Smart Money wrote about this practice in their March 11 edition. You can read it online here.
The motivation among issuers to make such deep cuts that they plunge below a cardholder's balance amount isn’t very clear. . . One possibility is that this is yet another attempt by card issuers to get consumers to close their accounts (while bringing in a little fee income in the short term), says Dennis Moroney, research director and senior analyst for consulting firm Tower Group. “I can’t rationalize in my mind what other motivation there would be,” he says.While this practice may still be legal, it is unscrupulous. It can also lower your credit score. As consumers, we must do everything we can to protect ourselves, our money and our credit rating. If you use your credit card regularly, check your balances daily. If you haven't done so already, sign up for online access to view your credit balances. Finally, keeping your credit score above 720 and your total balances under 30 percent will reduce the chances of this happening to you. All of these techniques are outlined in The Credit Secrets Bible.
Even cuts that are close to the balance have the potential to devastate if they’re not caught quickly. Luckily for Carol Gressett of Decatur, Miss., she noticed the reduction in her Discover-branded Sam’s Club card limit just days after it happened. The limit was cut to within $100 of her $3,000 balance. The official letter notifying her of the reduction arrived three weeks later. “We could easily have gone over if I hadn’t been paying attention,” she says.