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Forget the mortgage crisis that is based on 3% of American’s being irresponsbible and defaulting on their loans. The one that might have a greater impact is the coming Credit Card Meltdown:
Some more troubling details from the Red Tape Chronicles:
- Outstanding credit card debt has grown by more than 75 percent since 1999.
- More than 50 percent of Capital One’s cards are “low-limit” cards, which Innovest said are designed as fee traps — consumers with low limits are more likely to surpass those limits and face penalty charges. (CEO Fairbank maintains that low-limit cards are simply a smart way to manage risk)
- Risky borrowers with low credit scores — subprime borrowers — account for roughly 30% of outstanding credit-card debt.
The good news? The credit card market is tiny compared to the housing market, so a “subprime credit card meltdown” wouldn’t have the same effect as our current housing dilemma.
Capital One’s in trouble. But they’re surely not alone. And if credit card companies need to make up the money they are losing elsewhere, you can surely expect fees and rates to jump up across the board to make up for losses, so even those with good credit records may have to pay for those with bad.
