http://www.bloomberg.com/apps/news?p...gxc&refer=home Discover, Capital One Shut Dormant Accounts, Cut Risk By David Mildenberg Dec. 19 (Bloomberg) -- Discover Financial Services Inc. and Capital One Financial Corp. are closing accounts of customers who haven’t used their cards for lengthy periods as part of efforts to reduce risk of defaults. Discover, the fourth-largest credit-card network, has closed 3 million “inactive” accounts and plans to cut up to 2 million more, Chief Executive Officer David Nelms said in an interview yesterday. “Most of the accounts haven’t been used for years,” he said. “We think it’s a responsible move.” Capital One, the McLean, Virginia-based credit-card lender and bank, has “very aggressively” closed inactive accounts, Chief Executive Officer Richard Fairbank said last week at an investor conference. The company declined to say how many accounts are affected, spokeswoman Pam Giordano said. Credit card companies are trimming credit lines and raising interest rates for customers who are late in paying their bills as loss rates in the industry head toward 10 percent of outstanding loans. The actions follow the $700 billion federal bailout of the financial system, much of it invested in U.S. banks to shore up capital and promote lending. Capital One has received preliminary approval to sell preferred shares valued at $3.6 billion to the Treasury. Discover said it has applied to be part of the program, and may sell $400 million to $1.2 billion. “If you have a card that has been hanging around in your sock drawer and you get on tough times, there’s a chance that you might use it,” said Bill Hardekopf, president of lowcards.com, which analyzes credit card offers. “Capital One and others are really trying to minimize what could be risky behavior.” Credit Score Capital One had 45.3 million accounts as of Sept. 30, down 6.5 percent from a year earlier, according to a regulatory filing. Discover doesn’t disclose its account total, said spokeswoman Leslie Sutton. Losing access to an account can limit a borrower’s options and hurt one’s credit score, said Curtis Arnold, founder of the cardratings.com Web site. “This is a big deal for consumers, which is why I tell people to use their cards at least once every six months, even if it’s buying a Tootsie Roll,” Arnold said. While other credit card firms have moved to close inactive accounts, Capital One has a special incentive because it has had a higher percentage of customers with low credit scores than its rivals, said Robert McKinley, founder of CardTrak LLC, a research firm in Naples, Florida. The company pioneered the practice of offering cards with $100 to $300 spending limits to customers with low credit scores, he said. Delinquencies “The credit-card companies are trying to drill their way out of this credit crunch by drilling their customers,” McKinley said. “This is uncharted waters right now for the industry and they need to rein in the credit availability without losing too many customers.” Capital One said U.S. credit-card delinquencies -- defined as payments more than 30 days late -- rose to 4.7 percent in November from 4.5 percent in October. At Discover the late- payment rate reached 4.6 percent, while about 5.5 percent of loans were deemed uncollectible, the company said yesterday. Capital One fell 14 cents to $29.62 in early New York trading while Discover slipped 5 cents to $9.21. To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net Last Updated: December 19, 2008 08:42 EST
