Consumers to Banks: Take this Card and Shove it

October 13, 2009 by  
Filed under Debt and Credit

Consumers are unhappy with their banks. No surprise there. What is remarkable is the tangible way in which they are expressing their unhappiness. Credit card debt declined 13.1% in August. This was the 11th straight month of decline, an all-time record.

What is even more surprising (and pleasing for Mr. ToughMoneyLove to learn) is that 32% of consumers report paying off or even closing at least one credit card account in the last 18 months. This means that a full 1/3 of all eligible American consumers no longer own a credit card.

As further proof of a paradigm shift in credit card addiction, debit card transactions are now exceeding credit card transactions for the first time ever. (Source: MarketWatch)

The unspoken takeaway from this news is that folks are closing credit card accounts despite having been told repeatedly by the credit-obsessed that “this can hurt your credit score.” Guess what Mr. FICO: WE DON’T CARE! You should adjust your credit score algorithm to reflect our reality, not yours.

All of this is awesome news. Can you imagine a new spending culture emerging in our economy that is not dominated by credit score obsession, 0% balance transfers, and minimum card payments?

Are we approaching a point where consumers will tell FICO to take its score and shove it as well? (I’ve been advocating that for a long time.)

Another potential consequence of this “dump the credit card” trend is that banks will pull out the stops to attract debit card users, which can also make them money. This will likely mean an increase in debit card rewards programs, better protection for debit card purchasers, and more favorable deposit account terms.

In that regard, if you have switched to debit cards for many of your purchases, don’t overlook community banks, many of which offer rewards checking accounts that pay two or three times the interest rates offered by the internet savings banks.

I am not predicting the end of credit cards or the demise of the credit score. Both have a place in our economy. But that place needs to be much smaller than they have occupied for years.

Let’s keep the pressure on, fellow consumers, and put the banks and FICO in their place.


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Comments

8 Responses to “Consumers to Banks: Take this Card and Shove it”
  1. andyg8180 says:

    I enjoy buy now pay later since/if you get 20-30 days grace… The problem is when i got screwed by BoA and went thru months of battling with corporate to fix their screw up, closing the card STILL dings your credit… Is the FICO algorithm written by monkeys throwing darts?

    I will never have a debit card since the day my card info was stolen and it took months to recover the cash from a debit card purchase…. Credit cards offer me that security where, if its not my purchase, i just wont pay for it :-)

    Listen, Banks like Bank of America are bogus. Taxpayers gave them money for screwing up, yet instead of a thank you, they thank you with a hike in your APR… Or new fees… And if you don’t agree, they close the card and ding your credit score…

  2. Marc says:

    What is even more surprising (and pleasing for Mr. ToughMoneyLove to learn) is that 32% of consumers report paying off or even closing at least one credit card account in the last 18 months. This means that a full 1/3 of all eligible American consumers no longer own a credit card.

    Most Americans have more than 1 credit card, and I would bet that almost everyone of those that closed an account had more than 1 card. So it is good, but it probably has not significantly altered the number of Americans with credit cards.

  3. Evan says:

    I doubt this is will be a continuing trend, but only time will tell

  4. MasterPo says:

    A lot of consumers I would bet closed a card or two by rolling them into another card, albeit probably at a lower interest rate.

    As for FICO, while I don’t love it, it’s no different than say SAT or other general scoring methods. Somehow in every walk of life the powers that be (that is, those who you are asking to decide to accept you for whatever) need some kind of yard stick to measure you and everyone by on an equal footing. Flaud as it may be FICO, like SAT, is that yard stick. Something else may replace it some day. But some kind of standardized measure will always be used. It has to be.

  5. slsdoug says:

    One problem with debit cards is there is no recourse if there is a purchase problem. With a credit card, you can contest the purchase if there is a legitimate problem.

    If hotels, car rental agencies, airplane bookings, etc can find a way around using a credit card we can truly put credit card usage in the past. I would like to see these entities take PayPal and direct bank transfers as methods of payment.

  6. MasterPo says:

    You pretty much can’t rent a car or buy a plane ticket with cash these days. Even most brand name hotels want a credit card at check in even if you’re going to pay in cash.

  7. cjbr549 says:

    I expect some of the folks who use rewards cards and pay off their balances every month have abandoned them as the rewards have been cut. That probably makes up some percentage of the folks that closed accounts. It is a good sign that people are paying that debt off, though. That is the real road to recovery, when people aren’t worried about loosing their jobs and feel better about their financial situation, they will be willing to buy some more and help pick the economy up. Hopefully lessons will have been learned and they will buy within their means.

  8. Matt Jabs says:

    How encouraging. I have had multiple debates with other PF Bloggers over whether or not this “frugality/anti-debt” trend is here to stay. I argue it is, and the stats in this article, coupled with “the word on the streets” tends to agree.

    Good stuff TML.

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