Credit Card Spending is Spent

If you can’t pull money from your home equity, and you can’t get it from the stock market - what’s left?

Credit cards, of course.

Consumers have always relied on credit cards to keep themselves afloat during difficult times and right now, the times are showing that this consumer spending resource is pretty much spent.

Risky customers and in some cases, even prime borrowers, have had their credit limits slashed.  Many customers are unable to open new lines of credit. The credit card companies are even reducing their marketing efforts - have you noticed less credit card offers in the mail? According to CBS News, HSBC  sent out 54% less direct mail advertisements and Citibank has sent out 45% less.

For years (decades, even) credit card issuers were never overly consumed with risk.  It didn’t seem they limited the amount of money they would lend or who they would lend too with any strict rules.  But now, as reports come in that the private sector is not willing to invest or lend money to the credit card issuers, it appears our love-hate relationship with credit cards is about to just be “hate”.

From Seeking Alpha: “For the first time in 14 years, no one has been willing to buy bonds backed by credit card loans….You see, credit card issuers like Bank of America (NYSE:BAC), JP Morgan Chase (NYSE:JPM), and American Express (NYSE:AXP) lend money on credit cards. Then they bundle those loans up and sell them off to institutional investors like insurance companies, hedge funds, and mutual funds looking for income. That way they can lend more and more without taking on much of the consumer debt or the risk themselves.”

Now that investors are no longer willing to take on the risk of financing credit cards, and credit card issuers aren’t willing to take on more risk - it seems consumers are about to experience even less access to credit.