February 4, 2008 | posted by Michael Baxter in credit crunch |

Egg says it has nothing to do with the credit crunch. Well maybe not, but its move announced over the weekend to put 161,000 cards belonging to customers with bad records on stop, has everything to do with the factors that caused the credit crisis in the first place.

Egg is now, of course, owned by Citibank, which made a loss of $9.83bn in its last quarter. And banks are revisiting the way they value risk.

But blogs across the Internet were alive with Egg customers saying their credit card was being cancelled despite never going over their credit limit, and usually paying off the full amount outstanding.

Of course, the best customer for a credit card company is one who just pays off the minimum payment, and there was speculation doing the rounds that the Citibank move was designed to focus on the customers who make the most money for the bank, rather than merely ones with poor credit records.

But surely the real moral to this story is that whenever banks, or investors, or frankly any human being, react to a mistake, they usually go too far the other way.

In the late 90s, dotcoms were the greatest thing since sliced bread. In the aftermath of the crash, they became a dirty word. The reality was somewhere between the two – probably closer to the sliced bread end, too.

Last year, Alistair Darling called for a return to traditional banking, seemingly forgetting that untraditional banking had helped create the longest run of uninterrupted economic growth the UK has ever seen.

Now it’s the turn of consumers to feel the force of irrational backlash. And right now, that is surely the biggest danger doing the rounds.