February 16,2009
-
News: CC Ind. Counters; Threats or ‘Scare-tactic hoopla'?
With Senator Dodd pushing forward with congressional initiatives against the credit card industry, the American Bankers Association is not just taking it lying down. With the recent committee hearing which Sen. Dodd hosted last Thursday, they were quick to counter what they deemed to be ‘fact vs. myth'. They are presenting a very different result from what Sen. Dodd is projecting. The association's senior vice president points out the contrasting viewpoint that the credit card industry projects. Both sides agree that the credit card consumer market is vital to our nation's economic recovery and that it is in trouble.
One strong difference of viewpoint concerns ‘universal default'. The ‘Bankers Association' strongly contends that ‘other financial obligations' do play an important role in a consumer's ability to meet credit card obligations. With the ‘free market', they contend, credit card holders always have the choice to lose one lender's card and secure one from another lender.
A key question in the matter is the pace of the changes. Should Congress pace these changes out incrementally or take the more-radical approach of a quick and total overhaul of the credit card industry? As Bob Manning, professor and director of the Center for Consumer Financial Services at Rochester Institute of Technology observes; what seem radical to the industry is only perceived to be moderate by the rest of the country.
It's important to note, however, that any assumptions are only based on perception. The industry projects a 45% cutback in credit card availability from the regulation. That equates to a $2 trillion figure of reduced credit to consumers. Consider that 70% of the US households currently use credit cards. Ninety percent of these households rely on credit cards. If this bill goes through as many as 45 million American consumers could lose their accounts and not be able to get new ones.
Economically, the loss of liquidity that credit cards afford could have the effect of a nationwide ‘pay cut' in consumers' ability to buy. But, again, these are all perception and Senator Dodd, as well as many others, believes that all these numbers are merely ‘scare-tactic hoopla'.