Cancelled Credit Cards More Common

You go to dinner at an upscale restaurant. You hand the waiter your credit card only to be told that it doesn’t work. Later you call the card company and find that your account has been canceled without any advance notice. It’s embarrassing and it may seem bizarre, but it’s a scenario that is playing out more often across the country, as banks try to shrink their risk exposure.

It also turns out that it’s legal. Card issuers are not required to give card holders notice of a cancellation because of default or delinquency, but if they do it for other reasons, they have to notify the customer within 30 days of the cancellation. As some customers have found out, however, the 30-day requirement doesn’t necessarily mean that the notice will come before the account is closed. The credit card reform law that was signed last February won’t be any help. New rules that will take effect under the law will still allow banks to close some accounts without advance notice.

Banks are also targeting accounts that have not been used in a year or more because, executives say, inactive cards with open credit lines present a greater risk of fraudulent use. Banks will often close these accounts without giving any notice at all and, under the law, they don’t have to. The cancellations, according to bank executives, are just one of several risk-management measures being implemented in response to a rise in the credit-card delinquency rate. The rate of delinquencies stood at 1.32% at the end of the first quarter of 2009, a 45% jump from two years ago.