Chase vows to cut 15% of cardholders (soapbox on)

Now its official, having come out of the mouth of JP Morgan Chase CEO Jamie Dimon:  Chase says that it is going to cut 15% of its cardholders off completely and close their accounts.  Why?  He claims that the new legislation makes those customers too risky because they can’t make adjustments over time as the customer’s risk profile changes.

I’ve read the new rules.  There are still plenty of opportunities to jack up rates, so I’m not sure what he is talking about.

Quite a while back in one of my posts I questioned whether it was that certain customers that were inherently risky, or getting their rates jacked WAY up caused them to become more risky?  If someone is current on their account but the bank determines they are too risky so they jack their rate from 13% to 29%, and the customer can no longer afford the minimum payment, who’s fault is that?

I read an article back in 2008 (I wish I could find it again) about a community bank in Florida that offered the same rate to prime borrowers with good credit and sub-prime borrowers with not-so-good credit.  It was a reasonable and relatively low rate.  As the rates for sub-prime borrowers nation-wide was heading through the roof at that time, this particular banks rates of default among both types of borrowers was the same.

The bottom line is that banks like Chase jack up card rates because they can and because they think they will make more money that way, and they have for years.  That card issuers are losing money on their credit card portfolios now is in my opinion highly related to the fact that they jacked peoples rates so high they can’t afford them.  Sure, offering way too much credit to some people that they shouldn’t have contributed as well, but I can’t help but wonder how many of the people in default on their credit cards wouldn’t be if they didn’t have the incredibly high interest rate and all the late and other fees.

(soapbox off)

1 Comment

  • By coakl, January 10, 2011 @ 6:14 pm

    The minimum FICO score for a WaMu card was 620. That’s far below Chase’s minimum standards. WaMu also had alot of cardholders carried over from its Providian acquisition (God knows how low of a FICO score Providian accepted).

    From Chase’s point of view, every WaMu cardholder is suspect.

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