Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Dow 30k before End of 2020? - 13th Jul 20
Credit Market Investments Turned Into End-User Risk Again - 13th Jul 20
Investors Are Going All-In on This Coronavirus Proof Industry - 13th Jul 20
5 Vital Insights That You Can Gain From Instagram Trackers - 13th Jul 20
Stop Believing The 'Economy' Is The Same As The Stock Market - 12th Jul 20
Spotify Recealed as The “Next Netflix” - 12th Jul 20
Getting Ahead of the Game: What Determines the Prices of Oil? - 12th Jul 20
The Big Short 2020 – World Pushes Credit/Investments Into Risk Again - 11th Jul 20
The Bearish Combination of Soaring Silver and Lagging GDX Miners - 11th Jul 20
Stock Market: "Relevant Waves Vs. Irrelevant News" - 10th Jul 20
Prepare for the global impact of US COVID-19 resurgence - 10th Jul 20
Golds quick price move increases the odds of a correction - 10th Jul 20
Declaring Your Independence from Currency Debasement - 10th Jul 20
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Credit Card Law, Benefits and Fallout

Economics / Credit Crisis 2009 Dec 23, 2009 - 12:11 PM GMT

By: Andy_Sutton


Best Financial Markets Analysis ArticleIt is probably very appropriate as we close in on the traditional climax of consumer largesse to discuss the backdrop of this year’s consumption binge (or lack thereof). So lavish has spending historically been between the day after Thanksgiving and the end of the year that it has become a month that retailers cannot do without. They’ve even gone as far as to name the days, coining the terms ‘Black Friday’ and more recently ‘Cyber Monday’.

However, there is a new twist this year. Retailers are crying the blues for some different reasons. First and foremost, according to many industry groups is the fact that credit card companies are cutting limits and turning down applications as they prepare for provisions of the new CARD Law regarding their conduct to take effect next year. According to America’s Research Group, nearly $9 Billion in holiday sales are in jeopardy because of these actions.

Consumer Credit Contraction 

In fact, the availability of consumer credit has dried up significantly in the past year, down to $3.6 Trillion from $4.7 Trillion; a decline of over 23%.  During this same period, consumer credit outstanding (the amount of the aforementioned credit actually deployed) has dropped over $92 Billion. This has been the first such drop in the history of the series, dating back to 1943.

In fact, so much of a threat is any curtailing of consumer borrowing to the overall economy that the government has taken some unprecedented steps to get banks lending and consumers borrowing. So far it hasn’t really worked, with the notable exception being housing, but there are signs that the housing rally is starting to run out of steam as well.

What the CARD law does (and doesn’t do)

One of the biggest impacts of the new credit card law will be to stop the concept of universal default. If you have a card from bank A and miss a payment on bank B’s card in the past, bank A would raise your rate because they now categorized you as a default risk even though your late payment had nothing whatsoever to do with them. The same went for car, mortgage, and even utility payments. One little mistake anywhere in your financial life and you paid dearly on the credit card front.

The new law also limits the scope of changes that can occur to cardholder agreements without significant notice time given. Just as a personal note, I recently received a booklet, and I do believe that is the correct term, filled with changes to my cardholder’s agreement. At the end, it said I could refuse the changes by cancelling my card. Fair enough. The changes didn’t affect me, but I read the pamphlet anyway. In essence, this particular bank, which shall remain nameless, is paving the way for a bevy of new fees and credit limit cuts. It is my understanding this is going on throughout the entire industry.

Also put in check are random and capricious interest rate hikes not only for new purchases, but on existing balances as well. Perhaps most importantly, when a consumer has multiple interest rates in affect across their outstanding balances, payments will be applied to the highest rate portion first, then downward. This will help prevent a small balance from essentially becoming a perverse annuity for the card issuer.

It is pretty much a no-brainer that many of the consumer-friendly changes listed above will cut bank revenues because they address ways in which banks have scalped consumers for easy cash in the past. What is pretty much left unsaid and completely unaddressed is what the banks might do to maintain their profit levels on consumer credit cards. Unfortunately, the banks and card companies are going to respond in general by making it harder and more expensive for people to get and use credit cards, including even the most responsible borrowers. Rewards programs are likely to be cut or eliminated, and the 30-day grace period may become a thing of the past. Credit is likely to dry up at the margin where people have lower FICO scores and maybe a bankruptcy or two. Deadbeats are liable to lose their 1-3% cash back incentives for using the cards. What also might see an ugly return is the annual fee. Annual fees pretty much disappeared during the orgy of consumption because banks could make money in so many other ways.

If nothing else, the CARD law and the fallout will present a unique opportunity and hopefully some solid incentive for people to dump credit cards in general. It would certainly be better for our savings patterns if we did. It has been demonstrated time and time again that when people use cash, they’re more mindful of the money they spend.


Sometimes ,however, dumping the cards totally isn’t a viable option. There is a definitely a convenience factor in place with credit cards and much of our economy has shifted in this regard. So unloading your wallet of those plastic shackles might not be something you want to do.

One solution I always give people is to purchase pre-loaded cards. You can get them at most retailers in denominations generally up to $500. You pay the retailer $500 in cash plus a small activation fee and you have yourself a credit card. You can go shopping online or in a store and use it just like a credit card with one limitation: when the funds are used up, you’re done shopping. The card is indexed to what you can afford unlike most credit cards. Another benefit, especially if you shop online, is that if your number is swiped, much less damage can be done. Unfortunately, in the case of the prepaid card, whatever money was on the card is likely gone if someone does get the number.

Another related solution is to use your ATM card for purchases since it is linked directly to your bank account and you can’t overspend. However, there have been countless cases where people have cleaned out their bank accounts to make impulse purchases only to reap the whirlwind when the mortgage comes due.

Another solution, and this is one that has vexed retailers is that people actually SHOULD be cutting back on discretionary purchases. Retailers are mad at Congress for imposing limits on the card industry because it’ll keep people from using cards for purchases they wouldn’t make otherwise. Here’s a news flash. If you need a loan at 20% to buy something then you shouldn’t be buying it! The people on the margin that will be most likely to lose access to credit cards are the ones that will probably benefit the MOST from the CARD act since they’ll be less able to get themselves into credit card trouble.

As we approach the time of year when people celebrate the birth of Christ, it is probably not a bad idea to take a lesson from the Bible as it relates to debt. Rom 13:8 states: Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.
Maybe this year and forward we could set down the credit cards, live within our means and continue to repair our balance sheets regardless of what Congress, retailers, or banks say. After all, they’ve demonstrated a complete inability do be financially responsible. Perhaps we could lead the way this time.

I’d like to take this opportunity as I put the cap on my pen for the last time in 2009 to wish everyone a safe and relaxing Holiday Season and to thank you for reading My Two Cents; I’ve enjoyed being here.

By Andy Sutton

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit

Andy Sutton Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


24 Dec 09, 08:26
Credit Cards

Worth reading!


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules