Following the lending freakout by banks regarding lending to businesses and corporations, it was only a matter of time before they stopped lending to you and me in the form of credit cards.
The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.So at a time when both consumers and the overall economy might need the credit a little more than in the past, the lenders are going to pull back.
The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.
"In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent."
Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co represent over half of the estimated U.S. card outstandings as of September 30, and each company has discussed reducing card exposure or slowing growth, Whitney said.
A consolidated U.S. lending market that is pulling back on credit is also posing a risk to the overall consumer liquidity, Whitney said.
It may well be true that many of us have more credit than we need (I do) and use more credit than we should. On the other hand, if consumers are demonstrating their ability to repay (I am--I pay more than the minimum each month and pay my cards off on a regular basis), a 45% decline comes across as punitive. Perhaps that won't be across the board. Perhaps it will be decided on a case-by-case basis. But I doubt it.
This plan might be good for the lenders, but "sharp declines in consumer spending" certainly won't be good for the economy.
And I voice my concern once again about what this will do to our credit scores, which are determined in large part by the ratio between the credit we use and the credit we have. Cut our lines by 45% and suddenly some of us are much closer to kissing the max than we were previously. Having changed nothing about our spending or paying habits, we may find ourselves with lower credit scores.
The game is stacked against us.
(Hat tip to Petulant at Shakesville.)
5 comments:
And I voice my concern once again about what this will do to our credit scores, which are determined in large part by the ratio between the credit we use and the credit we have. Cut our lines by 45% and suddenly some of us are much closer to kissing the max than we were previously. Having changed nothing about our spending or paying habits, we may find ourselves with lower credit scores.
And then they use the lower score to raise your rate. A win/win for the banks, a lose/lose for the consumer and the economy.
For whatever reason, Bank of America just raised my credit limit by 30%. I have stellar credit all around and have had the card for more than 6 years. I charge my work expenses on the card and just had a pretty busy month, so the monthly balance (paid in full the day the bill arrives) rose higher than usual. I have no idea what triggered the credit limit increase, especially given this news.
Anonymous: Bizarre, yes? I've had two unsolicited increases in credit limits since I last muttered here about credit cards.
On the one hand, that is today's policy: give this person with stellar credit an increase. When the new policy is put into place, the other hand may taketh away.
BSR: A win/win for the banks, a lose/lose for the consumer and the economy. As always. However, isn't what's bad for the economy bad for the banks?
However, isn't what's bad for the economy bad for the banks?
Yes, in the long run, but since when is greed not short sighted? Short term gain gets bonuses paid.
Yes, in the long run, but since when is greed not short sighted? Short term gain gets bonuses paid.
Indeed.
And in other shocking news (1) we're officially in a recession and (2) water is proven to be wet!
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