Karen Consumer

Credit Card Crunch: Creating a New Generation of Subprime

I agree with Mizzoufan. After the recession and the 2010 credit card "help" from congress, banks and credit card companies will need all new algorithms in order not just to provide credit but to stay viable.

A person who walks away from their house but pays their credit is different from a person who keeps their house and lets everything else go (ability/willingness wise). A person who pays off all their cards on time and gets higher interest rates and lower credit availability or complete loss of credit availability isn't going to run back to the same organization in two years to reapply for that line of credit. A person who stops paying on their credit cards to pay for food can still get household necessities on lay-a-way, a payday loan, or go to a pawn shop for emergency cash.

What we're seeing (IMO) is additional irrationality on the part of banks and credit issuers. Not happy with shooting themselves in the foot with derivatives from bad home loans, they are now determined to shoot themselves in the kneecaps with credit cards. You can treat the consumer like dirt for a while, but they won't tolerate it forever.