Crisis Looms for Credit Cards

Soaring defaults could fell normally resilient industry
By Nick McMaster,  Newser Staff
Posted Nov 14, 2008 3:10 PM CST
Crisis Looms for Credit Cards
Visa credit cards are arranged on a desk February 25, 2008 in San Francisco, California.   (Getty Images)

Credit cards may be the next industry to be pummeled by the financial crisis, Time reports. The charge-off rate—money that lenders don't think they'll collect—is set to hit 10% in 2009. That's double the rate of the last decade and amounts to $96 billion in unpaid debt. Typically credit card firms do well in downturns because late fees and higher rates raise revenue. But that equation breaks down if customers start defaulting en masse.

As in the auto industry, the roots of the credit card troubles go back years. US households have loaded up their balances in the past decade as stagnating wages failed to keep up with the cost of living. Simultaneously, the savings rate has plummeted, meaning individuals don’t have a cushion for bumpy times—especially with home equity also depressed.
(More financial crisis stories.)

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