Credit Cards Start Reining in Credit Limits due to COVID-19 Outbreak

Apr 28, 2020Banks & Credit Unions, News

As millions of Americans face unexpected expenses or income disruptions due to the COVID-19 pandemic, many United States credit card issuers have begun lowering customer spending limits. According to American Banker, lenders including Discover Financial Services and Synchrony Financial have decided to rein in credit limits.

“As the number of loans enrolled in these programs increases, our financial results will be adversely impacted in the short term due to forgone interest,” Discover told American Banker.

Synchrony Financial recently announced that it will meticulously manage customer accounts in an attempt to stem losses. Reevaluating customers’ creditworthiness may allow some consumers to spend more, but it will lower limits for many others.

Typically, Discover and Synchrony give updates on their progress in expanding interest-bearing balances and marketing campaigns to encourage customers to spend more. However, lowering credit limits during economic uncertainty, as many cards are doing, can cause negative impacts on client relationships.

Discover has enrolled nearly 500,000 accounts into its “skip-a-payment” programs, anticipating that customers can catch up when the COVID-19 pandemic diminishes. However, the company last week warned  that the impact of the virus could linger on the lending environment after the outbreak subsides.

“Due to the nature and novelty of the crisis, our credit and economic models may not be able to adequately predict or forecast credit losses,” Discover said. “The pace of recovery is uncertain and unpredictable. 

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