Why is consumer credit down a whopping $21.6 billion?


Analysts were shocked to learn that consumer credit fell by $21.6 billion when they were looking for only a $4 billion dollar drop.

Consumer credit outstanding fell at a 10.4% rate in July to $2.47 trillion. In June, total credit tumbled $15.5 billion, again topping estimates. Analysts had expected a drop of $10.3 billion.

Nonrevolving credit, which includes loans for big ticket items like cars, boats, college education, and holidays, plunged a record $15.5 billion or at an 11.7% rate to $1.6 trillion.

Revolving credit, mainly from credit cards, dropped $6.1 billion or at an 8.1% rate to $905.6 billion.

Why do you think this is happening at such a rapid pace? Here are a few ideas that might explain it. Let's start with credit card limits. So often we hear of consumers being notified their credit card limits have been cut to the bone. Consumers are notified their APRs have skyrocketed to, say, 19.9% or higher.

Without any input, credits have been zapped and notes put in many credit report. If some of these people then apply for a car loan, they would be turned down because they don't have enough of a credit line. Do you see what is happening?

Let's not forget also that unemployment is high at 9.7%, with 1.3 million people losing all their benefits this year. These people certainly cannot contribute to the recovery.

We need to ask ourselves whether slashing credit lines and credit card limits a good thing? Will it stymie the very thing we are trying to do, namely jump start our economy?

If banks can still borrow from the Federal Reserve at 0.5%, why can't they lower our credit card rates to say 1% above mortgage rates, or 6%? More than anything else, this would encourage consumers to step up to the plate and do some buying.

When Congress passed the credit card bill, legislators did not put a cap on rates. Credit card companies have gone bananas raising rates to astronomical levels for no reason. Congress must act immediately to cap credit card rates. Otherwise, the recovery that everyone so desperately wants will not happen.

Do you agree that credit card rates must come down?

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