January 05, 2009
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News: CC Availability Fundamentals & Consequences
Beyond just bad loans and unprecedented ‘uncollectible's, are there any additional detrimental influences which will hold strong sway on the future of credit cards? The answer, unfortunately, is yes. In an effort to respond to tens-of-thousands of consumer complaints to Congress and our Treasury Department, new regulations have just been put into effect. Due to the collective calamity of a crashing economy, both the consumers and the credit card industry have divided ideas concerning what must be done next. Each side is seeking survival protections but in opposite directions, or so it would seem. Even the government is split on this issue. The Congress is siding with the consumer, while the Treasury Department is siding with the credit card industry. The problem is that all four of these entities are right but the friendly balance is just not there. So, the Congress has exercised it's clout with recent legislation to respond in favor of the consumer over the credit card industry. Fortunately, Congress has also exercised the wisdom of allowing a year to pass before actually imposing these new regulations.
Much depends on how the market plays out with this new balance. Consumers may enjoy greater protections but find themselves priced out of the new credit card offerings. Lending banks sternly warn they will need to cut quantity in order to increase quality. Bottom line is that credit card availability is going down. Somewhere, there's a settling point where the buyer and the seller will agree on price (where the ‘Demand Curve' crosses the ‘Supply Curve'). It might not be so bad as dramatic lobbyists portray (we hope not) but the analysts do agree that, for several strong reasons, credit card availability is going to diminish.
Another further complication being addressed by the government ‘bailouts' is ‘securitization'. Related to other ‘derivatives' that became literal ‘free-for-all's with Bush's dismal regulation policies, ‘securitization' fell like a lead balloon when the housing market melted down. ‘Securitization' (packaging and selling debt bundles to secondary markets) had become an staple mainstay to the credit card industry. Now it's gone and lending shares on Wall Street have plummeted as well. The government is trying to revitalize the securitization market with new and safe regulation.