Stand by for some massive back lash?

Anger at Egg ban on prudent customers

Hundreds claim credit cards were axed because they make no money for firm
Nick Mathiason and Jill Insley
The Observer, Sunday February 3 2008
This article appeared in the Observer on Sunday February 03 2008 on p6 of the News section. It was last updated at 01:15 on February 03 2008.

Senior MPs are demanding an Office of Fair Trading investigation into greedy banks after Egg's decision to ban 160,000 customers from using their credit cards dramatically backfired.

Egg's move was initially interpreted as a prudent decision to curb overspending in the light of worsening economic conditions. But hundreds of customers have bombarded internet message boards complaining that they are not 'high risk' but settle their debts every month and incur no banking charges. They claim they are being axed because they do not make any money for Egg, recently taken over by US giant Citigroup.

The revelations created a storm of protest, with MPs demanding an investigation amid concerns that banks prefer debt-prone customers who are more likely to run up high bank charges.

John McFall, chairman of the powerful Treasury Select Committee, said: 'The motives of Egg need clear explanation if this a case of them ditching long-standing creditworthy customers because they make no money out of them. Perhaps this is an issue that requires an Office of Fair Trading investigation.'

Last October The Observer revealed how consumers with blameless credit ratings are being refused credit cards and consumer groups report that the practice is spreading.

Peter Thornton, a Liberal Democrat councillor in the Lake District, has been an Egg customer for over five years. He received a letter terminating his credit card on Friday. He said: 'This is more than an amazing PR blunder. There's a huge amount of people in my position. I'm on a lower interest rate because presumably they've assessed me as a good risk. Every business would benefit from losing 10 per cent of the least profitable customers, but the rest of us realise we can't do that because it would be a PR disaster. They're on the radio saying it's just bad risk people they're getting rid of. I feel slandered by that.'

Tim Farron, a Liberal Democrat MP, said: 'What this says about the irresponsible lending culture is horrific. An OFT inquiry would be sensible and overdue.'

Egg was bought last May, just before the credit crunch gripped the world, by Citigroup for 575m. A spokesman said that after buying the bank Citigroup reviewed its customer base to assess its credit worthiness. 'We are sorry and can understand that customers receiving letters are hurt and upset by this, but we stand by our decision. I'm confident the review undertaken was done in the best way possible and was effective in its findings. We are not getting rid of customers who don't make us money.' But he ruled out the prospect of axed customers with decent credit ratings getting new cards if they are found to be low risk.

A senior executive with a rival bank said: 'They're saying they're culling people because they've got poor credit history, but that's not what they're doing; that seems duplicitous.' But he added that Egg is recognised in the banking world as having a large number of customers with high debt.

A spokesman for the British Bankers' Association said: 'It's conceivable that with that number of people there are some who have been wrongly contacted. Anyone who believes this should contact Egg.'

Source: http://www.people.co.uk

3 1/2 MILLION FACING CREDIT CARD CRUNCH

EXCLUSIVE Egg block on 'risky' customers.. other lenders will follow AXE IF YOU DON'T PAY, BUST LIMIT OR DRAW OUT CASH
By Tom Latchem

Around three and a half million Britons face being BANNED from using credit cards in a savage customer cull by worried lenders.

Internet card provider EGG revealed it is to freeze spending for 161,000 "risky" customers - and experts warned that other firms are set to follow the lead.

The People has also learned that a curb on would-be borrowers is ALREADY underway, with firms quietly introducing far tougher lending criteria in the past 18 months.

HSBC has dramatically increased the number of people it turns away for a card, from one in three to almost half.

Lloyds TSB has tightened up rules on who gets cards. And BARCLAYCARD has barred high-risk customers from making cashpoint withdrawals.

Andrew Hagger of advice service Moneyfacts.co.uk expects many major lenders to freeze spending by customers who ignore personal limits and repeatedly fail to make minimum monthly payments.

Last night he warned that up to ten per cent of Britain's 35 million cardholders face bans.

Mr Hagger said: "This could affect millions of people. Egg are just the first bank to come out publicly and say they are stopping customer spending.

"It is very brave of Egg. They are trying to protect against bad debts. I can see other providers stopping people's cards.

"Lenders will now look much more closely for signs of problems - such as people with drawing cash on their cards, indicating they are using them to fund day-to-day expenses.

"And we have seen more customers turned down for credit cards in the last 12 to 18 months.

"Lenders have started tightening their credit scoring. Barclays have been turning away about half their applications.

"Banks want to reduce the amount of bad debt they are forced to write off."

But Lib Dem shadow treasury minister Vince Cable slammed firms for luring people with interest-free deals, then snatching away their credit.

He said: "Some of those who aggressively promoted lending over the past few years without warnings of the risks are the same companies now pulling back from the market, leaving their borrowers in the lurch.

"When the lending boom was in full swing they were shoving cards down people's throats."

Egg customers began receiving letters yesterday informing them that their cards will stop working at the end of a 35-day notice period.

Seven per cent of customers will have their cards stopped. It follows Egg's 575million purchase by US-based Citigroup last year. Egg said it had taken the move to insure against customers with a "higher than acceptable risk profile".

A spokesman added: "The credit profiles of affected customers deteriorated between the time they joined Egg and the acquisition.

"The decision to end these customer agreements was taken after a one-off, extensive risk review."

But some fuming customers hit by the freeze questioned how they could be termed risks. Writing on an internet forum, Adrian of Leicester, said: "I have never missed a payment and have 10,000 in Egg savings accounts.

"I have 46 on my Egg card. I feel incredibly offended."

Barry, from Swindon, Wilts, added: "I have never exceeded my credit limit and always pay the balance off in full."

And Dave Ware, of Herts, added: "I owe nothing and my card hasn't been used in six months. Customers are being ditched because they're not making Egg enough money."

The Citizens Advice Bureau was dismayed at hard-up people's credit being axed at such short notice.

A spokesman said: "We appreciate efforts to help stop people getting into debt. But to cut off somebody's lifeline like this does not seem the most sensible option."

The People's money editor Simon Read said Britons were feeling the pinch from flagging world money markets.

He added: "Lenders want to protect their profits. But customers will be thrown into financial turmoil. It's a shame they have to pay for world banking cock-ups."

Angela Knight, of the British Bankers Association, said: "Credit conditions have been tightened. It may seem hard to tell people, 'You must stop spending' but it makes sense."

Egg's spokesman added: "Customers will not be able to use their credit card once the notice period has ended.

"They can pay at least the minimum monthly repayment, continue with their current payment arrangement or pay their balance in full."