Citigroup gets tough on UK borrowers

Amid concern that rising credit card defaults may be the next shoe to drop in the consumer crisis that began with the subprime meltdown, Citigroup (NYSE: C) is taking steps to protect itself in the United Kingdom [subscription required].

According to the Wall Street Journal, the bank's Egg subsidiary, which offers credit cards in the region, has sent letters to 161 thousand customers telling them that starting in March, they will no longer be able to tap the company for credit. This amount to a one-time cancellation of about 7% of Egg's customers.

A Citigroup spokesman told the Journal that "Egg is sorry that some customers are upset after receiving notification that it is ending their credit agreements. Egg has decided that it no longer wishes to offer credit to these customers after conducting a one-off, extensive review of its credit card book."

It looks like the banks may be learning their lesson from the subprime mess: lending money to people who probably can't pay it back is a poor business model.

Moves like this one should be seen as bullish for investors, because it shows that the banks are finally willing to put prudence over short-term profit. Loans with bad long-term prospects can juice up earnings for a little while, but in the long run, banks need them to be paid back.