Since 2009, there has been a drop in credit card debt in the United States which can widely be credited to newly wary consumers. It is believed though that a significant portion of the decline can be contributed to the financial institutions writing off billions of dollars in credit card debt as losses. By using debit card and staying away from exceeding new credit limits the consumers are voluntarily reducing their balances. Kenneth J. Clayton, senior vice president for the American Bankers Association for card policy, said the impact of tighter credit “It has a braking effect on the economy, and the key thing is to get to the right balance,” he said. “We are in a process right now of finding that balance”.
The Federal Reserve put out a report stating that mortgages, credit card accounts and nonrevolving accounts like auto loans were approximately $13.9 trillion last week. This is a $200 billion decrease from last year’s report. Bank of America said in April that consumer loans were down $37 billion from a year earlier, with $34 billion of that reduction the result of charge-offs. Economists agree that one of the main reasons for these reductions is a shift from credit cards to debit cards. This shift began before the recession and increased with it. It is believed that purchases of debit cards will exceed purchases of credit cards in 2014. That is partly because more cardholders will fall by the wayside as issuers raise prices for outstanding balances in response to the Card Act. The card act was intended to protect consumers from unfair credit card billing practices.
This article is interesting in that it shows how the consumer finance industry is on a decline. The article says that “Between the recession-related psychology of not wanting to spend, out of fear of what the future might bring, you have the reality of people who simply don’t have a credit card anymore”. Is it possible that the credit card aspect of consumer banking could go completely extinct?
-http://www.nytimes.com/2010/09/25/business/25credit.html?_r=1&scp=5&sq=credit%20cards&st=cse
To respond to your question at the end, I believe that credit cards will never go extinct. Although the trend shows a decrease in demand for credit cards, people still need to use them because of the credit they offer. I think this is an aspect of the economy that will never go away.
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