Capital One, Discover Tighten Credit Limits As Debt Peaks

Capital One Financial and Discover Financial Services, two of the largest credit card issuers in the country, are tightening lending standards, which is reportedly an unusual move in an economy that is booming.

According to a report in The Wall Street Journal, both Capital One and Discover said last week that they are becoming more cautious in how they deal with credit limits, and while there are no indications that consumers’ ability to pay back their debt is worsening, they are preparing for the eventual end of the economic recovery.

“In so many ways, one can’t help but be struck by … just how good the economy [at] this point is,” Capital One Chief Executive Richard Fairbank said on the company’s earnings call, which was covered by The WSJ. “And in some ways, it almost feels too good to be true.”

According to the report, Capital One and Discover are seen as gauges of American consumers’ ability to handle debt. Both cater to customers that may not have the best credit scores and aren’t that affluent, and thus can give a better picture of the current state of the economy. The WSJ noted that 33 percent of Capital One’s domestic card balances are owed by consumers who are considered subprime.

While some of the country’s biggest banks, including JPMorgan Chase and Citigroup, are signaling that there is continued strength in consumers, the two cater to higher-end customers. Capital One and Discover signaled they are paying close attention to consumers’ spending limits, with Fairbank saying it has dialed back spending limits more during the past year for newly issued credit cards, and also dialed back on raising the spending limits of existing cardholders.

Meanwhile, Discover has lowered the number of credit card balance transfer offers to consumers it deems as higher risk. The company also shut down inactive credit cards that total close to $30 billion in spending limits during the past two years, noted The WSJ. That’s aimed at reducing the chances that credit cards that haven’t been used will suddenly be used by cardholders if they need credit desperately. Discover has also said it expects the losses on personal loans to increase, and has cut back on loan originations as a result.