Here Comes a Consumer Killer

Includes: AXP, C, MA
by: Larry House

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 (NYSE: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.