According to recent research, despite the current economic downturn, the use of credit cards has actually increased in 2009. People use credit cards for a variety of reasons from paying monthly bills to putting deposits on vacation packages to paying for basic essentials such as food and gas. The lingering recession that started back in late 2007 has created a situation where credit cards for some have become a necessity just to make ends meet.
For consumers, the danger comes when they fail to be responsible. In times of desperation or hardship the element of responsibility is overrun by necessity. A credit card used to be a means to an end but lately has turned into a means to another means. Using that little piece of plastic to pay that overdue car payment does not necessarily solve the problem, but could simply add to it threefold – now you owe the card issuer not only the payment but finance charges on top of that. The question that was once “how am I going to pay my car payment?” now becomes “how much more is that car payment going to cost me?”
The bottom line is that there has to be a sense of shared responsibility between both consumers (as borrowers) and the card issuers and banks (as lenders). For the system to work, the responsibility has to be proportional to the risk being taken. The failure of consumers to take responsibility and the dubious behavior of card issuers are tightly interwoven, however. Right now, consumers in general are not taking enough responsibility and card issuers are responding, in kind, with even more rate hikes and outrageous fees.
There was a time when being granted a credit card was based on a good financial track record and was considered a privilege. The annual percentage rate was an agreed upon rate and spending limits increased as the card holders proved themselves with on time payments and responsible practices. Responsibility was rewarded. Cash back rebates and rewards programs were heaped on generously. The credit card companies in turn were rewarded by the financial gain from consumers using their services and increasing their spending limits. Credit worthy card holders who sought out secure, reputable lending institutions, and used their cards in accordance with their agreements should be properly rewarded. Lately, even the most credit worthy and responsible card holders have been punished. Increased consumer satisfaction leads to increased use of a product. When both parties act responsibly both should benefit, right?
Credit card regulations, consumer protection and legislation proposing changes to the credit card laws have been a hot topic in recent months. Top-rated card issuers have increased rates and instituted hidden fees as well, even for those card holders that have acted responsibility and are in good financial standing. On the other hand, a large chunk of card holders are not honoring the card agreements they willingly entered into upon approval either, which is negatively effecting all card holders.
The Credit Card Act which is anticipated to be in full force by December of 2009 seeks to inject some responsibility and accountability back into the marketplace for borrowers and lenders as it relates to credit cards and their use. It appears that the lack of shared responsibility has changed the financial picture of the credit card industry forever.
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