Trends In Fed Report Suggest Consumers On Credit Card Collision Course

By Mike Killian, CardRatings.com Debt/Credit Management Reporter


The Board of Governors of the Federal Reserve System with the cooperation of the U.S. Department of the Treasury conducted a survey which indicates changes in family income and net worth since the same survey in 2001.

Among other findings, the report indicates average credit card balances are rising, average interest rates are increasing and there has been an increase in the average number of cards per American family. These disturbing stats come at a time when minimum payments have been increased by many institutions and bankruptcy laws are getting tougher.

I approached debt expert Scott Bilker on some of these issues. Scott is the founder of DebtSmart.com and the author of Credit Card and Debt Management, How to be more Credit Card and Debt Smart and Talk Your Way Out of Credit Card Debt.

Concerning the above trends, Scott made some rather pointed statements:

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"I believe that these changes reflect the fact that our legal system cannot, or is not, protecting us enough from lender practices like unfair penalty rates and increasing fees (late, over limit, etc.). People need to repay their debts, BUT banks needs to be fair and lend responsibly.

Why is it that consumers are penalized for bad spending behaviors and banks are not penalized by bad lending behaviors? One may argue that banks are penalized when people default, but I would say that's not true because:

1. There are tougher bankruptcy laws on the books now.
2. The institutions simply pass along these costs to existing consumers."

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I then asked Scott if he saw these trends as a collision course for us as an economic society. Again, very wittingly, he responded:

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"The collision is here! The numbers are getting worse and worse. That's why credit card and debt management is so important. That's why it's important to be "Debt Smart". The people who are proactive in making the banks compete for their business will do well, those who spend without doing the math are doomed."

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Following up I posed the question, "Why does the Office of Comptroller Currency (OCC) and other federal agencies seem so quiet outside this survey?"

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"Now that's a great question! I don't really know, and I'm not much for conspiracy theories. The answer is probably that banks have been smart about positioning themselves politically."

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As a final question I asked, "Are there things we can do to reverse some of these trends?"

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"Yes! Don't be loyal to any specific bank. Only use credit cards that give you the best deals. Keep your other accounts open though as you will need at least a few credit cards to make the banks fight for your business. Of course, you must use them responsibly and for the sole purpose of keeping your rates low."

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Scott also made a final remark which I believe is worth noting:

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"As a nation, I expect that personal debt will continue to rise! If you're reading this article, then you will probably do fine because you're interested in learning, but those people who are not paying attention will be burned!"

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Serious food for thought here folks. The wake up call has sounded.

We welcome your comments about credit card and other money issues in our popular credit forum!

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Mike Killian has been writing about credit and debt management issues that are of importance to consumers for over 8 years. He formerly served as the Guide to About's credit site, which was recognized by Forbes Magazine's "Best of the Web" for 5 of the last 6 years. Mike has also offered debt elimination seminars to businesses and community colleges for many years.

Mike offers free consumer advice on the CardRatings.com Credit Forum as well as on his own site, FreeMoneyTraining.com. While at his site, you can view additional articles as well as his schedule of upcoming seminars.

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