Here Comes a Consumer Killer 24 comments
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My family and I were away from home for Thanksgiving, and upon returning home and going through the mail, I found two form letters from different credit card issuers with whom I have accounts. Both letters were notification of a change in terms. Bottom line, both were announcing rate increases on balances carried on the accounts.
Now I know Citi (C) is hard up, but they are doubling their rate from my previous 7.2% to 14.99%. I have the option to keep my current rate of interest until my current card expires. By expiration the account balance is to be paid off, and the account will be closed at that time. I have already advised them that that is my intention. The balance is a very small percentage of the credit limit, and I have never been late, etc. This is just a wholesale change that Citi is making to cover for credit card losses on other accounts, reduce their credit liability, and simply make more money. I really feel for people who have large balances, get this notice, and have no way to pay off the balance and avoid the much higher rate.
The notice from the other card company was much the same, but the interest rate increase was more modest.
If my experience is an indication of what credit card companies in general will be doing, the consumer is going to be squeezed even further. I can tell you, my response is I will cut back on spending using cards, period, even if I don't carry a balance. It will be cash or the debit card. I refuse to pay 14.99% for money. It may also mean I don't save or invest as much as I keep more of a cash reserve.
It seems to me that Citi and other credit card companies taking this action now are cutting off their noses to spite their faces. I think the response of many card holders, including myself, will be I don't need this credit card. Again, I feel for those who are caught with large balances and have no recourse but to pay the horrible rate.
Does anyone really believe we can have an economic recovery without the consumer? Our system has been drunk on debt for too many years. The day has come to get weaned off debt. In the long run, it is better for all of us, but there is more pain to come. We consumers have more contraction coming in our spending habits. Take with a grain of salt pundits who preach that we have hit the bottom and that the economy is about to turn around. Corporate earnings are a question mark for several quarters to come. Consumers are losing buying power on home credit lines and now credit cards. There may indeed be a Santa Claus, but he cannot save the economy.
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This article has 24 comments:
I agree with you that these trends will not support a consumer-led buying spree recovery. But, let's face it.....with so many discretionary consumer goods being made in China, the multiplier effect is no longer what it used to be. Consumers no longer have the ability to shop the US out of recession, even with easy credit.
The consumer needs a few years to fix his balance sheet. The feds need to realize this and stop encouraging wasteful spending. Consumer savings should help recapitalize banks (unless that's overwhelmed by their toxic waste CDOs).
Yes, this will be a muted recovery, and the feds need to prime the pump with job creators through accelerated depreciation, investment tax credits, and other policies that will help manufacturers.
My guess for a decent turn in the economy is a good year or two. Consumers need time to get a grip on their finances and that won't happen overnight.
It strikes me funny that everytime credit cards purchases are discussed the automatic assumption is overuse and high interest rates. This is probably the rule but there is always an exception.
I was 2 days late on my B of A
payment and I was charged $39.00
late fee.
PLUS my interest rate went from
zero on a check transfer to 29.99%
On $10,000 that's a lot of burritos.
So I paid them off.
Bad enough were stuck as taxpayers to bail out the banks and financial intuitions,they thank us with a request to bend over.
You're correct from a macro economic sense; the rebuilding will be painful, but necessary, but it ALSO means the market will not be rebounding in any meaningful way anytime soon..(not counting bear rallies like the last 5 days).
Then telling them to go F'k themselves, hell w/credit ratings, could care less with the assets I've accumulated to this point.
Funny, I use SAVINGS to pay for bigger items that don't fit in the monthly budget. I even buy cars with cash - never made a car payment in my life and I'm on Soc Sec.
Do I use credit cards ? Of course. They are on autopay, so the balance gets paid in full on the due date.
We all have choices. We can use the credit and financial systems to OUR advantage or we can let the creditors use US to THEIR adantage.
And people without savings let the creditors manage their financial lives and pay them 18% to do it. Not a good choice.
The writer may be able to pay off his CC debt easily (which begs the question as to why he was running it anyway) for others the higher interest rates is a an incentive to begin to pay off such debt quicker than B4. It's NOT the job of CC companies to help the economy recover by increasing lending and increasing their losses. They are responsible to shareholders and BoDs to manage their business prudently.
Better money management by consumers will eventually improve our economy while we undergo a period of deleveraging until the economy can safely grow again.
On Nov 30 12:03 PM SugarDaddy wrote:
> I'm almost thinking to max out my $410,000 in available credit cards
> credit by using them to buy gold 100%.
>
> Then telling them to go F'k themselves, hell w/credit ratings, could
> care less with the assets I've accumulated to this point.
Country Wide expans Nation Wide. Country Wide employees it's own in house Property Appraisers to overvalue the properties. The Overvalued loans are packaged and sold as AAA+ paper.
Spitzer, as Govenor trys to stop the Predatopry Loans. The Bush Adminstration take New York and many other states to court to prevent Comsumer Protection Laws from being emforced in states around the Country.
California does not wait and files suit against Predatory Lenders.
Spitzer writes warning to the American People about the Bush Adminstration preventing state from protecting Consumers.
Spitzer get busted for sex scandel.
Bush and his buddies have planned this Economic Crash !!!!!!!!
NAFTA and Cafta can't work with U.S. Wages so high.
How low do they want to wages is what we can't figure out. Unemplyment is really about 14 % or higher and more comming.
Watch your money !!!!!! If they go for Fort Knox before Bush leaves office we are done for at least 25 years. See hyper inflation !
Exactly!!!
The credit card companies assume they are going to get paid.
The response of many Americans, especially after watching Wall Street get bailed out with their tax dollars, will be to give the Washingtion and Wall Street the finger!
Duh.
That is what got us here in the first place yet debt spending and increasing debt costs and penalties will get us out?
Look for that next; more taxpayer dollar to bail out the credit card companies.
Then they'll need to spend another trillion to hire the police and soldiers to try and get people to pay or move out of their foreclosed home.
Yikes.
On Nov 30 12:03 PM SugarDaddy wrote:
> I'm almost thinking to max out my $410,000 in available credit cards
> credit by using them to buy gold 100%.
>
> Then telling them to go F'k themselves, hell w/credit ratings, could
> care less with the assets I've accumulated to this point.
"It's NOT the job of CC companies to help the economy recover by increasing lending and increasing their losses. They are responsible to shareholders and BoDs to manage their business prudently."
That deal is over. We have been ROBBED to pay for their imprudent business practices.
If the Government had let the markets deal with it than you might have a point, but that is not the case.
I really believe that many will max out their cards and equity and walk away. The only threat is "credit rating". Woop-de-doo.
On Nov 30 01:09 PM IANR wrote:
> On the other hand the credit card companies are experiencing increasing
> rates of default (and thereby increasing their provisions each Quarter)
> in the current economic environment. So what should a prudent company
> do to stem such writedowns and losses? Are you suggesting that reduced
> lines of cedit and higher rates of interest are NOT the tools they
> should use?
> The writer may be able to pay off his CC debt easily (which begs
> the question as to why he was running it anyway) for others the higher
> interest rates is a an incentive to begin to pay off such debt quicker
> than B4. It's NOT the job of CC companies to help the economy recover
> by increasing lending and increasing their losses. They are responsible
> to shareholders and BoDs to manage their business prudently.
> Better money management by consumers will eventually improve our
> economy while we undergo a period of deleveraging until the economy
> can safely grow again.
These are creeps and I am glad I voted for Ralph Nuder. He was right, this is the same old crap. Rubin lobbied Obama so that Obama would select Geithner, who should have stopped Citi's excesses YEARS ago.
Paulson, Rubin and Geithner should be in prison and not running up trillions. They are doing the same dumb things Americans have been doing for years. Buying crap on credit. Our deficit will be 1.5 trillion next year. This is sickening.
Of course paying a late fee is painful so don't be late. Now that you can pay the card online, there is no reason to be late, ever.
Citi's action is rational as no credit card company should be charging 7.2% unless it is a short term teaser rate. With long term charge-offs averaging 5% and current ones set to top 7% why on earth would they stay at 7.2%?