Double Journey

I always wonder why people like to portray credit card companies as evil.  Today, Obama came out against credit card companies.   I will admit, I am not your average credit card user.  I have actually only carried a balance on my credit card once, and that was because I had forgotten to pay the bill. So perhaps I am not the best person to comment on credit card company practices.  But the way I see it, people do not have the right to credit.  You do not have the right to borrow money at a low rate.  These companies are providing you something you would not otherwise have and nobody can force you to buy something on credit.

Obama wants to limit the amount that credit card companies can raise rates and make sure that the language in their contracts are clear and easy to understand for the consumers.  I’m all for the latter, as I think people need to interact with each other in clear and transparent ways, but I am again not sure this is going to give us what the President is after.  The law of uintended consequences is bound to take hold here.  If credit card companies can not charge high rates, they will be less likely to lend to people of questionable credit worthiness since they cannot make money on these people.  These are often the people who most need to have some form of credit available to them because it is not available otherwise at any price.

Now, this might end up being a very good thing for our society as a whole.  I think we all need to have a little less debt.  Especially credit that costs as much as credit card companies charge.  But on an individual level, I can see this playing out badly.  People who truly need to use the emergency funds that credit card companies can provide will be unable to.  Where will that leave them?

On CNBC the other day, Meredith Whitney, an analyst who predicted the subprime crisis and the turmoil we would see at Citibank, declared that the next big problem would be in consumer credit.

When I first heard her on CNBC, I did not think much of it.  I have heard the death of the American Consumer predicated many times.  And every time, the consumer finds a way to spend more money.  While this cycle has to eventually end, I just was not willing to hold my breath to see it happen.   I also did not see the banks killing the cash cow that is consumer credit.   So I dismissed the commentary and went back to work.

But then I witnessed it with the pullback with my very eyes that night.  I got a letter from one of my credit cards informing me that they were going to close the account.  This is a credit card which I have not used in over two years.  I kept the card open because it was the card I have had for the longest time and thus it is highly positive on my credit score.  However, due to the inactivity, the bank was pulling my line of credit.  Now keep in mind, I’m not a credit risk.  I have always paid my bills on time and I have never carried a balance.  My credit score is north of 750.

Part of this may indeed be that it cost them money to have me as an account holder when there is no activity on the card.  So I don’t really blame them.  I have gone through equally long periods of time without charging very much to the card, so I can not imagine this was the only reason.  So given that, I doubt it is a coincidence that in this credit environment, the banks are closing lines of credit to their customers, even to their most credit worthy customers.

So if someone like me is losing credit, what must be happening to other people?  Is this just another sign that we have a ways to go before we work our way through all these problems?