11/11/2008

Let's Become a Bank So That We, Too, Can Participate in the Bailout!

Recently I talked here on my blog about credit limits being reduced, first with HELOC's, then credit cards. Well it appears that the media, a little late to the party, are now beginning to report on this.

Some media reports are now saying that there are a couple of criteria that some banks are using. For example, if you live in an area hit hard by real estate value drops, chances are your limits are going to be reduced. You could always have paid all your bills on time, have had the accounts for years and you can still find you credit lines reduced. It also appears that if you’re in a category where others are defaulting you will be affected, regardless of your personal history and payment record...so if the percentage of females age 20 - 29 defaulting on credit cards is going up, if you’re a female age 20 - 29 your credit card limits will be cut.

And think about this. If someone had a credit card with a $15K line with WaMu and also one with a $15K line with Chase the risk would have been distributed. Now that the banks are one and the same I would think the exposure of $30K would make Chase more aggressive about either closing one or at least reducing the credit lines wherever possible; after all, Chase would have qualified the card holder for a $15K line, not a $30K line.

In my personal experience some are just looking at the total credit line and comparing it to the outstanding balance and cutting the credit limit back to that. It's obviously what they did when they cut one of my credit card lines by only $1,240! American Express is really coming down hard with this; they reduced my credit line, and the lines of several people I know.

BTW, maybe American Express' strong-arm approach is because today they just got the OK to be a bank? Different guidelines to meet? http://www.bloomberg.com

From the news story: "New York-based American Express said last month that credit-card holders failed to repay loans in the third quarter at almost twice the rate of a year earlier." And it seems that by becoming a bank "American Express, the largest U.S. credit-card company by purchases, joins securities firms Goldman Sachs Group Inc. and Morgan Stanley in gaining "increased liquidity support'' as part of a $700 billion bailout of the banking system. American Express said its conversion won't require "significant divestitures.''

So...now we just have to figure out how to become a bank so WE can participate in the $700 billion bailout!

1 comment:

Gavin S said...

Ha! You're funny. Yeah it would be nice to get that status and take advantage of gov't investment. Of course the "bailout" is supposed to focus on those banks that can more-or-less prove that the investment will yield a return for the taxpayers in time. AMex may not fit that description.

I doubt the move from credit card bank to real bank (holding company) will do much for American Express. AMex doesn’t really have any branches to help it expand its services or take advantage of bank products that aren't struggling. In fact, it draws much of its income from repackaging and selling the balances that customers agreed to pay off when they signed the contract. As they cut customers available balances, they cut the potential of these packages' sale value. This is also an area of investment which probably has the least amount of positive attention from investors right now. Few people are interested in buying debt. Sorry AMex; it may be curtains for ya! What AMex does have going for it, is its history of willingness to sign with only the most worthy customers. Even AMex is feeling the crunch but, compared to most credit card-focused lenders, it serves people more likely to keep their bill in good standing.