CFPB Issues Report Exploring Impact of Credit Card Line Decreases

Last week, the Consumer Financial Protection Bureau (CFPB) issued a new report looking into how credit card companies decreased credit availability during both the Great Recession and at the start of COVID-19. Among the report’s key findings were that the majority of the credit line decreases were not linked to recent delinquencies, that they led to dramatic reductions in credit availability, and that they forced credit line utilization rates to skyrocket.

In the report’s introduction, the Bureau says that consumers currently hold approximately 537 million credit card accounts with $841 billion in outstanding balances. They also note that many consumers use credit cards as a routine spending mechanism and a means of flexibility during financial hardship. However, they say, “a consumer’s available credit can disappear, sometimes without warning or subsequent explanation.”

In many cases, these decreases can seem arbitrary. The report found that while credit line decreases were four times as common if a consumer had a recent delinquency on their credit card, roughly two out of three decreases showed no evidence of consumer delinquencies.

Credit lines were decreased by approximately 75 percent for consumers across different credit score tiers, the Bureau’s research found, with median available credit often reduced to less than $400 for all except super-prime consumers.

It also found that decreases caused utilization rates to go up, with most consumers essentially “maxing out” their cards. For median deep subprime, subprime, near prime, and prime consumers, a credit line decrease caused their credit utilization to reach 94 percent of their available credit. For super-prime consumers, credit utilization doubled, rising from 37 percent to 78 percent. The Bureau notes that this can impact credit scores as they tend to go down when utilization goes up.