Egg Withdraws Credit Cards from Risky Customers

Internet bank Egg is going to withdraw credit cards from 160,000 high-risk customers. The bank has begun sending out warning letters. Egg informs the customers that their credit cards will stop working in 35 days. The cardholders will not be able to spend any more on their credit cards after the deadline, but they will be able to continue recovering their debts on the credit cards.

A bank spokesperson said that the account deletions were a result of "declining credit scores". The bank does not consider that it is appropriate to lend money to people with higher than acceptable risk.

High-risk customers typically mean people who exceed their credit limit or go delinquent on minimum payments. However, some people who have gotten the warning letter insist that they have excellent credit and repay their balance in full every month.They guess that Egg wants to free itself of them because it doesn't benefit from their well-considered credit management.

The decision to withdraw credit cards is not a consequence of the credit crunch. It results from an extensive credit review of the credit card holders which was made after Citigroup Inc. bought Egg last year. The move will affect approximately 7% of Egg's 2.2 million credit card holders.

Some financial experts think that Egg's move is a smart way of running business. It is important to keep in mind that a bank is commercial organization that is targeted to make profit.

Withdrawal of credit cards from risky customers is the first such action taken by a UK credit card issuer. It is rumored that there is a possibility that more banks will follow suit.

Egg is reported to have been flooded with complaints. A bank spokesperson said they feel sorry that some customers are disappointed after receiving the warning letters. Egg promises to enable customers to file an appeal against the decision.

Some credit card holders worry that their ability to apply for beneficial credit cards with low APR in the future will be harmed. Credit bureau Experian said they should not bother that they may end up with lower credit score. When they pay off their balance in full, the credit card cancellation will be written in their credit report as a "settled" account. It is the same as if a card holder closed the account himself.

In fact, it may have even a positive effect on their credit rating. A possible lender might consider someone's application with fewer credit cards as more attractive.

Neil Munroe, external affairs director at credit reference agency Equifax told the reporters that Egg's move was a sign of a general tightening of credit across the UK. He thinks that it is becoming more difficult to get approved for a credit card even if your credit rating is perfect.

He added that consumers need to understand that lenders are commercial organizations that don't have to give credit to those who they consider unprofitable customers.