November 18, 2008
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News: Credit Card Crunch.
As credit card losses heighten, card holders brace themselves for what is to come. Story after story, we hear of greater credit card spending restrictions. Just in time for the Christmas season, too. Let's hope the new regulation finds the balance where our fragile consumer market isn't stifled during this all-important shopping season. Of course, this devastating employment crisis is an ominous warning of things to come and needs serious consideration. But strangling credit card spending could have the secondary effect of slowing the economy even worse.
Reports are coming in of, what appear to be, across-the-board limit reductions to the point where, existing credit card accounts are effectively ‘maxed out' by the new limits being sprung on millions of people all at the same time. ‘Open to buy' limits (available credit remaining) are being cut to one tenth of what they were by surprise to many who now find themselves out of ‘wiggle-room'. For an economy that has become so dependant on credit cards, we must be careful not to shock the system too abruptly and cause even more grave consequences.
Other signs of this tightening are the closing of accounts of those who don't use their credit cards frequently enough, removal of Balance Transfer Fee caps and hiked Late Fee penalties. Of course, this doesn't make issuing banks the bad guys. They're just trying to guarantee their own survival in an unprecedented and precarious debt climate. Never has there been such a high national personal debt ratio coupled with such an extremely bad employment ratio in this country. It only makes sense to expect a much higher rate of ‘charge-off's (uncollectible debts). It doesn't help that these same issuing banks are also exacerbating the unemployment situation with massive job cuts, themselves. But, they must take measures to ensure that they, themselves, remain solvent.