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Banks Write Consumers Off Without Notice

By Faye Mergel
Published: Thursday, November 19th, 2009

Rick Niles was on his way home from work last week when he stopped at a gas station to fill up. As usual, he pulled out his Shell card and handed it over to the attendant. It did not work. The 40-year old aerospace engineer thought that there was a problem with the filling station but days later, he learned the truth.

His card issuer, Citi, cancelled his two-year old card account with no warning, even though Niles said he pays off its balance each month and has very few negative items in his credit report.

Having one card removed from a credit report does not really help a consumer with his score but many are left with no choice. The banks themselves are the ones writing clients off, with no plans of keeping those who are considered to be at high risks for default or those they cannot get much profit from.

Experts say the cancellation merely highlights the loopholes in the new federal regulations that govern card issuers. Congress has recently required banks to inform consumers 45 days in advance before changing their interest rates or other significant terms but it has not passed a law the will prohibit them from closing accounts without any warning.

Closing accounts without informing cardholders beforehand has long been practiced by banks and they express no plan in doing otherwise. Creditors argued that if they inform a consumer that his account will soon be written off, he would run up all his balances while he still has his card and will leave banks on a very precarious situation where they would have to look for more money.

According to finance analysts, US Congress overlooked reforming the cancellation practices of banks since not too many banks were closing accounts as the new credit reforms were made.

Consumer advocacy groups are receiving many complaints because of abrupt cancellation, remarking that the last few months saw the most number of cancelled accounts for several years. Advocates express worry over consumers whose ratings are expected to suffer as their cards are closed. Debt-to-credit ratio is an important item in a credit report and can significantly go up when a card is cancelled.

Closed accounts are also recorded in a credit report and will make it more difficult for consumers to get excellent loan deals since lenders treat those items negatively.

Citi refused to give details on the closures but announced that those are part of their periodic adjustments to meet the needs of their retailing partners.

However, specialists still doubt the motives of the creditor since has closed a huge number accounts all at the same time.

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