Friday, July 23, 2010

Banks Trying To Find A New Pound Of Flesh

Card issuers have long found their bread and butter in penalty fees and high interest rates paid by consumers who carry a balance. But that business model has been upended by the legions of consumers who were overwhelmed by debt when the recession hit, forcing the industry to write off billions of dollars in loans. In addition, new federal laws limit how much card companies can charge risky customers.

Now, frugal-minded consumers are charging less on their credit cards, paying down their balances and steering clear of penalty fees.  "The only true deadbeat customer is someone who has a card and never uses it," said Curtis Arnold, who runs the credit comparison site CardRatings.com. "Just having good credit alone in today's market is not enough for that customer to be profitable."

In a lawsuit filed last month, outdoor retailer Gander Mountain, based in Minnesota, claimed that its credit card partner, World Financial Network, was turning down shoppers with nearly perfect credit scores of 800 or above. Gander Mountain said the reason was that the issuer said it could not make money from those clients, which World Financial Network estimated as about a quarter of new applicants. That created "a negative customer experience" that could drive shoppers away, the suit said. Both Gander Mountain and the issuer's parent company, Alliance Data, declined to comment on the suit.

If you have outrage to spare, see the Wapo article for more details.

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