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Bryce Covert

Bryce Covert

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The Beginnings of a Credit Card-Free Revolution? Maybe Not.

Posted: 12/ 1/10 06:51 PM ET

Cross-posted from New Deal 2.0.

Welcome to the club, eight million new people without a credit card! CNNMoney reported yesterday that credit card use is in decline, with the number of cardless people jumping up to 78 million this year from 70 million last year. In a recession where every penny counts, many consumers shredded their cards in a move to reduce their debt (and probably avoid fee hikes). The article reports, "TransUnion said the average U.S. credit card debt fell more than 11% over the past year to $4,964 in the third quarter." Gerri Detweiler of Credit.com called the phenomenon "unprecedented." Consumers never abandon their plastic, she says; the numbers have "always gone up." Perhaps a silver lining of our economic misery could be consumers moving from debt and risk to saving and building real wealth.

But the drop in users isn't all due to penny pinching and/or outrage. Part of this trend is from "charge-offs in the higher risk segments," says TransUnion. Because the new credit card act puts a kink in card companies' ability to jack up interest rates and impose fees, they dumped consumers who they "saw as dead weight," the article reports. With a recession causing more defaults on debt, the companies are getting out of riskier accounts. So both consumers and companies are parting ways with risk.

And with easy access to credit cards dried up, some see the opportunity to cash in by creating new products. Enter the Kardashians -- because we should always take financial advice from celebrities famous only for being famous. The reality TV celebs planned to market a pre-paid debit card to young teenage girls with their faces painted across the front. While they decided to shut down the venture (after Connecticut Attorney General Richard Blumenthal questioned the legality of the card's "pernicious and predatory fees"), they aren't alone in trying to get in on a growing trend. Annie Lowrey reports that "the total market will double in size in the next three years, with customers loading a whopping $672 billion onto prepaid cards by 2013." The cards are sometimes used to get money to underserved communities such as immigrants and the poor. But they are also seen as a way for banks to cash in on a new distaste for credit cards among young people and to avoid rules that could limit profits on credit and debit cards. Lowrey points out that the Kardashian Kard (yes, with a 'K') would have had "more fees than the Kardashians have reality shows." On top of that, these cards don't have "the protections or the financial-education benefits of plain-vanilla banking products," she adds.

So good news: more people converting to the non-credit card cause. Bad news: not all of those people chose to leave credit card ownership of their own accord, and financial wizardry is already on the case, filling our need for predatory products. Innovation at its best!

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