During their quarterly earnings call Thursday, Discover stated that they will seek to reduce balance transfers by 75%. In other words, Discover no longer wants to loan money to consumers with credit card debt at low rates. Over the past twelve months, Discover has sharply reduced the length of 0% offers for balance transfers and purchases from the previous industry standard of 1 year to around 6 months.
Discover’s decision to effectively pull out of the balance transfer business will likely be followed by more and more credit card companies. With consumer credit card defaults at all time highs, there truly is no incentive for banks to risk losing money by luring in new customers with low interest rates, especially on balance transfers.
Discover’s decision to get as far away from the balance transfer market as possible comes at a time when more and more companies are increasing balance transfer fees and cutting down on balance transfer 0% introductory periods. For the past eight months, companies have been increasing credit score requirements and decreasing initial credit limits to consumers seeking balance transfers.
During these same eight months, more and more consumers have come to need balance transfers to fight off interest rate increases and credit limit cuts. Unfortunately, new credit card laws restricting how credit card companies do business have taken away many of their revenue streams. This, in turn, as led to a greater reluctance to lend to consumers, especially those who are already indebted.
Unfortunately, this blogger has been sounding the balance transfer alarm for months. Although I often enjoy being correct, I was hoping to be wrong on this front. Unfortunately, it is looking more and more like 0% balance transfers will soon become another victim of the credit crunch-at exactly the time consumers need them most.
June 25th, 2009 at 11:22 am
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