Banks have withdrawn from a popular credit card campaign because they fear that borrowers struggling during the coronavirus crisis may default on payments.
Balance transfer offers, which typically tempt borrowers to transfer their debts to a new lender for a temporary 0% interest rate, have been greatly reduced with knowledge of banks, such as JPMorgan Chase, Citigroup, Bank of America, Barclays and Capital One Affair in any company.
According to a company spokesman, American Express has taken the most drastic step and dropped the product completely.
"We currently do not offer credit transfers for all of our card products," said an American Express statement. "From time to time, we make adjustments to our offerings to ensure that we manage risk for our customers and the company in a responsible manner."
As the economy boomed, credit card companies fell over themselves to attract borrowers and their debts, and sent hundreds of millions of interest-free requests. Banks made money from transfer fees, typically around 3%, and started earning interest on debt after the promotional period, which typically takes six months to two years.
However, the banks were burned in the 2008 recession when, according to sources, the highest rates in the industry lagged users of credit transfers. Some theorized that borrowers took advantage of credit transfers after they were worried about their job security or even after losing their job, which put them at risk of late payment.
Now lenders are more selective about who to offer interest-free deals to, and prefer customers with higher credit scores and other benefits, people say. Over 40 million Americans have applied for unemployment benefits since the pandemic began.
At the same time, the industry has been lenient to many borrowers during the pandemic, avoiding late fees and interest for months. For many customers, these programs will end soon and it is an open question whether they will make payments again.
The irony is that while banks have never been so flush with deposits and have raised $ 2 trillion since February, they are pulling back from credit products they consider risky in their mortgage, auto, and credit card businesses.
The move in the industry robbed borrowers of one of the best ways to reduce credit card debt. When used properly, credit transfer cards can save thousands of dollars in interest payments over time.
Janette Scott, a retired accountant living in Florida, had planned to pay her daughter's school debt with balance transfers. Eight banks recently told her they no longer had them, Scott said in an interview. They had flooded them with offers just a few months earlier.
"I have an excellent credit rating, I am up to date with all my accounts and I pay the balance in full every month," said Scott. "It just doesn't make sense to me."