Citigroup is taking steps to reduce the impact on borrowers of unused credit cards. Faced with a growing number of late paying customers, the bank is closing inactive accounts. In addition, they adjusted the risk score to ensure that new accounts were granted to customers with higher credit scores. This strategy is part of their efforts to manage losses and avoid becoming lenders of last resort. As one of the largest credit card issuers, Citigroup’s actions could be a harbinger of things to come at other major banks.
In addition to the strategies mentioned earlier, banks implement other measures to reduce arrears:
- Financial education: Banks offer financial education programs to their customers, helping them better understand how to manage their debts and avoid late payments.
- Alerts and reminders: Send email or text alerts to remind customers when payment is due. This encourages punctuality of payments.
- Debt restructuring: Some banks allow debt restructuring, where customers can extend the payment term or combine their debts into a single loan.
- Continuous risk analysis: They use real-time risk analysis to monitor borrowers’ financial health and detect early signs of trouble.
- Assistance programs: During exceptional situations (such as a pandemic), banks offer temporary relief programs such as grace periods or reduced interest rates.
The bank has also increased its ability to collect bad debt as part of its loss management efforts, Chief Financial Officer Mark Mason said on a conference call with reporters.
“We track intent to pay very closely,” Mason said. “It’s something we constantly monitor and manage.”
At Citigroup, loan losses were particularly high in its retail services division, where the bank works with brands such as Home Depot Inc. or Best Buy Co. to offer credit cards to customers of those retailers at the time of payment.
“Consumption is slowing,” CEO Jane Fraser said, noting there was nothing in the bank’s quarterly results that particularly worried her. “A lot of the spending and areas of growth that we’re seeing in the underlying numbers are driven by affluent customers.”
As one of the nation’s largest credit card issuers, Citigroup’s efforts could be a harbinger of things to come at other major banks.