Sense on Cents

Life is not fair.

While many topics could be placed into that all consuming category, the ongoing developments in the credit card industry certainly get top billing. Why?

High five to MC for once again pointing out the ever increasing and seemingly indiscriminate denial of consumer credit. Am I referring to creditworthy individuals applying for a credit card or other form of consumer credit? No!

I am referring to individuals who at point of purchase are discovering that their credit cards are being denied. These must be one off situations or for those already delinquent, correct? Not necessarily. As MSNBC highlights, Citi Starts Closing Mastercards Without Warning:

Shannon Burdette tried to pay with her Shell Mastercard after filling up her gas tank this weekend but found the card rejected.

Confused, she called the customer service line on the back of the card, issued by Citibank, and was told the account was closed because of something that appeared on her credit report. But when the Sykesville, Md., resident got a copy of her credit report online, the only negative thing she saw was “closed at credit grantor’s request” on the Shell MasterCard account.

“They said there was a routine review,” said Burdette, who maintained that she and her husband, Brian, used the card regularly and always paid the bill on time.

Washington has passed credit card legislation to protect the American public, so how are indiscriminate practices such as these allowed? Well, Washington left the ‘window’ open so wide and for so long that every bank has had ample opportunity to amend its credit practices and screw many creditworthy Americans in the process. How so? The legislation does not go into effect until next February. That is not the worst of the screwing, though. Ultimately when a bank or credit provider stops providing that credit, your credit score is negatively impacted. What does that mean? It is increasingly more difficult and expensive to receive credit elsewhere.

What is the impact of this ongoing denial of credit by our financial ‘friends?’

1. An ongoing drag on retail sales.
2. An ongoing drag on consumer confidence.
3. An ongoing drag on the U.S. economy.

Why are banks doing this? The simple fact is that many banks have significant embedded losses on their books and the likelihood of increased losses from rising levels of delinquencies and foreclosures across all their books of business. While banks are able to tap Uncle Sam for cheap credit, that benefit does not accrue to the American public.

Will these practices be short lived? I agree with MC that these practices and the ongoing unwind of credit provided to American consumers will continue.

Washington knows this all too well. While Wall Street is back to ‘business as usual,’ the American public is faced with “I’m sorry, this card does not seem to work.”

LD

This entry was posted on Tuesday, October 20th, 2009 at 11:16 AM and is filed under Credit Card companies, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.