In response to the ongoing economic devastation of the coronavirus shutdowns, which have resulted in over 26 million Americans filing for unemployment, some major U.S. credit card issuers are beginning to lower customer spending limits and cut back on how many new customers they enroll.
As reported by Bloomberg, Discover Financial Services and Synchrony Financial have both announced changes in their policies and creditworthiness assessments this week in response to the Covid-19 crisis.
Synchrony Financial — the credit card issuer used by American Eagle Outfitters Inc., J.C. Penney Co., and Gap Inc. — revealed in a conference call on Tuesday that it is taking steps to more closely manage customers’ accounts in an attempt to limit its losses amid the economic crisis. According to Bloomberg, Synchrony’s Chief Financial Officer Brian Wenzel said the firm is working to “dynamically reevaluate a customer’s creditworthiness” as the economic devastation of the widespread shutdowns is changing many Americans’ incomes. While some customers may be allowed to spend more, Wenzel suggested, many others may find their spending limits scaled back.
The next day, Discover Financial Services, an even larger credit card firm, made similar announcements. “In a regulatory filing late Wednesday, the firm said it’s also easing off efforts to sign up new customers and that it expects to take a hit from programs letting existing borrowers skip payments or delay the accrual of interest,” Bloomberg reports.
“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,” said Discover.
Bloomberg notes that similar widespread reductions in spending limits took place after the financial crisis of 2008 and the result was “legions of customers” left frustrated with banks and many cardholders finding their credit scores lowered as a result. “This time, banks are heading into the crisis with stronger balance sheets, and they quickly reacted to the downturn by rolling out payment-deferral programs, hoping that consumers can catch up once the pandemic subsides,” the news outlet notes.
On Thursday, the Department of Labor released the previous week’s unemployment numbers, revealing new jobless claims in the millions for the fifth week in a row.
Before the coronavirus crisis, the previous high for jobless claims in a single week was 695,000 in 1982. Over the course of the five weeks since “lockdowns” began to take effect in most states, over 26 million Americans have filed new unemployment claims: 3.3 million in week 1, 6.8 million in week 2, 6.6 million in week 3, 5.2 million in week 4 and 4.4 million in week 5.
The massive economic impact of the shutdowns has prompted growing pushback from Americans desperate to get back to work.
“Numerous protests have broken out in states such as Michigan, Maryland, and Pennsylvania over strict stay-at-home orders that are slowly bankrupting families and small businesses,” The Daily Wire reported. “The Paycheck Protection Program, approved by Congress to dole out loans to small businesses struggling amid the pandemic, ran dry last week and has yet to receive a fresh infusion of cash. The Senate passed a bill to put about $310 billion in the fund on Tuesday, and it is expected to be voted on in the House on Thursday.”
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