemian says:

    @forgottenpassword: Of course that bad mark on your credit if there is one could suddenly increase your rates everywhere via universal default or a credit review. It might also jack your insurance premium. We had a couple of late pays last year and suddenly our insurance premiums went way up. They even admitted it was due to our credit.

  12. stanfrombrooklyn says:

    “Deadbeats” aren’t just customers that pay their bills on time every month. “Deadbeats” are customers that pay their bills on time and also don’t charge much. If you’re charging $5,000 a month and you pay your bills on time, you’re still very profitable to the credit card company. But if you charge $10 a month and pay it every month, you’re pretty worthless.

  13. ShortBus says:

    For people asking, yes this could hurt your FICO score if this happened in the US. A large part of your score is the ratio of your total available credit (sum of your credit limits) to your aggregate balance. So, if your Egg account had a high credit limit and tiny balance, but you had high balances on other cards, the cancellation could really hurt your score. I could see it causing a 30-50 point drop in your FICO (though that depends on what your overall file looks like).

  14. sleze69 says:

    @bohemian: No. If you aren’t current military, immediate family of military or immediate family of a USAA member, you’re SOL on becoming a member.

    Navy Federal is the closest I have gotten.

  15. azntg says:

    While this article written by the Consumerist implies that those affected had debt and delinquency problems, I’ve been told by reliable sources (at least reliable to me, anyway) that it was the other way around. Egg has canceled account holders who were perfectly responsible with their debt.

    Although the credit atmosphere is different in every country (you need not look further than US/Canada/Mexico), you would think that Citigroup, the same parent group that sustained massive losses in the US would be eager to maintain some degree of “pay-on-time” people to hedge against those that might not pay on time, to say the least. However, I don’t know how bankruptcy/insolvency rules go in the UK, but I hear that the UK has very lax usury laws, resulting in some ludicrously high interest rates (well, compared to American default interest rates). Perhaps it is a lucrative business to go after those types of people there.

    I believe that this will never happen in the US anytime soon. Why? After the major financial companies sustained major losses due to poor judgment lending, I’m certain that they’ll want to keep any customer that can potentially keep balances on the red. It might be plausible here to potentially profit off merchant interchange fees generated through card usage, since the US has arguably one of the highest rates around.

  16. dudeascending says:

    HSBC just canceled my credit card account with them. I’d paid it off about six months ago and just haven’t carried a balance since. It was no biggie, but definitely a little strange. From their perspective, I can understand why they’d want me off their roll. Oh well–I just asked for credit limit increases on my other cards to tweak my available credit back to where it was, and now all’s well.

  17. To those pointing out that the customers cut loose weren’t high risk — I’m not surprised to hear that, but the official story carefully avoided any details on just why they were considered “risky.” Thanks to those of you clarifying the real reason.

  18. Buran says:

    @sleze69: I know people who have USAA who aren’t in military families.

  19. SacraBos says:

    The downward spiral has started. With fewer “risky” customers, they need fewer CSR’s. Which will hurt customer service, and drive more customers away. Or make them easier to pull away with attractive offers. The banks will need to find a way keep “good” customers from leaving.

    Soon, you will have to sign service agreements in order to open a credit card account. With Manditory Binding Arbitration. And probably a minimum debt balance in order to keep the card active. If you transfer a balance to another credit institution, you will be charged an early termination fee. You will also be charged a fee if you fall below the minimum credit balance.

    And they will take your account very seriously.

    Brand loyalty used to mean something. We used to be a service econmy, where you feared that once you lost a customer, you lost them forever. Now they are just throwing them away. So where are they going to get their new customers from?

  20. vastrightwing says:

    This is a trend now. Consumerist had an article saying how banks score big by chasing off the unprofitable customers and retaining only the profitable ones. They get the unprofitable customer to leave by charging annoying fees and taking away their credit cards. The only problem here is that their customer base will only get smaller over time.

  21. TTFK says:

    @stanfrombrooklyn:

    If you charge and pay off in full, you aren’t COMPLETELY worthless to them, only less worthless; do not forget about the 2-3% merchant fee. I believe this is one of the biggest reasons that credit card companies have been pushing the “use the card for every little thing” lifestyle — $0.25 + 2.5% for every latte you buy adds up fast!