Posted on August - 15 - 2010
Consumers Voluntarily Giving Up Credit Cards
Consumers are voluntarily giving up their credit cards in record numbers according to CreditCards.com. The company did a poll and found that one out of every ten Americans has either voluntarily closed their accounts or have lost the use of the credit cards for any of a number of reasons.
The poll covered the last eight months which was during the throes of the recession. The questions that were asked concerned interest rate changes, credit limit reductions or increases, and incentives offered by companies to convince consumers to close accounts. The changes made on credit cards included 42 percent of the consumers polled. Another way to state it is that 42 percent of consumers had a change made to their credit cards by the issuing company.
The most common change that occurred was an increase in the interest rates. The new Credit CARD Act set to become effective on 22-February-2010 spurred credit card companies to increase rates. The legislation limits when the credit card companies are allowed to raise interest rates though it does not place limits on the interest rates charged.
The CreditCard.com polls reported that 38 percent of credit card holders had their interest rates increased over the last 8 years. The consumer advocate organizations have been monitoring the actions of credit card companies and are appalled at the increases in rates being put in place ahead of the new legislated rules. Some have tried to get Congress to stop the lenders from making radical changes in card terms but to no avail.
Other changes that consumers experienced related to their credit card accounts include conversion from fixed interest rates to variable rates and changes in the limit amounts. A surprising result of the poll was that 30 percent of the credit cards experienced an increase in credit limits.
Americans are using credit cards less often. According to the Federal Reserve, Americans cut their credit card debt by $91 billion in 2009. With the high unemployment rates, consumer counselors have been advising households to cut back on their use of credit cards. It is tempting when money is tight to use a credit card to make purchases, but the increase in debt often comes back to haunt the household.
The question now is whether reductions in credit card use will endure as the economy improves. As consumers return to work over the coming months, the analysts will be watching the numbers closely to see if there has been a permanent change in attitudes towards debt. Americans are being encouraged to save more and use credit cards less and many hope the new lessons stick.
Ironically though, if the changes in behavior are enduring, there is a question about the influence the changes will have on the economy. The less consumers spend, the slower the economy will recover. The CreditCard.com poll surveyed 1,004 households with a margin of error that was plus or minus 3 percentage points.
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