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UNTIL recently, banks would fight fiercely to sign up more and more credit card customers. Now they are closing accounts.
In a sign that the credit crunch is spreading to credit card providers, British Internet bank Egg took a drastic step last Saturday to limit its risk of exposure to potential bad debt defaults.
It banned 161,000 of its credit card customers from being able to use their credit cards for new transactions. Their accounts were left open only for the repayment of outstanding balances.
Egg, which was bought by Citigroup last year, says its action was the result of a one-off credit-risk review. But angry customers responded with tens of thousands of Internet posts, insisting that they cleared their balances on time.
They and others suspect they are being dumped because they are not profitable.
Egg insists this is not the case. But its decision to tell 161,000 customers they were no longer wanted has highlighted changes hitting the wider credit card industry, said Britain's The Independent newspaper.
Egg's mass closure of accounts - the 161,000 cards represent 7 per cent of its customer base - underlines the severity of the credit crunch, and how it is affecting the man in the street.
In the United States, over the last three months, Americans have found it increasingly hard to get loans, especially mortgages, as banks tighten their lending criteria, the US Federal Reserve has reported.
Reuters, in a quick check with the other main credit card companies in the British credit card market - Barclaycard, MBNA, Halifax and Capital One - did not uncover any other plans to mass-close accounts.
A recent poll by personal finance website Fool.co.uk, found that one in 100 cardholders have had their cards cancelled, and lenders are continuing to tighten their lending criteria for riskier customers.
Analysts, commenting on Egg's action, said card issuers are moving to limit risk in advance of a likely sharp economic slowdown which will hit holders of unsecured debt - like those of credit cards - hard.
Tight money market credit conditions have also made financing of customer credit lines increasingly difficult, as sources of cheap credit disappear and commercial banks become reluctant to increase risks by lending to other banks.
Egg, facing financial pressure, is no longer willing to hold on to customers that clear their balance in full each month and therefore do not generate any interest payment earnings for the bank, wrote Mr Nadeem Walayat, editor of The Market Oracle, an online financial publication.
The customers most likely to have been targeted by Egg were those aged between 35 and 49 and home owners, and Egg may well have hoped to push them away from unsecured lending such as credit cards, and persuade them to take out secured loans on their homes instead - which are safer for the bank to hold, said Fool.co.uk.
'Indeed, infuriating as this may be for many of Egg's responsible customers, it seems that this may be the tip of the iceberg with other banks watching the response and waiting to follow suit,' it added.
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