Bank Watch

Bank of America rejected you for a credit card? Here’s maybe why

Bank of America’s headquarters tower in uptown Charlotte. While some of its competitors plunge deeper into subprime credit card lending, the bank says it will only lend to prime and super-prime borrowers.
Bank of America’s headquarters tower in uptown Charlotte. While some of its competitors plunge deeper into subprime credit card lending, the bank says it will only lend to prime and super-prime borrowers. jsiner@charlotteobserver.com

While some of its competitors step up issuing of credit cards to borrowers with credit scores below ‘prime’ levels, Charlotte-based Bank of America says it’s not going there.

The topic came up this week during the bank’s conference call with analysts to discuss its second-quarter profits, which fell about 18 percent from a year earlier. It was mentioned by the first analyst to speak during a question-and-answer session with Bank of America executives.

“We’ve had a couple other banks talk about loosening standards a bit on the consumer side,” Deutsche Bank analyst Matt O’Connor said. He noted the low interest rates that are constraining banks’ profitability, as well as a U.S. economy that’s “still hanging in there.”

“I feel like you’ve held your standards quite high, especially in credit card,” O’Connor said. “Any thoughts on appetite for loosening standards a little bit here ...?”

Bank of America’s chief financial officer, Paul Donofrio, pointed out that the bank’s executives have worked “extraordinarily hard to transform the company, its balance sheet, its ability to produce earnings.” At Bank of America, the focus is on lending to prime and super-prime consumers, he said.

“That strategy I think works for our shareholders and our customers,” Donofrio said, “and we’re sticking to it.”

Bank of America’s stance comes after it has paid heavily for loans that soured in the financial crisis. It booked about $88 billion in credit card and other loan losses during the downturn, the bank has said.

Some other big banks are going in the other direction.

Last week, for example, JPMorgan Chase’s chief financial officer said the bank has “responsibly” expanded its issuance of cards to “near-prime” borrowers over the past two to three years. About 20 percent to 30 percent of JPMorgan’s new cards are being issued to borrowers with scores below 700, she said.

Credit-reporting company Equifax defines a subprime credit score as 620 or under. In an April presentation, Bank of America said its average scores were at least 763 for credit cards, mortgages, auto loans and home equity lines of credit booked in the first three months of 2016.

The bank says it will make mortgages for home purchases with a 600 score, in cases of loans backed by the Federal Housing Administration. As a compensating factor, the bank says it requires the borrower to have a debt-to-income ratio of no more than 25 percent.

CEO Brian Moynihan noted on the analyst call that the bank has been able to increase its business with existing customers, even with its policy on credit scores. The bank said it originated 1.3 million new U.S. consumer credit cards in the second quarter, the highest level since 2008.

“We don’t need to change the standards to grow,” Moynihan said.

Deon Roberts: 704-358-5248, @DeonERoberts

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