Credit card limit shrinks on customers

March 25, 2009 6:44:35 PM PDT
We've been reporting on how credit card interest rates are suddenly going up. Check your bill-- there's a good chance it's happened to you. Regardless, that's not the only problem card-holders are facing these days.

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Do you know what the credit limit is on your credit card? Lots of people have a vague idea, that is until the bank suddenly cuts our credit limit way down. That's happening to more and more to people these days and for one couple it came as a real shock.

Ann and Salvador Morales always spend modestly, pay bills on time, and save for a rainy day. Good thing because here it is, a rainy day.

"This was a big mystery out of nowhere and we were really blindsided," said Salvador.

In 50-plus years of marriage they've only used one credit card at a time. Currently, they have a Mastercard from HSBC bank, but one day Salvador got a big surprise when he went to Trader Joe's.

"The checkout and ran my card through the machine and it came up something to the effect of being rejected. I said 'There must be some mistake,'" said Salvador.

So Ann called the bank and got the shocking news. HSBC had cut their $7,900 credit limit to just $370 -- which happened to be the exact balance on the account.

"I'm saying we can't do anything with $400, it's not going to take care of us or our needs," said Ann.

"I was stunned that I couldn't use that card anymore," said Salvador.

Two weeks later they got it in writing. HSBC said their credit limit was reduced because they fell into a certain "class of accounts." No further explanation. Sal says it would have been nice to get a little warning.

"Heaven forbid we could have been someplace in Europe. What were we going to do for that two weeks, sit in jail you know?" said Salvador.

And all of a sudden, it became a real problem just to make routine purchases and reservations.

"The other day I booked a flight and I booked through a friend and I said 'Oh wait we can't book that yet because we can't put it on the Mastercard,'" said Ann.

Stanford University Economics Professor John Shoven, Ph.D., says it's no surprise. These days a credit card is considered a risky loan, even to good customers.

"They may have used it to put gas in the tank, or buy their socks, or eating at McDonald's or wherever they ate. So you have no collateral, nothing backing that loan other than the promise to pay it and default rates are now quite high," said Shoven.

HSBC has struggled like other banks. Its stock plunged from $85 a share in September to $28 this week. But the Moraleses say they aren't to blame and they need a card that works. So they called 7 On Your Side, who contacted HSBC.

The bank said in part, "To reduce credit risk and refine strategies, we have tightened credit standards, reduced or canceled higher risk credit lines, and closed a number of inactive accounts."

But HSBC also reviewed the Morales' case and within days, the bank did restore their full, $7,900 credit limit.

"They were sorry for any inconvenience," said Ann. "And we were all best friends again."

"I won't have to worry about being thrown out of the grocery store," said Salvador.

"Worked out super. Thank you so much," said Ann.

It is legal for a credit card company to reduce your limit at any time. However, in so many cases, a reduction in your credit limit has been decided by a computer. So it never hurts to call and ask your bank to restore your full limit, especially knowing that reducing your credit line can hurt your credit score.

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