As The Credit Card Market Rebounds, So Does Anger
by Jason SteeleIt seems like the US economy has reached bottom and is either not plummeting anymore, or is showing some tepid signs of a future recovery. At least that is how things look here in Denver, where I live. The housing market just showed slight gains, and the job market has stabilized. If you are living in Detroit, your results may vary (By the way, don’t move here, we are all full, try Utah.)
Is The Credit Crunch Behind Us?
Everyone has been speculating what will be the next shoe to drop in the credit crisis. Of course, the first major issue was the mortgage crisis. Many people thought that credit cards would be next, or maybe commercial real estate. According to this Associated Press article posted on Forbes, the default rate for credit cards seems to have peaked and has even retreated somewhat in July. The numbers, just slightly under 10% seem to mirror the unemployment rate. That makes intuitive sense as people who are unemployed are generally more concerned with their own survival than their credit card payment.
In fact, the article notes: “The factor most affecting credit currently, however, is unemployment. “We believe that further increases in the unemployment rate could cause a second spike in credit losses in the second half of the year,” wrote Credit Suisse analyst Moshe Orenbuch in a Monday note to investors. Although some economists are predicting the recession has ended or is near the end, the credit health of most families will lag behind the broader economic uptick.”
Defaults Down, Anger Up
At the same time, people are getting more and more fed up with their credit card companies. The anger at their day to day practices helped clear the path for the CARD act. In response, the credit card companies have tightened the noose around many consumers by raising interest rates across the board. To be fair, I prefer a higher APR to the soon to be outlawed tricks, traps, and double cycle billing. High APRs are at least honest, while double cycle billing is bizarre and deceptive at best. This Reuters article talks about how people have become more angry at their credit card companies in light of the recently raised APRs.
What Will Next Year Hold?
Fortunately for the credit card companies, I predict their customer satisfaction ratings will climb next year when the CARD act goes into effect. Most of them are being dragged kicking and screaming into treating their customers a bit more fairly, but when they are finally forced to, I think people will be happier. Look at the auto industry for example. It is hard to believe there was once a time where the auto manufactures fought tooth and nail against safety regulations such as airbags. Now, each company competes with each other to brag about how many airbags are in each of their cars. 6? 8? 10? 12?, they can’t seem to add enough. The same is true in regards to fuel economy. They fought against tougher standards for years, yet now they compete to see who has the best EPA ratings.
That said, my prediction remains that the credit card companies will just barely comply with the letter of the law, while trying to find new and innovative ways to make more money off of their card holders. On the other hand, wouldn’t it be nice if some companies actually went the other way and tried to differentiate themselves by having consumer friendly policies?
In the end, maybe it doesn’t matter. Reward card holders will find the card with the best reward, while revolvers will seek the card with the best interest rate. We shall see.
The factor most affecting credit currently, however, is unemployment.
“We believe that further increases in the unemployment rate could cause a second spike in credit losses in the second half of the year,” wrote Credit Suisse analyst Moshe Orenbuch in a Monday note to investors.
Although some economists are predicting the recession has ended or is near the end, the credit health of most families will lag behind the broader economic uptick.