Why is it normal for banks to issue cards without showing their terms first?

[Anonymous]

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@Anonymous wrote:

"Apply for our buccu rewards card, and if we only offer you the ho-hum rewards card, or if your interest rate will be 13% instead of 12%, or you only qualify for a $300 limit, you have the option to decline."

 
But this is just an example. I think there are people with good to excellent credit scores who get unsatisfactory terms who would happily decline a CC if they could. I think it would be good if it was an industry-wide thing. It would benefit consumers, they could shop around more.. so increase competition between banks. I don't know about specific numbers, so it hard to say whether it would do something like drive annual fees up or not. In any case, other countries do it this way and loans are processed this way, so it's not like it's naive fantasy. As a bank, I would prefer to have happy or content customers, rather than shoving deals down their throat they will dislike. It would really require an analysis. My intuition is that it might be a win-win. If I get a customer who declined 2 other cards elsewhere but comes to me and my risk analysis says that I want this customer, and then give the customer what he wants,.. it sounds like I can make a good profit off this customer.

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I think NRBs point was that if one instution started doing this, it would have increased costs and might not gain enough to offset these costs (as I believe most people really don't know enough to care!)  To get industry wide, you would need legislation, and again if not many people view this as a big issue, and especially with the new adminstration's aversion to new regulations, that is not going to happen any time soon.

[dragontears]

What possible benefit would it have for the banks? Face it, banks care about profit, they don't care about individuals. Without laws forcing them to change they will do what is best for the bank and offering consumers a choice to accept a card has no benefit to the bank (that I can think of).

[Ghoshida]

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@NRB525 wrote:

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@Ghoshida wrote:

I agree with the general premise of the OP.

Banks can and should change the CC process more towards the instalment loan process.

Both are profit oriented.

And it's super easy to implement.

Screen 1: marketing info, including possible bonuses, fees and credit terms (range)

Screen 2: individual's info, asking permission to HP, disclaimer that marketing offer may not be met

Screen 3: show the offer (terms, limit, bonus etc) based on the HP. Ask individual to confirm  Send to underwriting

Screen 4: if confirmed, congratulate individual, show delivery info. Else thank you and see you later message.

In step 3, banks report HP. In step 4, if confirmed, banks open account otherwise no new account.

This is how I see auto loans etc happen. Why not CCs?

This will eliminate disgruntled customers, and the cost of opening an account that will be rarely used.

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And if after Screen 2, if the bank algorithm wants to route this decision to an underwriter (7-10 day or "we will let you know") for manual review, because the file is marginal (and thus may be likely to be offered the lower tier card, high APR, low CL) then what?

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This is a technicality. In the case manual review is required, then show that in Screen 3, and later send email / snail mail to confirm the offer that will actually be given. If this is the process that can be used to disburse instalment loans and is in place already for almost all financial institutions, I'm not sure why this will be difficult to implement for credit cards?

I know the two scenarios are different; instalment loans have actual cash disbursement and generally secured by some underlying asset whereas a credit card is a promise to lend money in future which can be revoked any time. But in real life instalment loans can be as low as $2-3k and credit lines can be often 5 figures. In terms of the real money made, I don't think credit cards are that less profiting a business where it'll hurt the bank to disclose the terms before "opening" an account.

The other suggestion will be towards credit reporting agencies: If banks don't follow through with this, don't report an item that has not been used. A simple signal is statement generation. If an account doesn't have a single statement generated (cancelled before use), don't consider that account as a new account at all. Again, a very simple coding process, not sure why not done. 

(Disclaimer: I'm not a coder. I'm using general intuition. It is probable that these processes take really long to implement.)

[Ghoshida]

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@Anonymous wrote:

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@Anonymous wrote:

"Apply for our buccu rewards card, and if we only offer you the ho-hum rewards card, or if your interest rate will be 13% instead of 12%, or you only qualify for a $300 limit, you have the option to decline."

 
But this is just an example. I think there are people with good to excellent credit scores who get unsatisfactory terms who would happily decline a CC if they could. I think it would be good if it was an industry-wide thing. It would benefit consumers, they could shop around more.. so increase competition between banks. I don't know about specific numbers, so it hard to say whether it would do something like drive annual fees up or not. In any case, other countries do it this way and loans are processed this way, so it's not like it's naive fantasy. As a bank, I would prefer to have happy or content customers, rather than shoving deals down their throat they will dislike. It would really require an analysis. My intuition is that it might be a win-win. If I get a customer who declined 2 other cards elsewhere but comes to me and my risk analysis says that I want this customer, and then give the customer what he wants,.. it sounds like I can make a good profit off this customer.

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I think NRBs point was that if one instution started doing this, it would have increased costs and might not gain enough to offset these costs (as I believe most people really don't know enough to care!)  To get industry wide, you would need legislation, and again if not many people view this as a big issue, and especially with the new adminstration's aversion to new regulations, that is not going to happen any time soon.

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More cards will possibly be opened without people even asking for it (has already happened under current administration so it's nothing political ) rather than asking people to confirm after showing terms  

[Ghoshida]

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@NRB525 wrote:

For those who think this is a good idea, offering applicants the ability to decline the card and not open the account, you are free to start your own bank to try it as a market differentiator.

You will, however, have to think through the consequences. If you choose to use this as a market differentiator, then that means you will need to advertise it. "Apply for our buccu rewards card, and if we only offer you the ho-hum rewards card, or if your interest rate will be 13% instead of 12%, or you only qualify for a $300 limit, you have the option to decline."

Who do you suppose is going to flock to your bank, to try their luck at getting the buccu rewards card? Each one of those people will ding your HP cost. Some significant percentage of them won't take the offer, won't do one swipe on the card they decline to open, but will be back in 6 months to try the casino again.

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How is this any different from auto loans and why do then dealers send a billion requests for credit?

Why do banks allow many, many credit requests without ever actually following up with an actual offer?

Why does FICO not care about those many inquiries made?

The cost considerations must be there as well? 

[Aahz]

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@Ghoshida wrote:

The other suggestion will be towards credit reporting agencies: If banks don't follow through with this, don't report an item that has not been used. A simple signal is statement generation. If an account doesn't have a single statement generated (cancelled before use), don't consider that account as a new account at all. Again, a very simple coding process, not sure why not done.  

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This is actually what happened with my CapOne Spark Select in July 2015.  They gave me a $500 starting CL when my average CL was over $15k.  Multiple calls/emails to try to recon were unsuccesful and I closed the card without even activating about 2 weeks after opening.  The inquiry is on my report but the actual tradeline never appeared as opened or closed.

[elim]

Tired of being in the flock of sheep that gets the bait and switch.  I'm sure a smart lender in the top 1% will see the light and reap the rewards of gathering us as clients by giving us a choice.

IMO it is a profitable move.

[Anonymous]

Question for the OP.  Would it be a better business practice in your opinion, then, if instead of giving the applicant a substitute product, higher interest rate, lower SL, etc. if they just flat out denied anyone that didn't meet the criteria to obtain the best terms?  Basically "raising the bar" across the board for applicants?  Perhaps 720 scores wouldn't be nearly as golden and 760 would become the new 720?  Do you think that would be better for the majority? 

For as many people out there that are upset by this "bad business practice" of receiving less than what they are applying for, I would venture to guess that there are equally as many people out there that are happy that they DID get approved, even if it wasn't at the most ideal terms.  I bet if you started a poll on this at least as many people would say they were simply happy to receive an approval over a denial, even if the terms weren't as appealing.

[Anonymous]

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Evidence that it IS a poor practice - people closing their accounts 

Evidence that it IS a poor practice - people who don't use the account because they did not get the reward structure that they wanted. 

Evidence that it IS a poor practice - Chase Bank has made billions of dollars in profits and they do NOT follow this practice... and in fact Chase made way more than BOA. 

Your argument that it is making more in profit really has no credence. 

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The dozens of people you refer to in your first two points are far outwighed by the thousands of people who use the cards.

As for your third point - Really?  Chase gives you the full terms (starting CL & APR per your OP) and allows you to back out before opening the account?  Since when?

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What is your evidence that substituted cards get used as much? I am not arguing about the starting CL & APR, Chase does not substitute cards or steal the bonus in a way that BOA of does. For instance you can be approved for a $2,000 SL on a Southwest Visa Platinum, which means you just didn't get the Visa Signature version, the Southwest benefits remain the same and you are still eligible for the sign up bonus offer. BOA does not do that. As an example of a lender that will ask permission if the best terms are not granted, Bellco Credit Union. They always ask for acceptance before booking the application, and if they have to substitute their non rewards card they still ask for permission. It is a profitable practice and leads to happier consumers. This thread has been my take on what should happen, and another point to consider is that Chase gives out some serious bonuses and yet they are still able to make their portfolio more profitable than BOA, at the same time giving all approved people the opportunity to get the original bonus. 

[Anonymous]

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@Ghoshida wrote:

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@NRB525 wrote:

---

@Ghoshida wrote:

I agree with the general premise of the OP.

Banks can and should change the CC process more towards the instalment loan process.

Both are profit oriented.

And it's super easy to implement.

Screen 1: marketing info, including possible bonuses, fees and credit terms (range)

Screen 2: individual's info, asking permission to HP, disclaimer that marketing offer may not be met

Screen 3: show the offer (terms, limit, bonus etc) based on the HP. Ask individual to confirm  Send to underwriting

Screen 4: if confirmed, congratulate individual, show delivery info. Else thank you and see you later message.

In step 3, banks report HP. In step 4, if confirmed, banks open account otherwise no new account.

This is how I see auto loans etc happen. Why not CCs?

This will eliminate disgruntled customers, and the cost of opening an account that will be rarely used.

---

And if after Screen 2, if the bank algorithm wants to route this decision to an underwriter (7-10 day or "we will let you know") for manual review, because the file is marginal (and thus may be likely to be offered the lower tier card, high APR, low CL) then what?

---

This is a technicality. In the case manual review is required, then show that in Screen 3, and later send email / snail mail to confirm the offer that will actually be given. If this is the process that can be used to disburse instalment loans and is in place already for almost all financial institutions, I'm not sure why this will be difficult to implement for credit cards?

I know the two scenarios are different; instalment loans have actual cash disbursement and generally secured by some underlying asset whereas a credit card is a promise to lend money in future which can be revoked any time. But in real life instalment loans can be as low as $2-3k and credit lines can be often 5 figures. In terms of the real money made, I don't think credit cards are that less profiting a business where it'll hurt the bank to disclose the terms before "opening" an account.

The other suggestion will be towards credit reporting agencies: If banks don't follow through with this, don't report an item that has not been used. A simple signal is statement generation. If an account doesn't have a single statement generated (cancelled before use), don't consider that account as a new account at all. Again, a very simple coding process, not sure why not done. 

(Disclaimer: I'm not a coder. I'm using general intuition. It is probable that these processes take really long to implement.)

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This^+1,000