Discover Takes Loss and Makes It Up by Screwing Cardholders
Discover surged downwards to a 4Q net loss of $84.1. This is quite the reversal from a net income of $186.5 million from a year earlier. The main reason for this downturn involved our friends from across the pond. It seems as though the personal credit card market is causing some woes in Discover’s financials. Particularly the Goldfish portfolio that is Discover’s brand in the UK. Discover was forced to take a charge of $391 million dollars for that business.
However, Discover has found a great way to overcome these credit loss and reserving problems. It is a solution long used by credit card issuers: screw the cardholders! Hooray!
In the latter part of 2007 Discover has undergone a “Change in Terms” initiative targeting their over 50 million US cardholders. However, this time they are trying to extort account for risk in their loya, long term cardholders. Discover has been quietly raising rates on their loyal customer who have been on their books for over 12 months but have been inactive. They are raising rates to Prime + 14.74%.
If you ask me, this is quite an interesting tactic of potentially losing some of the customers that have stuck with a dying brand. Maybe the inactivity is caused by the fact that it is impossible to find a merchant that accepts the Discover Card.
Tags: Discover Card, credit crisis, Interest Rates, Banks, Credit Cards
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