Are Credit Cards The Next Collapse?

McClatchy:

First came trouble with mortgages, then home equity loans and commercial real estate. Now, banks are starting to worry about credit cards.

As the economy slows and unemployment rises, consumers are defaulting on credit-card payments more often. And though that trend is unlikely to create a crisis in line with the mortgage fallout, it's still a headache for banks that are already hurting.

Read the whole story: McClatchy

Comments

[Enid]

06:19 PM on 11/01/2008

What will happen with secondary loans. Banks other lenders discount bad paper too collection­. This bad debt , paper , dollars has to sit or leverage somewhere ?

[itmaybetoolate]

04:10 PM on 10/30/2008

The economy is toast without strong consumer spending. Many folks use credit cards to purchase goods. And so the spiral begins...

[Mozart123]

09:40 PM on 10/29/2008

Next is the airline industry. The DOJ just approved the Delta takeover of the now nonexisten­t Northwest Airlines.

The CEOs of airlines are vivisectio­nists, with the goal of unparallel­ed personal wealth. Richard Anderson as Delta CEO received $11.6m for 4 months work, Sept – December 2007, in spite of the airline’s $70m loss during this period. Delta emerged from bankruptcy 30 April 2007.

Northwest Airlines Doug Steenland rewarded himself with $26.6m when the airline emerged from bankruptcy 31 May 2007, deaf to the protests from its union employees who made excessive concession­s during the bankruptcy­.

Here are your robber barons. With the merger of these airlines Richard Anderson will be able to do what he couldn’t when he was with Northwest. Bust the unions. Already they have attempted to manipulate the National Mediation Board’s rules to make it more convenient for the merger to end up with only one union agreement, ALPA. Pilots only look out for pilots.

It’s time to regulate the airline industry. They are incapable of policing themselves­.

[francoise]

03:50 PM on 10/29/2008

To stimulate the economy, the buying power must increase.

For the buying power to increase, either the wages must increase, or the credit must be cheap and available to all.

The wages can't increase because in a global economy the poor guys in China, Poland, and Brazil are willing to do your job for 10 % or less of your wages.

Hence the only way to stimulate economical growth is to increase people's debts.

Which is why I was glad when oil was skyrockett­ing : when transporta­tion is too expensive, less jobs are outsourced to faraway countries, and green technology could create good jobs. No need for debt anymore !

[chronic]

03:28 PM on 10/29/2008

After credit cards we will witness as the Health Care Industry due to the criminal insurance industry takes the biggest hit of all.

[chronic]

03:27 PM on 10/29/2008

I hope they collaspe and never get back up!

[Chiclet17]

01:50 PM on 10/29/2008

I don't feel sorry for CAPITAL ONE and other greedy credit card companies. They are loan sharks!

Capital One gave my daughter a card with a $200 limit. When she was late one month, they tacked on a fee for being late. That then caused her balance to go over her limit and then they tacked on a fee for being over her limit. On and on it went. She tried to settle, but they would not accept her payment unless she gave them her bank account number, which she refused to do. (Smart girl!)

She owed $200 originally­, but with all their extra added fees, she now owes over $1,500, which she cannot pay.

[Agent420]

02:22 PM on 10/29/2008

There are no limits to the amount of charges they can pile on. There is also no control about if, when and how much they can raise the interest. You can make a large purchase on your credit card at an introducto­ry rate of say, 5%, then without warning they can up your rate to say, 40% and you cannot do anything about it. No rules, let them fail now and forever. Credit cards are like payday loans, not good for you and not good for the country.

[LeeCalif]

11:57 PM on 11/02/2008

I understand CAPITAL ONE counts on it's profitabil­ity BEING fees.

They looking for the demographi­c that will be feed routinely.

[Enid]

01:39 PM on 10/29/2008

What about the next level bad debt. Secondary collection companies hold trillions of dollars in bad debt, is this not leveraged as well.

[scadabout]

01:34 PM on 10/29/2008

Oh, Yes the credit cards are next.

the house is gone

the car is next

get all you can on the cards.....­.something to sell later

My neighbors, are on the second round of, bankruptcy­, get new house, get new cars, lots of toys...jet skis,4 wheelers etc.

Keep the toys, move on.

endless circle of theft.

I almost feel stupid for, doing without all the fun stuff, saving, perfect credit, investment­s, and the greedy Wall Street,ste­als it all.

I SHOULD HAVE HAD MORE FUN!!!!!

[fredlonsdale]

06:14 PM on 11/02/2008

???? Personal Bankruptcy does not forgive credit card debt. There was a law change a few years ago.

[iambusto]

01:03 PM on 10/29/2008

saying that capping credit card rates at 5-6% above cd or treasury rates is ridiculous !!
RIDICULOUS !!

Lets take a simple example.

say treasury rates are 3%.
Libor is usually (not these days of course when there is crisis of confidence­) 40 basis points above . so its 3.4%
AAA rated companies can issue debt at say 4 - 4.2%. Are regular credit card holders that reliable. of course not.
Move on to AA...say its 4.5%. Are regular credit card holders that reliable. of course not!!

move on to BBB. you get the picture.
What do you think people with credit score 700-750 should pay?
How about people who are below 600?

[Agent420]

02:25 PM on 10/29/2008

I'm sure there is a point in there somewhere, but I fail to see what it is.

[iambusto]

03:41 PM on 10/29/2008

the point is that saying credit card fees should be capped at say 5% above a cd/treasur­y rate (pick your base rate) is ridiculous­.

That means you have to fit the entire spectrum of credit worthiness of customers between a narrow window of 2-3%. thats not feasible and doesnt make sense.

You have to also take into account that the credit card rates should also be much higher than home loan rates because of one being backed by collateral and other being unsecured.

the math doesnt add up

[Sundialsvc4]

12:41 PM on 10/29/2008

Duh. Gee, I wonder.

But don't worry: banks are fully entitled to charge consumers 30.2% interest for their hard-earne­d cash, and to raise those rates anytime they want to.

They're fully entitled to approve that charge that causes your account to be $0.30 overdrawn, so they can charge you a $30.00 "late fee."

In short: they're fully entitled to practice U-S-U-R-Y.

And... "Uncle Sugar W-I-L-L 'Bail Them Out!'" Whaddaya need...$20­0 Billion? Sure! "It's only money!" Swish..Fli­ck! There!! You just got paid-off, and the poor plebes still owe every penny they ever did.

Ahem.

"When the dust finally settles, guess what?" There are a few-thousa­nd of "you," and several hundred milllion of "we, the people." Guess who wins?

Our great-grea­t-great-gr­eat-great grandfathe­rs had it right: "usury equals theft, and for that, we cut off your hand."

[pcplz]

12:19 PM on 10/29/2008

And they should suffer the way they have preyed on the consumer. I only have 3 cards and have always paid ontime and way ahead of time.....a­nd not the minimal payment. My credit was bad when my divorce happened because of......sa­me ole, same ole. That was 8 years ago. Since then....ne­ver a late payment and worked hard to raise it.

Then over a 4 day holiday one payment was 12 hrs late.....f­orgot about no mail service. Guess what? That card went from 9% to 31%! Then within the next week the other 2 did the same. When asked why since I was not ever late....th­e answer was......b­ecause we can. !@#!%&!!!

Yep, yep, let them all go down. My debt isn't very large to them but I am very angry!! They have already been paid for what I bought and now are just making interest $$$$ off of me. $OBs!!

[Sundialsvc4]

12:49 PM on 10/29/2008

Your story is quite typical.

But in the one-minute that you spent reading this, I just paid another $20,000,00­0.00 daily BRIBE to the members of the Banking Committee. I assure you, therefore, that they did not "hear" a thing.

My attitude, unfortunat­ely, has become... (let us say...) "I have nothing to lose. You can whistle for it." You say that I owe you $12,000, and I say I don't. You say that my credit-rat­ing is crap and that I can't borrow from you anymore. I say that I don't want to anyway, and because of that you're out $12,000.

Multiply that by just 100,000 similarly-­situated credithold­ers and you are now out $12 Billion.

So... what do you do? You whine to Uncle Sugar and he flicks his magic wand and "borrows from no-one and nowhere" and you collect your golden parachute and retire to Dubai.

But... there is no sound in the hall. The music has stopped. All is eerie silence. SOMEONE has been "left holding the bag!" Who is it? The banker? No. The politician­? Heck, no.

But... this is NOT "an economy." This is a nation, comprising about 10% of the world's population­, trying somehow to free-load upon the other 90%. Ain't gonna work.

[Agent420]

02:38 PM on 10/29/2008

There are about 6.7 billion people in the world. The US has a population of 305 million. That is about 4.5%

[huffbubble]

11:47 AM on 10/29/2008

A credit card collapse could be good for some Americans. These cards are a potential disaster for people who live beyond their means and do so by loading their Master and Visa cards. Paying the minimum payment gets you nowhere, not even putting a dent in the principal debt. In the hands of irresponsi­ble buyers they are an accident waiting to happen. On the other hand, it will punish consumers who handle them responsibl­y. Cards are handy for internet purchases and not having to carry around cash and write checks. The answer would be to screen those applying more carefully. Some credit card companies will offer your dog one.

[isis]

11:26 AM on 10/29/2008

Well gee, if they are giving away untraceabl­e money as McCain is claiming them maybe they need stricter regulation­s. Lesser government just isn't working.

[LeeCalif]

11:08 AM on 10/29/2008

Yes, they are the next collapse along with auto loans.