It was not very long ago that card companies faced huge losses as most debts were simply written off as borrowers could not pay back their dues to the card companies. This had resulted in huge financial losses that led to the financial crisis when the recession began not so long ago in 2007. To cut the story short, banks and other lending agencies were generous with the lending and gave people things that were simply unaffordable and the same institutions suffered when these people could not pay back. However, the banks and financial institutions don`t seem to have learned a lesson as they are still offering credit cards to those with bad credit scores.
As it has been pointed out by the New York Times, lenders have lost close to $189 billion on credit cards alone ever since the recession in the year 2007 – the reason for the bailout. But now the scene has changed once again and risky borrowers seem to be fair game for these banks.
- HSBC has given out 16 million by way of card offers to the ones with bad credit scores
- Capitol One has given out 22 million
- Citigroup has given out 14 million
- Discover has given out 10 million
So in all, there would be 2.5 billion credit card offers out of which 17% may not deserve them (this is up 7% since last year).Why this sudden change of heart one may ask?
Lenders claim it is due to the fact that the bad credit scores are due to the fall in property values as well as unemployment. However, these are not merely offers on any typical credit card. Banks are not so nave. Customers would be charged high fees as well as high interest rates.
As per the news reports Capitol One`¯s credit card offers to these risky borrowers has $50 dollars as annual fees as well as an interest rate of 18%. The others in the list are Bank of America (BAC: 12.41, 0.00, 0.00%), Citigroup (C: 4.69, 0.00, 0.00%), and Wells Fargo (WFC: 29.80, 0.00, 0.00%) and these banks are offering “secured” cards. Here these cards would be linked to the accounts which can be accessible to these banks. But the responses to these offers have increased ten-fold as borrowers are using this opportunity to get hold of a new card. Credit cards will remain a part of our lives for a long time to come.