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Last week, Tess and I talked about my theme that a half-century of borrow-as-much-as-possible and spend-as-much-as-possible may be coming to an end. More and more people will embrace a New Frugality where the phrase “can I afford it” replaces the mantra “I want it now.”
The reason for the change goes beyond current household pressures of falling home prices, soaring energy bills, and big debt payments. The main factor behind the New Frugality is that lenders have suddenly realized that consumers with lots of debt are risky borrowers.
Today’s Wall Street Journal had a news piece that supports the thesis that lenders will force consumers to embrace thrift.
Credit Cards Are Playing Harder to Get
Amid Rising Delinquencies,
Banks Get Pickier, Raise Fees;
Direct-Mail Pitches Decline
By JANE J. KIM
February 5, 2008; Page D1
The credit crunch is starting to hit consumers where it hurts — in their wallets.
As lenders tighten credit standards, many consumers have faced greater difficulty getting a mortgage or a home-equity loan or line of credit. Now, some are beginning to feel the squeeze on their credit cards — despite the dramatic cuts the Federal Reserve recently made in its benchmark Fed funds rate, including last week’s half-percentage point cut to 3%.
Big card issuers such as Citigroup Inc. are requiring higher credit scores before issuing new cards, particularly in states that have been hit hard by the housing downturn, including California, Arizona and Florida. Some lenders, including Bank of America Corp., are offering lower initial credit lines. Other lenders, such as Capital One Financial Corp., are limiting credit-line increases or reducing credit lines for existing customers if they see signs that they are suddenly applying for more credit or are having trouble paying down their balances. And many card issuers are raising late fees and other charges to help offset what they see as higher risk.
The stricter lending standards come as many banks recently reported earnings and disclosed surprisingly large losses from their consumer businesses. Among the problems: higher credit-card delinquencies and losses. The banks expect the problems to get worse as the economy slows.
Imagine, the average consumer could find not only their mailbox free of credit card solicitations—but that their credit limit has been cut.
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