January 27, 2009
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News: Credit Card Industry Due for Overhaul.
Ordinary repairs don't seem to work anymore. Throw in billions of taxpayer dollars and the credit card industry still can't make it up the hills on Wall Street. Amex is only running at 37% from a year ago, Cap One and Wells Fargo about the same and B of A and Citigroup bogged down to about 20%. What could be worse? Don't ask. Wither our credit card industry? Blame it on jobs. As much as consumers would like to pay on debt, they just can't. "Ya gotta eat", as the saying goes. Consequently, the number of credit card debts defaulting into collections (charge-offs) last year jumped 44%.
Of course, consumers are responding as responsively as possible. The double-edged sword here is that, not only are risky credit card users charging less but, even consumers with less risk are also backing off (by 3.6 million customers just for Cap One). Business is bad all around. Unfortunately, old credit card debts are still with us and continue to worsen while new credit card revenues are dwindling also.
Still, the worst news for the credit card industry is not over – just forestalled. What is perceived as good news for consumers is also perceived as bad news for the industry. New government regulations were issued in November that will cause a mandatory overhaul of the industry. The temporary reprieve is that they won't be enforced until July of 2010. (Congress, however, is breathing down industry's neck to move things up to as soon as April of this year).
Whenever the regs. hit, the industry is looking a even further losses as consumers gain more protection than they've had in a decade. No more arbitrary APR jumps, 45-day grace periods, no more universal defaults and adjusting rates using unrelated delinquencies They will all be disallowed. The industry is alarmed by its loss of ability to protect itself and warns of cutbacks in credit card accounts as a result numbering in the millions (of consumers).