Are banks withdrawing credit cards because of profits?

In light of the global credit crunch and tighter lending conditions a number of banks and credit card companies have announced over recent months that they will be more stringent about who they give credit cards to, and will be carefully reviewing credit limits on both new and existing accounts.

Credit card application rejections have risen, and some people have seen their interest rates rocket, as well as seeing increases in other fees and charges relating to their cards.

Recently the Internet lender Egg stated that it was withdrawing the credit card facilities of 161,000 people.

Officials from Egg claimed that the cards that were being withdrawn were from consumers whose credit profiles had deteriorated since they opened their accounts.

However, many of the customers that were affected said that their credit was perfect and that they had never even missed a repayment.

One MP, John McFall, the chairman of the Treasury Select Committee, has expressed concern that the reason Egg, and other banks, may be taking such action is because they are not making enough profit from good payers.

He said: “Are we witnessing a situation where credit card companies are taking cards away from perfectly safe customers who pay their bill in full every month on the same date for years - and giving it to customers who are riskier? And if they are doing so, then their methods have to be called into question.”

However, this has been denied by the banking industry, with one APACS official stating: “A credit card company is a business and it will always be looking to do one of two things: either making sure that it’s lending money responsibly to people who can afford to repay any money that they’re borrowing, and secondly, as a business that needs to make a profit, deciding whether it wants to give you and I a card.”