Big Changes Expected for Credit Card Industry

   

Posted: Jul 6, 2009

Industry observers are warning that consumers could end up paying a price for the financial woes that credit card companies are currently experiencing.

A report in the Wall Street Journal last week noted that the combination of higher default rates and federal reforms that take effect next year will fundamentally alter the consumer credit industry's business model.

"The combo of the two means there is no more business-as-usual for credit card lenders. In general, consumers are going to borrow less, and banks are going to lend less," Laura Nishikawa of RiskMetrics Group told the newspaper.

The report notes that the industry could lose as much as $71 billion this year from credit card charge-offs, which would be 30 percent higher than in 2008. These expenses are likely to be passed on to consumers in various ways.

Elsewhere, a Reuters report says that credit companies such as Discover, JPMorgan Chase and American Express are seen to be in better financial shape than some of their rivals, which could find themselves under increasing strain due to bad loans and other issues after the credit reforms go into effect in February.

The companies that are said to be facing potential financial problems beyond that point, according to Reuters, include Bank of America and Citigroup.