A new report by the CFPB uses over five million credit records from one of the three nationwide consumer reporting agencies to examine how credit card companies have used credit line decreases throughout the Great Recession and the early stages of the COVID-19 pandemic. As a general trend, the report found issuers used credit line decreases during broad economic downturns as a way to decrease overall risk.
The report’s discussion of the underlying data included the following:
- While credit line decreases were four times as common if a consumer had a recent credit card delinquency, 67 percent of consumers whose credit lines were decreased had no recent credit card delinquency.
- Of the consumers who received a credit line decrease, the median decrease was 75 percent of their total credit line.
- Given the substantial decreases in credit lines, credit utilization concomitantly spiked with median deep subprime, subprime, near-prime, and prime consumers, topping out at 94 percent of their available credit. Even super-prime consumers doubled their utilization rate from 37 percent to 78 percent. The result of these credit line decreases and credit utilization increases was consumer credit scores decreasing—between the median range of 33 and 87 points for consumers with a recent card delinquency and between the median range of 1 and 12 points for consumers with no recent card delinquency.
The report concludes by stating that although prime consumers have been able to compensate for these credit line decreases by using other credit cards or opening new accounts, subprime and deep subprime consumers have been unable to return to previous credit card usage rates. While the report takes no position on how the CFPB should approach credit card line decreases, in the past similar reports presaged heightened regulatory scrutiny of the issues that were the subject of the report, such as overdraft fees and credit card penalty fees.
Indeed, it is possible that the CFPB will use the report as the basis for seeking additional limits on the circumstances under which credit issuers can reduce credit limits on credit cards. For example, Regulation Z already specifies the circumstances under which creditors can reduce the credit limit on home equity lines of credit. One of these circumstances is where the creditor has a reasonable belief that the consumer will be unable to pay because of a material change in the consumer’s circumstances. If the CFPB were to promulgate a regulation imposing a similar limit on the ability of credit card issuers to decrease credit limits, card issuers would not be able to use a general economic downturn as a basis for decreasing a credit limit on a credit card.