Be Careful What You Ask For As Banks Increase Credit Lines
- Banks increased credit lines for about 4 percent of cards in each quarter of 2018
- 27 percent of Black households are late on paying their debts
Banks love to collect interest so they’ve been increasing customers’ credit limits, even without them asking for it. In the new golden age of plastic, more people are getting unsolicited access to additional credit from U.S. banks, putting even more pressure on Black households as more than 27 percent of them are late on paying their debts. As a country overrun by consumer debt, increased credit limits could be looming as the next major financial crisis.
Why This Matters: Credit card issuers have contingent liability for $4 trillion. That is almost four times the volume of outstanding debt in the U.S. This number heavily impacts people of color as Prosperity Now found in 2019, the Black median debt was about $30,800, compared to the White median debt of around $73,800. It’s all smoke and mirrors with these banks as credit limit increases are often touted as one way to help boost your credit score.
Credit card borrowing is now at a record of $880 billion as of September 2019
Credit cards have historically been banks’ highest-yielding loans. U.S. issuers pulled in $179 billion from interest and fees. For example, Capital One (COF -1.66 percent), known for its “What’s in Your Wallet?” slogan had revenues that reached record highs last year. At JPMorgan (JPM -0.32 percent) the company claims less than 1 percent of credit card increases are reversed by customers. This helped the company reach $36.4 in net income during 2019.
Herein lies the major problem attached to a higher credit limit, generally the amount of credit a person uses and the credit card debt they carry increases in tandem, according to CNBC. However, sometimes a higher limit can be necessary for some people to make ends meet. Credit card borrowing is now at a record of $880 billion as of September 2019. This makes it higher than its pre-crisis peak, according to the New York Fed’s consumer credit panel.
Situational Awareness: If the idea of banks offering people access to more credit than they have asked for, is very reminiscent of the housing crisis in the 2000s you would be right. Black homeowners were victims of predatory banking practices in the years leading up to the 2007 financial crisis. These home buyers were offered subprime loans, the same type that caused the housing crisis and in turn lost their homes at alarming rates. Since 2001, black homeownership has declined 5 percent, compared to 1 percent for white families and 0.2 percent for Hispanic families.
CBx Vibe: “Credit” Ty Dolla $ign