Egg Set to Cancel Credit Cards of Risky Customers
Recent action taken by Egg to withdraw credit cards from customers they consider 'too risky' has caused quite a stir since the decision was announced.
Egg, which was bought by US-based Citigroup last year for £575m, has decided it no longer wishes to lend money to people they consider pose an unacceptable 'high risk'. This decision comes after a one-off review was carried out revealing some 7% of Egg customers had allowed their credit profiles to deteriorate since signing up with an Egg credit card.
It is estimated that up to 161,000 cards will stop working in 35 days time for those considered high risk upon receipt of a letter, which will also provide details on how to appeal against the decision. Those affected will be permitted to continue making monthly repayments on their balances but further spending will be terminated after the 35 day deadline. The bank has made it clear that it is in no way demanding immediate repayment of balances in part or full nor will it make any changes to customer’s current interest rates or terms and conditions.
The anger mounting from existing Egg customers appears to be coming from those claiming to be on the hit-list but stating that they hold good credit records and pay off their balances on time and in full each and every month. This has therefore caused the Financial Services Authority (FSA) to get involved and initiate investigations.
Customers included on the hit-list are thought to be those who have either missed monthly repayments or who have exceeded their credit limit.
In a statement made on behalf of the bank, the spokesperson said: "We are sorry some customers are upset after receiving notification we are ending their credit card arrangement, but they are people we do not feel it is appropriate to lend any money to."
Egg maintains that despite some people being up-to-date with their repayments, they are nevertheless people they no longer wish to lend money to regardless of their status.
This action taken by Egg has been branded by former deputy leader of the House of Commons, Nigel Griffiths, as 'unacceptable'. Meanwhile Angela Knight, chief executive of the British Bankers Association, said in a contrary statement that Egg's action was "a sensible way of looking after business".
Those customers who will have their Egg credit card accounts closed should not however be in fear that it will affect their credit scoring. Since credit reports only show details of balances either outstanding or settled, any data passed on by Egg would simply reflect this. Naturally each individual lender sets its own criteria on what it considers both positive and negative, but by having fewer credit cards on record or an account that has been settled can only work in one's favour.
Despite the mixed reception this recent move by Egg has received, it would appear that the bank is purely following suit in today's tightening credit market, where restrictive lending criteria has now become common practise.
Therefore, by refusing applications from potentially high risk customers, or controlling existing customers' spending habits by canceling their accounts, it is perhaps the way forward in preventing people from getting into financial difficulties as a result of over spending.
Published on February 4, 2008
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