Credit Card Companies Targeting Struggling Mortgage Holders
As subprime borrowers began to default on their mortgages in rapidly growing numbers this year, credit card issuers increased their efforts to sign up such customers with tarnished financial histories, according to a market research firm.
Direct mail credit card offers to subprime customers in the United States jumped 41 percent in the first half of this year, compared with the first half in 2006, according to Mintel International Group. Direct mail offers targeted at customers with the best credit fell more than 13 percent.
As home values decline and lenders balk at writing subprime mortgages, these customers can no longer refinance and tap into home equity for cash. That leaves credit cards as their only option.
For credit card companies, the subprime market is a profitable one, analysts and consumer advocates say. Subprime customers, charged higher rates than those with better credit, are more likely to make minimum payments, maintaining balances that generate interest revenue for card issuers, consumer advocates said.
Credit card issuers have a successful record of managing the risk of lending to subprime customers, using sophisticated computer models to determine fees, interest rates, and lines of credit, industry analysts said.
September 30th, 2007 at 7:18 pm
[…] CC Blog has a brief rundown on credit card companies’ recent targeting of struggling homeowners as new customers. With the real estate market being what it is, credit card companies are pitching their products as a viable cash alternative. […]
October 10th, 2007 at 3:50 pm
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March 30th, 2008 at 9:12 am
It does seem like frankly unscrupulous behaviour by these companies. However no one is forcing these consumers to take out cards. Credit cards can provide a valuable way of managing short term cash flow and a great way to improve impaired history. Having said this lending money to people who frankly don’t have the organisation or resources to pay it back is what caused the crunch in the first place so maybe not as smart on the part of the issuers as it might seem.
April 8th, 2008 at 2:19 pm
It seems these credit card companies are continually advantage of the financially vulnerable - it’ concerning.
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November 10th, 2008 at 4:34 pm
Financial institutions spend millions lobbying congress for beneficial rules governing their business. With the massive chaos and ongoing bailout mess these last few months, I do hope we as a nation take this opportunity to re-focus laws and rules to help consumers, especially those preyed upon by the credit card companies.
As Lucy T points out, consumers need to be more aware, but disclosure should be MUCH more prominent. As it is, disclosures are hidden in the small print. As a quick example, a 0% intro balance transfer offer for 6 months that has a 3% fee, has an APR of at least 6%, much more if you have a late payment. Why not force advertisements to include the true APR, as is done for other loans? The reason is the lobbying issuers prevent this. We really need to change this.
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December 11th, 2008 at 11:19 am
[…] See the original post here: Credit Card Companies Targeting Struggling Mortgage Holders […]
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