Credit issuers factor customer deposits into approval, limits

As banks look for ways to manage their risk amid surging loan losses, they're increasingly making credit card decisions based on whether you have a bank account with them — and how much you have in it.

Wells Fargo, Bank of America, JPMorgan Chase, Citigroup and Capital One all say they consider consumers' banking relationship in deciding whether to approve a credit card or in figuring out how much credit to offer. The banks note, though, that this is only one factor in their underwriting, and they're also looking at traditional measures, including credit scores and consumers' payment history.

Yet, this strategy is becoming more important for some banks as a record number of consumers fall behind on their bills. Credit card delinquencies have hit a record of 6.5%, and charge-offs are near an all-time high, the Federal Reserve says.

"In today's environment, not all the risk models are working," says Robert Hammer, CEO of R.K. Hammer, an investment bank that works with the card industry. "(Banks are) looking for other ways to help forecast risk."

The approach takes a page from the playbook of community banks, whose size has traditionally allowed them to be more nimble about looking beyond credit scores in offering credit. In Little Valley, N.Y., Salvatore Marranca, CEO of Cattaraugus County Bank, says the bank has never used a "cookie-cutter" approach to making credit decisions. Rather, in deciding how much credit to offer on cards, the bank has long looked at factors including the consumer's deposits, Marranca says.

In general, consumers who are "reckless" with their checking accounts by spending more than they have tend to repeat this pattern with their credit cards, so banks are smart to look at the consumer's overall habits, Hammer says. Chase spokeswoman Tanya Madison says that the bank has found that customers with Chase checking accounts generally have "good credit" overall.

This strategy also makes good business sense, says Wells Fargo's Lisa Westermann, because if consumers are encouraged to open more accounts with the bank, they'll stay longer and be more profitable for the institution.

By law, banks can't dip into consumers' bank accounts without their consent to offset credit card debts, says Chi Chi Wu, an attorney at the National Consumer Law Center. But the reason banks look closely at account balances is because this information "helps them understand consumers' ability to repay their debt," says Megan Bramlette, a managing associate at Auriemma Consulting Group, which advises credit card issuers.

But consumers may have accounts with multiple institutions, making it harder for banks to accuratelyassess their financial health. The trend also worries some consumer advocates, who say banks' focus on account balances could hurt those with small pocketbooks. Banks are also encouraging consumers to "put all their eggs in one basket" when they may be able to get better deals on separate credit card and bank accounts, says Ruth Susswein, deputy director of national priorities at Consumer Action, an advocacy group.

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