Credit Card Industry May Cut $2 trillion In Credit Lines
 

http://www.reuters.com/article/newsO...4B01HI20081201

(Reuters) - The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.

"In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent."

Bank of America Corp (BAC.N), Citigroup Inc (C.N) and JPMorgan Chase & Co (JPM.N) represent over half of the estimated U.S. card outstandings as of September 30, and each company has discussed reducing card exposure or slowing growth, Whitney said.

Closing millions of accounts, cutting credit lines and raising interest rates are just some of the moves credit card issuers are using to try to inoculate themselves from a tsunami of expected consumer defaults.

A consolidated U.S. lending market that is pulling back on credit is also posing a risk to the overall consumer liquidity, Whitney said.

Mortgages and credit cards are now dominated by five players who are all pulling back liquidity, making reductions in consumer liquidity seem unavoidable, she said.

"We are now beginning to see evidence of broad-based declines in overall consumer liquidity."

"Already, we have witnessed the entire mortgage market hit a wall, and we believe it will, for the first time ever, show actual shrinkage over the next few months," she wrote.

The credit card market will be 18 months behind the mortgage market and will begin to shrink by mid-2010, Whitney said.

Whitney also expects home prices to continue falling another 20 percent hurt by lower liquidity. They are down 23 percent from their peak, she said.

"In a country that offers hundreds of cereal and soda pop choices, the banking industry has become one that offers very few choices," Whitney wrote in a note dated November 30.

She also said credit lines to consumers through home equity and credit cards had been cut back from the second-quarter levels.

"Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view," the analyst said.

Most of the solutions to the situation involve government intervention, and all of them require more dilutive capital to existing lenders, she said.

"Accordingly, we continue to be cautious on our outlook on US banks."

Continues here...

http://www.reuters.com/article/newsO...1?pageNumber=2

Odd those very same banks are the ones that I mentioned last week or so about them trying out a new fine for paying off your card each month in full. In essence an annual fee if you do not have credit lines open and getting charged interest.

Good times, good times!

I don't exactly blame them. Their whole business model, right or wrong, is about to change.

they better come up with a new business model becaue any time you try to get just the "best" customers and ignore the rest results in getting no customers.

Cue the guys saying "porn is recession free" ... can't sign up if the banks cap your credit limit to your current balance :2 cents:

This is where the non CC billing guys move in...

"In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent."

Interesting. Thanks for posting, BFT3K.

:1orglaugh Please don't shoot the messenger! :1orglaugh

swell...

swell...

Please list non-credit card based billing options that are NOT fraught with reversals and chargebacks.

I've spoken with numerous program owners that don't even offer phone or check billing any longer, based upon all of the fraud and reversals associated with same.

I'm all ears if there really is an alternate billing solution that is actually safe, credible, and somewhat stable.

Anyone know of such an option?

Phone billing that accept adult

123 TICKET

ONEBIP

holy smokes, that sounds worse than the unemployment numbers. Telling a nation addicted to debt that it's debts are now being called in? Madness!

I agree that for a merchant cards are definitely the best method of billing, but my point was that you may need to visit other alternatives soon; your CC decline levels will only go up, at some point you'll be losing more in declined CC sales than (generally higher overhead) alternative billing. :2 cents:

they should offer more options for lower interest rates to more customers. They would probably be more inclinded to pay off more if the interest rate were say 9% rather than 24%.

Another possibility could be that the banks begin to offer tons of low-limit cards, at high interest rates, with big annual fees. This reduces big risks, and all of the bank fees will cover the write-offs.

Once people get desperate enough for credit, it will be the banks that hold all of the cards (pun intended).

I don't like that plan, but at least it allows people the option to make online credit card transactions....

www.cashinenvelope.com :upsidedow

I don't quite follow you. Why would someone be more willing to quickly pay off their debt at 9% as opposed to 24%?

You should see what some banks are starting to do over here in the UK now This is the first to do this the rest will follow because it means more $$$ for the banks when people do go over drawn

Last month, the bank we now own a huge chunk of, repaid us by writing to its 10 million customers telling them that it was about to make their charges much simpler. With great fanfare it announced it would slash its unauthorised overdraft charges from £35 per transaction to a £5 a day. If you spend beyond your limit you will be better off which is good news.

However, for many other customers, who stick within their overdraft limits, it's a different story. For most customers, the Halfiax has chosen to ditch free overdrafts and replace all its interest charges with a flat fee. If you're within your limit and borrowing up to £2,500 it will cost £1 a day. If your overdraft is more than that it doubles to £2 a day.

Halifax says it's making things simple and conceptually it is, the problem is for some people it's simply going to cost a fortune. Imagine you slip £10 overdrawn without realising it until 20 days later when you get your statement, that'll mean you pay £20 on a £10 overdraft. In fact, for someone £10 overdrawn, £1 a day is equivalent to 36,500% interest per year.

These changes happen on 6 December, and many of the Halifax's customers will pay more.

The full story here

http://www.bbc.co.uk/blogs/watchdog/...0/halifax.html

You guys think paypal will ever allow adult subscriptions? They just recently started allowing adult DVD's...

Thinking about the CC problems, do you guys in the US have Debit cards ?

For those who dont know how they work

Its basicaly the same as a CC you use them to buy goods/ memberships online/ in shops ect, the difference is, is they are issued by your bank if you have a current account and you canot use them if you dont have the funds in your bank account to cover the cost of the purchase or if you have not exceeded your over draft limit. If you try and use them without the funds in your bank account they simple decline them before you can buy anything.

These would be far better to use than CC because you dont get chargebacks but unfortunatly you do still get fraudulent or stolen cards

Was just wondring if you have anything like this in the US

the basic problem with credit lines, mortgages, car loans and all this shit is that people got told that they can spend more money than they earn. and banks can't live from people who do not spend money

Yes, the US has debit cards. Most of them have the Visa or Mastercard logo.

Yeh, we have debit.

So maybe the way to go for billing is to only accept debit cards or prepaid CC and phone billing solutions

Article is from almost a year ago - a lot of these cuts have already happened. :2 cents:

Why? If a transaction cannot go through, it is denied, no big deal. Why on earth would you block out the largest group of customers?

prepaid CC are mostly the same as any other credit card, and hopefully Visa and Mastercard keep it that way, a prepaid debit card is different. Merchants should not be allowed to discriminate between prepaid credit cards and normal credit cards. :2 cents:

The real problem is the packaging and resale of commercial paper.

If you lend someone money at 24% you make a lot of money when they pay you back BUT you are assuming the risk that they may default. So lending money at 10% to someone who pays you back IS a better move than lending money at 24% to someone who defaults. That makes it within the lendors self-interest to carefully loan money to people who can pay it back (based on actual financial documentation).

However, if I can lend money at 24% and takes all those loans and bundle them up, I can sell that bundle to someone else. It doesn't matter to me if that loan will ever be repaid because I won't be there to collect the debt, I'll have sold it off to another bank who buys bundled debts based on meaningless 'ratings' by financial companies that profit from transactional volume and therefore inflate ratings.

The reason to evaluate the liklihood that a loan will be repaid gets muted and all that matters is getting as many people as you can to borrow as much as they can for as high a rate as they will accept.

That's what got the banksin trouble. Now they got their bailout money and want to stop the game of musical chairs that they started - during a moment when the most bankers are seated and the most lenders are left standing up out in the cold.

The government should REQUIRE lending and threaten to dissolve the board of any bank failing to provide liquidity to debtors who have not defaulted or abused their credit lines.

Global-Acces offers phone and SMS billing, we do not hold your money, if you get a call or SMS from Monday to Sunday, you get paid the following Monday. We guarantee your payout, NO CHARGE-BACKS! We do not charge any fees to set you up. We are also fully integrated into NATS and MPA2 and if you do not use those, we have a very simple integration process.

There are many ways to work with SMS and phone billing, I am here to go over them with you and find the best way to monetize your existing traffic and maximize your revenues.

Remember that we can do phone billing in 230 countries in over 62 languages and SMS billing in 26 countries. We also offer Euro Debit for 5 countries.

If you need further information, do not hesitate to contact me :thumbsup

Unless new safe guards have been put in place, I don't think debit credit cards are used as much online, as the cards are normally directly linked to the surfers bank account. You don't earn any bonus points, your money is instantly taken from your account so you can't float it until next bill. I don't know if the transactions are insured through Visa or MC, and with identity theft up, direct debit cards probably aren't customer's favorite way to pay for porn. Some will use them I guess, which is still better than none.

I blame tubes

Credit card crash is coming for sure.

The funny thing is anyone with credit lines at those banks know they started doing this at least 6 months ago.

Wells Fargo likes the number 3:

Wells Fargo is raising credit card rates 3% by November 30th (I got that fun letter).
http://sanfrancisco.bizjournals.com/...5/daily64.html

Wells Fargo profits doubled in 3rd quarter (while reporting higher loan losses).
http://www.nytimes.com/2009/10/22/bu...2regional.html

Good times. Good times... if only I shat out money.

So people will only be able to buy what they can afford? Shocking!

Just noticed that article linked to in OP is from Dec '08.

I didn't notice the date - thanks for pointing that out.

Maybe that explains a lot of what is going on right now.

the candidate has 100 points

Meredith Whitney is always dead on...

Since the current financial crisis was caused by an easy credit bubble then it seems like good news that banks will start to rein in the irresponsible lending. :2 cents: