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Chase dumping former WaMu card holders

Steven Lobdell points out an image on Chase bank's Web site that says "Welcome WaMu customers. We're here for you."

But, apparently not for him. Lobdell is one of a group of former Washington Mutual credit card customers who were abruptly dumped by Chase in recent days. He holds two Chase cards; both were canceled as of July 15.

"It's kind of ironic, isn't it?" he said. "I think Chase is two-faced....We were good enough for Washington Mutual, why not good enough for Chase?" Across the Internet, thousands of former WaMu customers are expressing the same outrage. They say Chase is dumping them as customers, despite their solid payment records.

JP Morgan Chase & Co. acquired Washington Mutual and its troubled portfolio of credit cards in September, at the height of the banking system collapse. While Chase has recently set about to tidy up the ranks of its credit card holders, consumers are bearing the brunt of the cleaning. Two weeks ago, Chase began forcing some customers to raise their minimum monthly payments from 2 to 5 percent. And now, it's cutting off some customers all together. Thousands of complaints from former Washington Mutual customers can be found on personal finance blogs all across the Web.

Lobdell took a long and winding road to become a Chase customer. He initially opened his credit card with Providian Bank, which was later acquired by Washington Mutual in 2005, which collapsed last fall, and Chase picked up the pieces. 

Lobdell, who had combined balances on the two cards of about $3,000, says he's never been late with a payment and doesn't understand why Chase would cut him off.

 "When I got the letter I called to ask why the account was closed, I was told it was because of information received from the Experian credit bureau," he said. When he looked at his credit report, nothing seemed out of order. Lobdell said he will be allowed to pay off the card at its current rate, but can no longer make charges with it.

24 percent default rate predicted

Chase officials refused to comment specifically about the complaints from former Washington Mutual customers. Spokeswoman Stephanie Jacobson would not say how many card holders were impacted by this latest round of notices, but instead offered only a generic statement saying the bank was reacting to market conditions and new regulations from Congress.

"As a responsible, careful lender, we constantly evaluate the risks and costs of funding credit card loans. We are also evaluating changes required due to pending regulations," she said. "When necessary, we make changes to pricing, terms or credit lines based on borrower risk, market conditions and the costs to us of making loans. These are factors we have always monitored and processes we have consistently followed."

For additional questions, she referred reporters to the company's quarterly statements.

Washington Mutual was one of the nation's top 10 card issuers when acquired by Chase, with about 15 million cards. Still, its operations were dwarfed by the nation's largest issuers, including Chase. Former Washington Mutual consumers have about $25 billion in outstanding credit card loans, compared to Chase's $150 billion.

Lobdell was sure that Washington Mutual customers were being targeted. The letter he received contained the cryptic label "WaMuClosure1" at the bottom of the note.

He's seen notes from hundreds of other consumers in the same spot. "Reading these same stories, over and over, makes one wonder how Chase can get away with this.”

A possible reason that Chase would pick on WaMu customers is contained in the company's second-quarter earnings announcement. While Chase said it anticipated losses of about 10 percent on its credit card portfolio, it predicted losses of up to 24 percent from its former Washington Mutual customers. Prior to its collapse, Washington Mutual targeted subprime borrowers, a group that’s more likely to default on loans.

Losses of that size would be a shock to Chase's balance sheet. When Chase acquired Washington Mutual's assets for $1.9 billion last fall, it said it anticipated credit card losses in the 8 percent range. 

Lobdell holds other credit cards, so the cancellation does not put him in immediate dire straits. It will mess with his credit report for years to come, however. It now contains two notations that indicate "account closed at creditor's request." He'll get two dings to his credit score because his available credit has shrunk. 

"Now if I try to get a car loan, it's going to show they closed my accounts," he said. 

FICO: Not a negative event

Craig Watts, spokesman for Fair Isaac Corp. – which controls the credit formula – offered soothing words for Lobdell and others in his same spot. Watts says the “closed at creditor’s request” notation is not considered a negative event by the credit score formula.

“We see it as the same as if the consumer closed the account,” Watts said. In other words, it will not hurt credit scores the same way an account labeled “delinquent” or “settled for less than full balance.”

Of course, consumers are advised never to close their credit card accounts, because the loss of overall available credit will hurt their scores – and in this case, consumers have no choice in the matter. So consumers who’ve had their accounts closed by Chase will see their scores lowered. It’s impossible to say by how much, because multiple factors contribute to the score, Watts said. 

To make matters worse, if consumers cut loose by Chase open a new card to replace their lost Chase card, that’ll hurt their credit score, too. * “If you go apply for a card, the impact to your credit score is you will lower your score a little bit, but over several months, it will recover,” Watts said. His advice to former Chase customers: pay off existing balances instead, and wait to open a new card, if possible. Consumers who are really worried about the impact of losing their Chase account should pay to get their credit score, he advised. 

Lobdell didn’t have his score before Chase dumped him so he really has no way of knowing what impact it might have on him, or the price he may pay for credit in the future. But there is good news for him -- he bought a home two years ago, so at least he doesn't figure to be in the market for a home loan any time soon. His mortgage holder? JP Morgan Chase.

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