Credit Card Banks To Cut Consumer Credit By Half

02 Dec Credit Card Banks To Cut Consumer Credit By Half

Consumer purchasing power is expected to decline over the next 18 months due to a reduction in credit limits by card issuers. According to Oppenheimer & Co analyst, Meridith Whitney, credit card banks will reduce lines of credit available to consumers by more than $2 trillion.

Five major banks dominate the consumer credit card market. Bank of America Corp, Citigroup Inc., and J P Morgan Chase & Co represent more than half of this once lucrative loan sharking business. All three of these companies have been in the headlines recently with Citigroup Inc. the object of a massive government sponsored bailout. With their well known expose to sub-prime and alt-A home loans, these banks are trying to protect themselves from default on unsecured consumer credit.

Ms. Whitney suggested four changes in lending patterns that may help to inspire more confidence in consumer lending. First, lending with a more local perspective as a departure from the centralized underwriting used by major nationwide businesses will allow the lender to become reacquainted with the borrower.

A second change suggested by Whitney and currently under discussion is a guarantee of certain types of bank debt by the Federal Deposit Insurance Corporation. This would allow credit card banks to borrow and make consumer loans that are of a higher risk nature.

Next, Whitney suggests a delay in more restrictive accounting rules for several years so that more risky assets, such as credit card loans, can remain on the balance sheets of banks that extend consumer credit.

Finally, she suggests that 2010 is not the time to impose stricter Unfair and Deceptive Lending Practices rules on lenders. The Credit Cardholder’s Bill of Rights, proposed in the House of Representatives, should be defeated or at least delayed. She believes that consumer lenders should remain unfettered in their ability to gouge vulnerable consumers.

While these policy changes may allow the credit card banks to continue extending credit to consumers who have no business using it and to charge title loan rates of interest to those with credit challenges, it will simply extend the irresponsible lending that has brought our artificially inflated economy to the brink of depression. These are not remedies to our economic problems; they are simply a way to get that next consumer spending “fix” for our “junky” economy.

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.
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