MSE News: Card firms hiking credit limits of those struggling with debt...

MSE_Luke

One in five people with debt problems have had their credit card limit increased without requesting it...

Read the full story:
'Card firms hiking credit limits of those struggling with debt - what to do if your limit's increased'

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tastyhog

yawn, people are free to accept or decline a credit limit increase.

if you pay off your card and make payments, the company will see you as a better credit risk, so may increase your limit.

what an utter non issue.

chattychappy

Nobody forces you to spend up to the limit.

bigadaj

So four out of of have don't.

Would seem to be a poor commercial decision in any case.

eskbanker

Although I do agree with the above comments, I can also see the other side of the argument, in that the CAB research claims that "18% of struggling credit card users had their limit raised in the past year without requesting it, compared to 12% of all credit card holders".

Yes, it's undoubtedly up to individuals to manage their finances and nobody is forcing them to use more credit or even accept higher limits, but it's a valid point that those with the least ability to repay debt shouldn't be more likely to be offered limit increases, especially if the FCA have advised providers not to do so if cardholders are at "risk of financial difficulties". So, it doesn't seem unreasonable to me that there should be clearer guidance from the regulator about how and when card companies should determine ability to repay before offering more credit.

In other words, the fact that there is irresponsible borrowing doesn't negate the fact that there is (sometimes) irresponsible lending!

chattychappy

eskbanker wrote: »

"18% of struggling credit card users had their limit raised in the past year without requesting it, compared to 12% of all credit card holders".

I can understand that. Many credit card cardholders (me included) have limits well in excess of our needs, so don't get limit rises. On the other hand, when I first had credit cards, I had low limits and was frequently reaching them. I always paid on time, so often had limit rises. A few years ago I was playing the BT game and was running up huge balances. Again I began to get limit increases (MBNA from about £10K to £24K was one of the biggest, though not in one go). As far as I was concerned, this was planned and calculated. I'm sure some here would have thought that CCs were reckless to give me so much credit.

People that most look like they can handle a limit rise can look very similar to those that are struggling - hence the 12%/18% thing.

eskbanker wrote: »

In other words, the fact that there is irresponsible borrowing doesn't negate the fact that there is (sometimes) irresponsible lending!

True and your post is nicely balanced. Unfortunately the MSE article is completely focussed on the latter. This can only drive an expectation that if people obtain too much credit then it is the fault of the lender - and a new "misselling" scandal is born.

In terms of "irresponsible lending" I would say CCs cannot be expected to "guess" the state of their borrowers beyond the information they have to hand, beyond that it is up to the cardholder to opt-out, seek help, or simply not to take advantage of the extra limit. I would suggest the following situations would be "iresponsible" lending:

1) Very large increases (eg more than 50%).
2) Any increase where the customer has opted out or said they are in distress.
3) Any increase without a credit check* showing no missed payments in recent months.

*people might object to repeated checks, especially if they leave a "footprint". In my opinion the system needs reforming and I know some lenders do have some sort of live feed, but that's for another thread.

DaleHarries

There's been an explosion of debt happening for about 3 years now. First the PCP car finance ramped up, then last year the credit cards began.

We have a number of credit cards, all of them have seen increases in the past 6 months. Some of them, like the MBNA hadn't had an increase for many years, yet low and behold, was raised by about £4000.

All the card companies are trying to get new custom, and trying to up the limits on current customers at the moment. I know the Bank of England are trying to curb it, because they can see another 2008 happening again.

nic_c

chattychappy wrote: »

Nobody forces you to spend up to the limit.

True, and nobody forces the alcoholic to spend money on cheap cider rather than food for their kids.
Some people struggle with debt and will spend up to their limit to subsidise a lack of income or over expenditure. Increasing their limit will not help them at all.

Firms should not be allowed to offer increase limits that haven't been requested for customers with over 80% utilisation and only made minimum payments for at least half of the last years statements

badmemory

of course they are doing this. This is how they earn their money, by encouraging people to spend on a cc more than they can pay off each month so they can charge interest. If they can't charge enough interest then we go back to paying annual fees or the number of cc reduces until there are none.

Nebulous2

I never came close to my credit card limits, but kept getting increases. I also had over £20k from MBNA. That all stopped with the credit crunch and I had no increases at all for years. New cards were tending to come in around £7-8k instead of the £10k plus I was used to.

Then around late 2014 increases started again. Modest ones, 15% or so.

Late last year I went on a credit splurge to stooze. I got 2 money transfer cards and limits of over £10k from MBNA and Virgin. Unsurprisingly increases dried up. In fact I got my first ever decrease from TSB, removing any headroom in my account.

So my own anecdotal evidence is of loose credit, tightening substantially around 2008, then in the last 2-3 years loosening dramatically again.