Banks are Hurt by Credit Cards

The New York Times has this story: “Rising Credit Card Losses Are Next Challenge for Banks“.

Eric Dash and Andrew Martin do a good job of explaining the extent of trouble banks are having and are going to have with credit cards. “Even the government’s grim projections may vastly understate the size of the credit card troubles in store for major U.S. banks.”

Credit Bubble News and Views

Changing credit card terms squeeze consumers

Losses Of Canadian Credit Card Firms Forecast To Hit $800 Million

Target credit card delinquencies up 4 percent in December

US credit card delinquencies at record highs -Fitch

Credit Card Delinquencies Hit Record High

USA TODAY reports “More consumers fall behind on paying credit cards“.

As consumers lose access to home equity loans and lines of credit and as credit card companies change terms, consumers are being squeezed.

As a consequence of the credit crisis, Fitch Ratings expects credit card charge-offs to approach 9% in the second half of 2009. In other words, nearly 1 out of 10 credit accounts will be charged-off because the account holder cannot make payments.

Here’s how the downward spiral for credit card companies may play out. Charge-offs will increase as job losses and tight credit impact household wealth. In their efforts to compensate for the charge-offs, credit card companies will increase fees and raise rates. This will increase the number of card holders who cannot afford their payments.

And somewhere in all of this, what will the impact be of all those who can make their payments, but grow so disgusted with the lack of banking oversight, the bail out of poorly managed financial firms, and the absence of appropriate consequences for those who are scoff laws. At some point, I imagine only those with strong personal integrity or a sense of ethics will make payments to companies that seem to be extorting them by increasing rates and fees.

It’s not a pretty picture.