Translate it to: "We think you may lose your job soon." It's not so outrageous.

@Erwos: It says he's a small business owner, so he can't be "fired." But they might be right if he's that desperate for a line of credit that he may be in a money sinkhole.

Combine those two, and it sounds like what they're saying is: you have a large mortgage which you haven't been paying down (maybe an interest only loan?), and real estate prices have dropped a lot, so you're probably underwater on your house.

Better this than the "everyone can have credit!" mentality that led to the financial crisis

Well, specifically refers to denying or increasing the cost of credit in certain areas because of the racial composition of those areas. Here we see that Capital One is obvious restricting credit to a geographic area, but there could be any number of reasons for that that aren't racial.

Does Ryan live in an area that is heavily populated by racial minorities? Is Ryan himself a racial minority?

Also, if you tell me to you loan you money because you "desperately [need it] for [your] small business," I wouldn't lend you money either.

@Erwos: Yeah, they may even be acting in a responsible fashion here. You know, not giving credit to people that may not be able to make payments.

on the other hand, if he has good credit and whatever else they may want out of a customer...he should get a card. your location these days doesn't really amount to d*ck as far as economics. Sure some areas are full of the impoverished and you may not be able to sell BMWs, but that doesn't mean you can't make money.

Please tell me he isn't selling BMWs.

@TCama: Redlining specifically refers to blah blah blah ...

Some areas have been hit harder than others. I don't know what business he is in, but if he lives in the Detroit area, he is more likely to be nailed by the recession than he would be if he lived in the DC area. Even if he has a solid business for the area, like cleaning destroyed foreclosures, Detroit is a higher risk. My particular project in DC is hiring left and right and can't keep up with the demand for employees, while other groups in my company are having to lay people off (no, skills wouldn't transfer).

Is it "fair"? No. Is it fair? Yes.

@huadpe: but he could still lose the job.

@TCama: True, but if each of their high risk areas also happens to have a high minority population, it's redlining by another name. Of course, you'll need to see a wider selection of their high risk areas to determine if there is a significant correlation.

Do credit cards have an equivalent to the The Community Reinvestment Act of 1977? It required banks to apply the same lending criteria in all communities [Note, despite what Beck and Bachman say, the CRA DOES NOT require banks to loan money to people who normally can't afford homes. It says you need to use the same criteria regardless of where they live. Anyone who says otherwise is lying.]. If so, he may be able to use that.

@Erwos: He needed it to support his small business. Sounds like Capital One further ensured that what they feared "might" happened is actually going to happened.

@nbs2: Yes, except that where you live has less and less of a correlation to where you work. Virtual offices are becoming commonplace and so CC companies need to reconsider their risk analysis methodology. Granted, its their money, but if they start denying cards, increases, etc. to anyone who live in a poor area, thay may be actually denying themselves some good, stable customer unnecessarily.

@The Porkchop Express: That makes sense except that if his credit was poor then why did the letter he got not state such a thing as the reason he got denied?

I might be able to understand the mortgage payment issue though. Depends on the details.

@Shoemaster: Replacing one extreme with another is hardly "better" especially when what we have here is a guy trying to run a business which by nature is intended to circulate money and hopefully expand and create new jobs.

@Naame: Wouldn't capital one stand a better chance of getting the credit repaid if he's able to keep his business afloat and bring in sales?

If he folded the business/declared bankruptcy, they'd likely only get a fraction of what they were owed.

@dragonfire81: Nearly all businesses both large and small need to use lines of credit regularly in order to function. It is very normal to use a line of credit to purchase goods and/or resources to provide services, use such things to run your business and earn money, then pay off the credit you used while keeping the rest as profit.

Relying primarily on liquid cash for that kind of generic cycle is something that we have not seen a lot of for quite some time.

@Naame:
This. How do they expect us to pull out of it if they've made it impossible to get credit. Those of us who were responsible and didn't drive ourselves deep into debt when credit was readily available are being punished for the actions of irresponsible folks who did.

@NeverLetMeDown:
So banks should only loan money to poeple who don't need it? That's smart.

So, uhh, where's the guy live?

@ARP: The question is, when does the cost of investgating the individual in-depth exceed the benefit of the individual's business? They may lose some good folks, and get burnt by some bums living in wealthy areas. The trick is to minimize those groups for as little cost as possible. ZIP based demographics tend to be cost effective and accurate.

While the model will need to be reevaluated over time, I don't believe that the model needs to shift yet.

@Erwos: Yeah, I'm sorry. I can't find the place that says everyone is entitled to a credit card.

There are other CC companies around and if he really is a good investment, Capital One (who sucks for lots of other reasons) would just lose out on a good customer.

@tbax929 is just plain tbax929:

Yes, it is smart. He doesn't say "I need more credit so that I can expand my business," or "I need more credit to take advantage of this great opportunity," or even "I need more credit to replace this credit line that was just cancelled." He says he's "desperate" for more credit: he needs to expand the amount of borrowing done by his current business. That tells me that his business has serious problems.

I got one of these letters from Capital One a few months back. $300 balance on the card. Mine said "due to worsening economic conditions in your area" that they were closing my card. (Palm Springs, California)

@NeverLetMeDown: couldn't agree more. The fact that the company is "desperate" for more credit seems to indicate the the company is on a down hill slope, and only trying to delay the inevitable. A higher credit line is not going to help that situation.

Remember that credit card companies want to get people further into debt, as long as payments can be made.

I wonder if they put up a map of the country and drew red lines to seperate the areas with "good" economic conditions from the ones with "bad" economic conditions?

I got one that stated that I did not have any mortgage accounts! Talk about insane!

@inthedesert:

"Dear Capital One:

Due to worsening economic conditions in my area, I will be unable to continue paying on my closed account."

There's no issue here and it's absurd to think there could be. They're saying he has too much leverage personally and he's running a business in an area where business conditions are getting worse meaning the risk he won't be able to pay on the loan is too high. No one is entitled to a loan just because they ask for one, sheesh!

As for redlining? I didn't see anywhere in the post where any ethnicity is mentioned nor where someone is buying real estate.

I had an ex-girlfriend who worked for 1st Data, one of the data handling companies on retainer by American Express, among others. She confirmed that they do flag applications and cardholders based on the area they live in, because it has been proven that people who live in certain areas are prone to being "bad" card holders.

@Shoemaster: Yeah but the problem is, until as a society we learn to be less reliant on credit and credit scores to get what we need and make the economy spin, wholesale denial of credit is going to cause serious problems as well.
Like this guy says, he needs credit to run his business and without it his business will fold. I believe it, my mom started a small business a while ago and it took her about a year to get out of the red - and that's completely normal.

@NeverLetMeDown: To be fair, the OP never mentions how long his small business has been in business. My mom started a small business a few years ago and while doing our research we found out that most small businesses are in the red for a least a year - six months and you are doing amazingly. If this guy just started his business within the last year (2-3 for restaurants, believe it or not), he may still be in the red.
That's not to say he's doomed to failure - like I said, most small businesses encounter difficulties in the beginning, that's why most close with the first two years. However, if banks didn't take risks on businesses like that, small business growth would collapse.

However, if this guy has been in business for upwards of two years, I'd say, yes, it's a good decision on the company's part.

@dragonfire81: It comes down to cutting your losses, the bank decided that its too much of a gamble to offer more credit. Sure they have a better chance of getting it all payed back if they offer more credit, but by offering more credit they also increase the risk that they just put the bank further in the hole.

It is just like gambling, you know for a fact that you can quit now and take a $10 loss or you could gamble $10 more and have some small chance of not being in the hole, but the price you pay is that there is a very large chance that you will just owe more money. Sometimes the smart choice is to cut your losses and leave.

If I were Capital One (and last I checked, I'm not), I would have left out the "worsening economic conditions" as it suggests redlining and the other reason should be sufficient to deny Ryan.

@ARP: Virtual offices are a tiny minority of the work place. I do small business IT support and only a tiny percentage of our clients allow it (infastructure for this can be expensive) and even the ones that do require their staff be in the office part time for meetings etc.

Now, over time there will be a greater percentage of people who can work this way, but for now, its not even something most would need to take into consideration.

@TCama: What if he's in Detroit, or Indianapolis, or any other town which just took it on the chin for some reason?

@Shoemaster: Credit should be granted specifically on one's ability to pay back the debt. The past mentality clearly omitted this.

In the situation for this article, however, it is unclear. If the credit is for a business that serves people who live and work in an area that is getting worse, economically, then that specifically does relate to the risk of the business to actually survive. Even if it is credit granted to the person, if the person's income depends on a business that depends on a depressed area, there really is legitimate cause to turn it down.

I got email yesterday that said my credit had been approved for a $25,000 loan. But I didn't apply for a loan.