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Credit Card Issuers Unite to Force Consumers Into Bankruptcy?

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The NYT published an article about the credit card industry, highlighting steep cuts some lenders are makings. One of the more surprising aspects of the article was that shoppers were being profiled against other shoppers for credit cuts.

Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries. In some cases, lenders are even reining in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.

While such changes protect lenders, some can come back to haunt consumers. The result can be a lower credit score, which forces a borrower to pay higher interest rates and makes it harder to obtain loans. A reduced line of credit can also make it harder for consumers to manage their budgets, because lenders have 30 days to notify their customers, and they often wait to do so after taking action.

So the lenders offer you a credit line that gives you a false sense of security, and pull the rug out from underneath you when you need to rely on that offer. Then they don’t even let you know until you have reached your new lower limit or a month has passed.

Pricing risk behaviorally further increases the risks to the poorest of the poor. Lets say a person gets laid off or has a bad earning month and shop at Aldi (a discount grocery store). Based on risk assessments associated with shopping habits, acting responsible and living more frugally may increase the chances of a consumer getting their credit line pulled and going bankrupt.

Snce the consumer bankruptcy law was rewritten by MBNA in 2005, consumers can’t get bailed out the way the bankers just did. If the consumer dies then so does the economy. But nobody cares about the consumer, and the consumers won’t realize it until they are a day late and a dollar short.

Written by admin

October 29th, 2008 at 2:48 pm

Posted in credit

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