Credit card industry reins in balance-transfer offers as banks from JPMorgan to Amex fear defaults

Banks have pulled back from a popular credit card promotion on concerns that borrowers struggling during the coronavirus crisis may leave them with defaulting loans.

Balance transfer offers, which typically entice borrowers to move their debt to a new lender in exchange for a temporary 0% interest rate, have been sharply reduced at banks including JPMorgan Chase, Citigroup, Bank of America, Barclays and Capital One, according to people with knowledge of the matter at each firm.

American Express took the most drastic step, dropping the product altogether, according to a company spokesperson.

“We are not currently offering balance transfers across all our card products,” American Express said in a statement. “From time to time, we make adjustments to our offerings to ensure we’re managing risk for our customers and the company in a responsible way.”

When the economy was booming, credit card issuers fell over themselves to lure borrowers and their debt, mailing hundreds of millions of no-interest solicitations. Banks made money from transfer fees, typically around 3%, and begin to earn interest on debt after the promotional period, usually lasting six months to as long as two years, ended.

But banks were burned in the 2008 recession when users of balance transfers defaulted at among the highest rates in the industry, according to the sources. Some theorized that borrowers took advantage of balance transfers after worrying about their job security, or even after they’ve lost their jobs, putting them at risk of eventually defaulting.

Now, lenders are being more selective about who they make no-interest offers to, favoring customers with higher credit scores and other advantages, said the people. More than 40 million Americans have filed for unemployment benefits since the pandemic began.

At the same time, the industry has offered many borrowers forbearance during the pandemic, waiving late fees and interest for months. For many customers, those programs are ending soon, and it’s an open question as to whether they will resume making payments.

The irony is that while banks have never been more flush with deposits, taking in $2 trillion since February, they are pulling back from lending products they consider risky in their mortgage, auto and credit card businesses.

The industry’s move deprives borrowers of one of the best ways to cut down on credit card debt. When used properly, balance transfer cards can save thousands of dollars in interest payments over time.

Janette Scott, a retired accountant living in Florida, had been planning on using balance transfers to pay down her daughter’s school debt. She was recently told by eight banks that they no longer had them, Scott said in an interview. Just months before, they had flooded her with offers.

“I have an excellent credit rating, am current with all my accounts, paying the balance in full every month,” Scott said. “This just doesn’t make any sense to me.”