Monday, 4 February 2008

What a good Egg

At last, a UK bank has realized that all is not well with their customer base. Egg has rightly decided to axe 161,000 their most risky customers. This measure will undoubtedly help the vast majority of customers affected. It will prevent them from building up additional debt and encourage them to pay down their existing debts. In the long run, this can only help reduce Britain's debt crisis.

Despite this highly courageous decision on the part of Egg, some politicians have opportunistically sounded off. Nigel Griffiths, a former deputy leader of the House of Commons, said Egg's action was "unacceptable". Well, Nick, Egg is not obliged to lend anyone anything. Egg has deemed these customers as high risk borrowers. It is not prepared to take the risk of extending credit. It is a private business matter and he has little competence to commit on their decision.

Let us hope that other banks follow Egg's example.


Marchie said...

On the other hand, I think it will come out in the wash that the vast majority of the 161,000 customers that Egg have withdrawn credit from pose very little risk at all - they are just unprofitable as customers. These are people who rarely use their card, or pay off their balance in full at the end of each month, and thus actually end up costing Egg money.

Egg have handled this situation pretty badly; of course, some of the people who they have withdrawn credit from will be in above their heads and pose a significant risk. However, others, who have good/perfect credit histories have been told that they pose a credit risk, rather than be told the truth, i.e. Egg doesn't make any money out of them. This has led a number of people to contact the credit referencing firms and check out their reports, often at a not insignificant cost, incase their identities had been stolen. It's a poor show from Egg if it really is the case that most of these people have been dropped for being able to manage their finances properly.

However, the fact that credit is not a right is not pointed out enough; Egg, just like any other credit card company, is perfectly within its rights to withdraw credit at any time. The fact that they have chosen to withdraw credit from so many customers at once may be more symptomatic of (potential) cashflow problems or just general belt-tightening at Egg, or it's parent company, Citibank.

Anonymous said...

¨Nigel Griffiths, a former deputy leader of the House of Commons, said Egg's action was "unacceptable".¨

Griffiths, one time minister for small buisness, has never run a small buisness probably wouldn´t know what one was if it bit him, is renown in this neck of the woods for milking his parliamentary expences to support his disabled sister. Far be it for me to wonder why being an MP gives him the prevelidge to jump the NHS queue but that aside for one minute.

To the real issue and something mentioned in a previous comment is the schizophrenic attitude of this current government to debt. On the one hand deploring nasty buisnesses for lending to ´vulnerable´ people, on the other hand demanding that buisnesses lend to the underprevelidged.

Mind you, I suppose that the ragtag of failed polytechnic lecturers and former social workers* that pass for a government, you couldn´t really expect anything more.

Nothing particular against lecturers and social workers, just that those in the government probably were not very good at that!

Lord Wraggley of Myre said...

LONDON (Reuters) - House prices held steady in the month of January, according to the country's biggest mortgage lender, which cited continuing weakness but also signs of a possible stabilisation in the market.

I imagine this makes you even more bitter, Alice! And Bloomberg is reporting that luxury London home prices are soaring--up 26% in the past year! Can't see any evidence of a crash, can you?! How glad I am that I bought my castle in The Vale of Cromlach when prices were still low in the 80s. Pip! Pip!

ukhousingbubble said...

Oh yes, I am simply overcome with bile this morning.

Bunc said...

Egg have been really dishonest. They were clearly just trying to clean out unprofitable accounts - it was nothing to do with risk.

Anonymous said...

Bunc: "Egg have been realy dishonest. They were clearly just trying to clean out unprofitable accounts - it was nothing to do with risk."

Lawks alive! fancy a company that wants to make money, cleaning out accounts that loose them money. Sounds like sound buisness sense to me, not dishonesty.

In any case, I am not sure that accounts holders who pay off the balance each month necessarly lose the credit company money. If the account holder makes lots of purchases the credit card company still makes about 1.5% on each transaction.

I had a Capital one card for about ten years, I recently closed it because I had not made a transaction on it for about four years. They must have spent a fortune sending me promotional flyers over the years.

Economic Despair said...

This is just the beginning of a major contraction of unsecured lending. The credit card companies feel real vulnerable at the moment. They figure that they have to get consumers to stop spending.