By Martin H. Bosworth
ConsumerAffairs.com
July 30, 2008
In the face of high gas prices, stagnant wages, and a moribund housing market, Americans are using credit cards less and less. A new study released today by Javelin Research and Strategy found that all ages of Americans, across all income levels, are cutting back on discretionary spending with cards, buying only necessary items, and often having trouble with the balances they maintain.
"The sharp decline in credit card spending challenges the popular belief that more Americans are charging basic goods in order to sustain their quality of life," said Javelin president James Van Dyke. "Consumers are making deliberate cutbacks like shopping at superstores, eating out less and watching what they charge."
The study also confirmed that banks are continuing to cut credit lines and raise interest rates even for cardholders in good standing. Seven out of ten issuers have reduced efforts to solicit new customers and 6 percent have cut back the lines of credit they make available to consumers, the study said.
Van Dyke said the caution from both borrowers and lenders "is because most people have already been impacted by the downturn or they're anticipating that we haven't seen the worst of it. It's very cautious behavior."
Among the report's findings:
• 45 percent of those surveyed say their ability to contribute to savings has decreased.
• 37 percent of consumers say they are using their credit cards less.
• 28 percent of those surveyed say their ability to pay off their credit card balance has become more difficult.
• One out of every three consumers said they are buying fewer basic goods.
• 57% of those surveyed say they are more careful about how often they eat out at restaurants.
• 46% of consumers say they are shopping more at superstores like Wal-Mart and Target.
The Javelin research study found that middle-aged consumers (ages 35-64) and with mid-level incomes ($25,000-$49,000) were the most vulnerable to outside economic pressures of the respondents surveyed. The aforementioned groups had the hardest times saving money and were the most likely to cut back on discretionary spending with credit cards.
The study, "Credit Card Issuer Profitability in a Difficult Economy," surveyed 1,500 people, including executives at credit card companies, during the month of May.
Change in the weather
The credit card industry has been under siege for many months on a variety of fronts. Congress is currently considering multiple pieces of legislation that would rein in the industry's more abusive practices, including curtailing interest rate hikes and improving cardholder agreements.
A coalition of merchants and retailers have also pushed Congress to pass legislation that would restrict interchange fees, the costs borne by businesses when processing payments made with credit or debit cards. The retailers claim the costs of processing plastic transactions are so heavy that they wipe out all profits they make, forcing them to raise prices on all items to compensate.
And the Federal Reserve has solicited comments for several months on proposed new regulations that would make credit card user agreements easier to understand and ban deceptive marketing practices. To date, the Fed has received over 30,000 comments on the issue, many of which are from individual consumers pleading for assistance with credit card issues, or sharing their stories in hopes of influencing the decision.
