Credit limit lowered. Why?

seasnake100

My Husband and I have a joint Lloyds credit card which is in his name and he has had for 15+ years. We do rarely use it and have always paid the balance off in full when we get the bill. He also has 2 other credit cards, again used only occasionally and paid off in full.
He had a letter yesterday from Lloyds saying "we regularly check our customer's credit card accounts to make sue we're offering you the best service. We've noticed that you haven't used your full credit limit so we're going to reduce this.." and basically they have cut the limit by a third, "so it's more in keeping with how you use your account". Then it rambles on about phoning them to let them know if we don't want limit to change and then it won't.
We don't understand why send this letter? Nothing has changed, we are still good for the momey. Is this just a ploy to get him to phone them? Someone rang from the bank the other day trying to get him to go in and discuss better account types.
Yes we don't really need the higher limit but this card has the highest limit on it over the other ones, so on the very rare times that we may need it, this would be the card we would choose to use.
We don't get what's in it for them or how this "offers us the best service"?

InsideInsurance

The available credit banks are offering people, as well as how much is actually being used, has a significant impact on banks, the capital they must hold, their bad debt provisions etc. As money gets tighter it isnt surprising to see banks cut limits either due to concerns or simply due to under use so they can maximise the profits they can make from their facilities.

That or its just a ploy to get you to call so they can try and flog you other products/ services

sharpy2010

I used to believe the following: Lets say that a bank has £1000 that it can lend out. This means that they could lend 2 people £500, or 10 people £100, i.e. they have to keep within the £1000 that they have in reserve to lend out.

WRONG!

The banks have UNLIMITED money that they can lend out, and this is done by fractional reserve banking.

So they do not need to lower one persons limit on their credit card in order to allow someone else to have a higher limit. They could increase every single customers credit limit to £25,000 (as an example) and it would not cause the banks any problems at all.

somethingcorporate

sharpy2010 wrote: »

I used to believe the following: Lets say that a bank has £1000 that it can lend out. This means that they could lend 2 people £500, or 10 people £100, i.e. they have to keep within the £1000 that they have in reserve to lend out.

WRONG!

The banks have UNLIMITED money that they can lend out, and this is done by fractional reserve banking.

So they do not need to lower one persons limit on their credit card in order to allow someone else to have a higher limit. They could increase every single customers credit limit to £25,000 (as an example) and it would not cause the banks any problems at all.

Except now there is a whole bunch of rules around how much capital a bank needs to hold in relation to the amount that it has lent out.

InsideInsurance

LOL, they have never had UNLIMITED money.... why would LIBOR exist for banks to borrow money if they have UNLIMITED money? Imagine a few Barclay's bosses would wish it were true that they did!

It is true that a bank doesn't have to have the same amount in the vault as the amount they lend out to others but the capital reserve model does factor both debts and available credit

sharpy2010

somethingcorporate wrote: »

Except now there is a whole bunch of rules around how much capital a bank needs to hold in relation to the amount that it has lent out.

True. Don't forget though, the bank merely has to reinvest cash with itself to generate more "capital", then they can generate even more non-existant money.

Where theres a way round rules, a bank will find it!

pheonixrising21

seasnake100 wrote: »

My Husband and I have a joint Lloyds credit card which is in his name and he has had for 15+ years. We do rarely use it and have always paid the balance off in full when we get the bill. He also has 2 other credit cards, again used only occasionally and paid off in full.
He had a letter yesterday from Lloyds saying "we regularly check our customer's credit card accounts to make sue we're offering you the best service. We've noticed that you haven't used your full credit limit so we're going to reduce this.." and basically they have cut the limit by a third, "so it's more in keeping with how you use your account". Then it rambles on about phoning them to let them know if we don't want limit to change and then it won't.
We don't understand why send this letter? Nothing has changed, we are still good for the momey. Is this just a ploy to get him to phone them? Someone rang from the bank the other day trying to get him to go in and discuss better account types.
Yes we don't really need the higher limit but this card has the highest limit on it over the other ones, so on the very rare times that we may need it, this would be the card we would choose to use.
We don't get what's in it for them or how this "offers us the best service"?

Am I missing something here? I must be, as I completely fail to see any issue here. You say yourself that you pay off in full each month and rarely use the card (or any of your cards). Lloyds say that you have never used your full limit and you haven't denied this. They have offered to keep the limit the same if you call them and ask for it.

Lets say you have a limit of £7.5k and the most you have ever used is £2k. Why would you need a limit of more than £5k?

Sure, its probably a ploy to get you to call them so they can sell you something. But then if they called you to sell you something, you might complain about that instead. Anyway, if you did call them, whats the worst that could happen? They offer you something and you politely decline. Best situation is that you get a 0% on purchases for 6 months offer or something like that.

If its such an issue call them and get them to maintain the limit. or if you have really gone off them now, call one of your other providers and ask for a limit raise there instead. Lloyds have reduced your available credit, so this has a higher chance of being possible now. They may actually have done you a favour!

sharpy2010

InsideInsurance wrote: »

LOL, they have never had UNLIMITED money.... why would LIBOR exist for banks to borrow money if they have UNLIMITED money? Imagine a few Barclay's bosses would wish it were true that they did!

It is true that a bank doesn't have to have the same amount in the vault as the amount they lend out to others but the capital reserve model does factor both debts and available credit

Ok perhaps I went over the top in my description, but the banks do certainly create money out of nothing.

somethingcorporate

No doubt if they can find a way around it they will.

InsideInsurance

It is scary how the system works but no they cannot invest the money back in themselves either, reserved capital has to be in an exceptionally liquid form.

Certainly the extra capital they'd have to hold for someone having an extra £4,000 credit limit is very small but times that by a few hundred thousand customers and it starts to add up to something which the investment income from actually being able to be free to use it does make a difference.

That said, it can still just be a ploy to get a marketing opportunity.

GazHatesBanks

sharpy2010 wrote: »

So they do not need to lower one persons limit on their credit card in order to allow someone else to have a higher limit. They could increase every single customers credit limit to £25,000 (as an example) and it would not cause the banks any problems at all.

It would if every customer spent up to the limit very quickly and didn't pay it back!