The credit card party is officially over

By Liz Pulliam Weston

The notice would have been easy to dismiss as junk mail, since Bank of America's name wasn't on the envelope. But former banker LaShana Jefferson of Portsmouth, Va., recognized the return address as a Bank of America processing center, so she took the time to open the letter.

Inside, she found a notice that the 8.79% interest rate on her credit card was about to soar to 24.99%. At first she thought there was a mistake.

"I've never paid late. I haven't opened any new accounts or made any big purchases," said Jefferson, who used to be a project manager in Bank of America's government-cards division and says her credit scores are in the mid-700s. "There's nothing adverse that would explain this."

• Talk back: Has your card company jacked up your rate?

Jefferson didn't realize at the time that she was among a fleet of Bank of America customers whose rates had been jacked up recently as the lender, along with other credit card issuers, struggles with higher delinquencies and fallout from the credit crunch.

The new world of not-so-EZ credit

Bank of America customers haven't been the only ones affected. Issuers that last year ravenously pursued folks with troubled credit and proffered 0% rates to people with good credit have made abrupt changes in course, including:

• Sharply raising rates and lowering credit limits for customers with no obvious blotches on their credit.

• Making balance-transfer offers less generous, with higher rates, shorter terms and bigger fees.

• Shutting down accounts that haven't been regularly or recently used.

• Throttling back direct-mail solicitations and becoming pickier about extending credit.

Direct-mail solicitations for credit cards dropped 14% in the fourth quarter of 2007, according to research firm Synovate. Washington Mutual trimmed its mailings by 73% from a year earlier, and Citibank cut back by 52%.

WaMu and HSBC, which cut its mailings by 34%, were once among the most aggressive pursuers of subprime borrowers, said Andrew Davidson, the vice president of competitive tracking services for Synovate's financial-services group. Discover, which trimmed solicitations by 50%, and Citi suffered setbacks because of the subprime-mortgage crisis.

Healthy and determined to stay that way

Credit card issuers aren't experiencing the same meltdown that afflicted the mortgage market, however. For example:

• Delinquencies (accounts paid late) and charge-offs (accounts written off as uncollectible) are below long-term averages, according to Moody's research.

• Credit card issuers are still able to package and sell their debt to investors. In fact, Moody's reported that card issuers set a record in 2007 for such sales of asset-backed securities.

And not all issuers are trimming their sails. Chase, which had less exposure than many of its competitors to subprime-market losses, has stepped up its solicitations dramatically, mailing out 62% more offers in 2007's fourth quarter than it did a year earlier. One out of four offers received by the average household at the end of last year, Davidson said, came from Chase.

Even that company has tweaked its approach, however. Chase has cut back on low-rate offers made to "gamers," those folks who routinely bounce balances from one low-rate card to the next.

In the words of Chase spokeswoman Megan Stinson, the issuer is "targeting special offers to individuals who are more likely to be engaged customers with us."

In fact, getting a sweet low-rate balance-transfer offer is getting tougher all around as issuers tighten up. Offers under 4% still exist, said Curtis Arnold of CardRatings.com, but may last for only a few months or come with fees that have high or nonexistent caps. That contrasts sharply with the "fee-free, 0% for the life of the balance" offers that once were prevalent, he said.

Issuers are also boosting the credit scores needed for their better offers, Arnold said, as well as closing unused accounts and lowering credit limits for borrowers deemed to be higher risk.

The squeeze is on

Many of these changes are designed, Arnold said, to slide under the radar of customers and regulators. Lower limits, for example, are less likely to prompt outrage than shutting an active account entirely.

"They want to squeeze folks as much as they can without making them so mad they write to their congressman," Arnold said. "Credit card companies are under the gun right now."

Continued: Congress steps in

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