Bloomberg Businessweek - USA (2020-01-27)

F I N A N C E

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BloombergBusinessweek January 27, 2020

Edited by

Pat Regnier ILLUSTRATION

BY

BR

ÁULIO

AMADO.

DATA:

EXPERIAN

● Credit card companies are

quietly raising limits on subprime

and “near-prime” borrowers

Resetting

The Debt

Tr a p

Richard Fairbank characterized the restraint this

showed as a radical theology, in part because it went

beyond post-crisis requirements, according to a per-

son with direct knowledge of the discussions. But

Capital One reversed course in 2018 after the bank

came under pressure to keep revenue growing.

The same reversal is playing out across U.S.

banking. The question is how it will end for lend-

ers and borrowers alike. Research shows many con-

sumers turn almost all those credit increases into

debt. “It’s like putting a sandwich in front of me,

and I haven’t eaten all day,” says D’Ante Jones, a

27-year-old rapper known as D. Maivia in Houston

who was close to hitting the ceiling on his Chase

Freedom card when JPMorgan Chase & Co. almost

doubled his spending limit a year ago without con-

sulting him. He soon borrowed more.

The banks say that the increases are good cus-

tomer service and cardholders can reverse them

at any time. JPMorgan says that fewer than 1% of

limit increases are reversed, and they’re granted

only to creditworthy customers with “strong repay-

ment patterns.” Capital One says it reviews factors

including payment history and debt-to-income

ratios before increasing credit limits.

Proactive credit line increases, known in the

industry as PCLIs, emerged in the 1990s but dwin-

dled after regulators clamped down on the practice

It might sound like a risky strategy at a time when

millions of Americans are drowning in debt: Keep

raising the limit on people’s credit cards, even if

theydon’task.Butthat’sexactlywhatbigbanks

havebeendoinglatelytoampuptheirprofits,

givingcustomersthepotentialtorackupeven

bigger monthly bills.

For years after the financial crisis, Capital One

Financial Corp. resisted that step for customers who

looked vulnerable to getting in over their heads.

In internal conversations, Chief Executive Officer