Credit Line Cuts Could Backfire

Credit Line Cuts Could Boomerang - 12.29.2008 - American Banker Article

Credit line reductions, account repricing, and other steps that card issuers are taking to control risk could soon start causing their customers to do something many homeowners did this year: walk away from their obligations.

In the past month current and former industry executives and observers have raised concerns that prevalent risk management tactics may spur such behavior — even among customers who still have the capacity to pay.

For example, some observers said aggressive repricing could lead to a spike in "bust-outs" — when cardholders decide to run up as large a balance as possible before abandoning the account. In the past, bust-outs have typically been perpetrated by fraudsters who always planned to default, but they may soon become more common among regular consumers who obtained their cards in earnest, these observers said...

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