Canceled credit cards come as a shock for some

On his way home from work recently, Rick Niles of Maryland stopped at a gas station and, as usual, pulled out his Shell credit card to pay. But this time, the card didn’t work.

“I thought it was a probably just a problem with the gas station,” said Niles, 40, an aerospace engineer.

Days later he learned the truth. Citi, the card’s issuer, had canceled his account without notice, even though Niles says he pays the $200 or $300 balance each month and has a high credit rating.

Such cancellations, affecting consumers across the United States, highlight a little-known gap in federal laws governing credit cards. Although Congress has toughened disclosure rules for credit card companies — by requiring 45 days’ notice for making significant changes in interest rates or other terms — canceling cards without warning is still allowed.

“Apparently, the closure of a card is not considered a material change in the terms,” said John Ulzheimer, president of consumer education at Credit.com. “I can’t believe I’m telling you this with a straight face.”

Canceling cards and cutting credit limits without notice is a long-standing practice. Card issuers say that if they warned consumers about a looming cancellation, customers would run up their balances before they lost credit — and card issuers would be on the hook for more money.

“You are required to get notice (at some point), but oddly enough you are not required to get notice before they cancel the card,” said Ruth Susswein, a deputy director with Consumer Action. Issuers must give notice within 30 days of cancellation, she said.

Citi won’t provide details about the cancellation of Shell cards but said it decided to close a limited number of oil partner co-branded MasterCard accounts.

Other card issuers cancel cards on a case-by-case basis — if cards are not used for many months, for example — but Citi’s recent action is unusual because it closed a large number of accounts all at once, Ulzheimer said.

Niles noted that “a lot of people rely on cards for emergencies, and not to have it would be bad.”

A canceled card could hurt that all-important credit score for customers who carry balances. That’s because their amount of debt in relation to available credit suddenly jumps.

Credit.com’s Ulzheimer said issuers cancel cards for reasons that might not be obvious to customers.

“Consumers are not risk managers,” he said. “What they look for in a credit report is not the same thing a risk manager is looking for.”

Accounts might be canceled if cardholders’ credit scores drop, they take on more debt, open new lines of credit or live in an area where home values plunged or where unemployment skyrocketed, Ulzheimer said. Or, it could be that the accounts aren’t profitable enough or for other reasons that the card company won’t reveal.

Angry consumers still have thousands of credit unions and small community banks where they can get cards when big players play tough, advocates say. But they can also complain to the card issuer that dropped them.

“Sometimes a company will choose to make a change for a whole group of customers, and when they look at the specifics, you might be somebody they put into a pot that is considered more profitable when they look at your actual card,” said Consumer Action’s Susswein.



Take action

Card issuers do not have to warn you that they are closing your account. What can you do?

Contact the company. It might review your account and decide to keep you.

Check your credit report regularly from the three major credit bureaus to make sure no incorrect information is posted that would cause a card issuer to drop you.

Shop for a new card from one of the thousands of credit unions and small community banks.

Carry cash or more than one credit card, in case your card is denied.