Reduced credit limits; Big Deal

After Citibank lowered my credit limit, I got to thinking. Citibank claims they mailed (the undated) notification on November 5th, but I received it on Nov. 26th, the day before Thanksgiving. Citibank e-mails me balance transfer offers, but they didn't e-mail me about changing my account terms. If I were a different consumer, this could have been disastrous. I had 3 weeks to unknowingly exceed my new, lower credit limit - racking up over-the-limit fees and falling into Universal Default. Most of my mail arrives within 3 days - why Citibank's notice took 21 days is sheer mystery. But that 21 day delay in notification effectively made the credit limit reduction retroactive - I found out about it on Nov. 26th, but it took effect 3 weeks before I knew anything about it.

Consider a consumer carrying a moderate $2,000 balance out of a $6,000 credit limit. If Citibank lowered his limit to $4,000 on November 5th and he bought 4 plane tickets on November 10th for a Thanksgiving trip, he could easily max out his card long before coming home to notification of the credit line decrease. Buying $2,000 plane tickets at 10% interest - suddenly becomes a major offense. By exceeding the new and unknown lower credit limit, he gets hit with $30 fees every month he's over his new credit line, and 29% interest rates eating up $100 a month before he can pay the balance down.

For some consumers, especially ones carrying a lot more than a $2,000 balance, going into Universal Default can push them over the edge, from struggling-but-making-it to "f- it, why bother paying my credit card when I cannot possibly get ahead of it at 30% interest?" A credit card holder who didn't buy a McMansion, who is trying to do the right thing, trying to pay down debt and build up savings and work up to a better spot in life, reads every day about homebuyers and bankers and brokers and insurance companies getting bailed out. No bailout for the credit card debtor, but she keeps making her payments, trying to whittle it down, and then WHOMP! Out of nowhere, the bank changes the rules and she's suddenly over her head without doing a damned thing to fall into the abyss. Why should she keep making payments anymore? Her share of the financial bailout - counting all the cash the Fed is pumping into liquidity along with the direct bailouts of financial institutions - is over $20k++ and suddenly the bank needs to cheat her out of an extra $100 a month by telling her extra slowly that her credit line has been cut right before the holidays.

Maybe our imaginary consumers shouldn't carry a balance at all. It would be good for our economy, in the long run, if people consumed a little less than they produce. We should all carry a balance - in our savings accounts. But we don't, and the path from here to that economic utopia will be painful for everyone. And if the banks' greed and stupidity pushes people into Universal Default and that causes some of them to go into genuine, not-making-payments default, well, gosh darn it, those bastards will be back for more bailout money next year. I don't object to lowering credit limits, and I only object to tightening credit in the sense that "hey, that's not why the government is giving you bailout money!" I object to the sleazy way the banks are doing this, trying to wrest a couple more nickels out of people through downright unethical behavior.

The government is trying to loosen credit and persuade consumers to go out and stimulate the economy. The banks receiving bailout money are doing the exact opposite - they're restricting credit availability to everyone, even great credit risks, and then they're whomping innocent consumers with changes that can push them over the edge. Are the credit card companies trying to push default rates up, to justify yet another round of bailout payments? What other justification could they possibly have for virtually retroactive account changes?