So a good friend of mine, who operates one of the largest adult websites in the world, let’s call him Joe the website owner, tells me that starting just about 30 days ago, he is seeing about 10% of his attempted re-bills declined by the credit card company. This mean about 10% of his customers, which number in the millions, and would be a good sample of the general economy, don’t have $25 available on their credit card for a charge to go through. This is not even a monthly charge but an one a year, renewal fee.
Kind of a scary stat, don’t you think?
One of the moves banks have taken as part of the credit crisis is to reduce credit lines on people’s credit cards, without notice, so someone with a $5,000 credit line who owed say $3K, got his credit line reduced to $3K and then has no credit left.
Generally if Joe the webmaster can’t get a 10% of his renewal transactions approved, what does that say for the state of the overall economy and consumers ability to spend?
Mike,
Besides reducing credit lines many banks are also revoking credit products entirely. American Express has cancelled ALL Small Business lines of credit.
Yes, 100% of all Small Business Lines issues by AMEX are cancelled. In addition to credit cards Amex offered an OPEN line of credit to small business customers for years.
Effective November (and practically overnight) all lines were closed and limits reduced to basically the balance.
1,000’s of small business will never replace these lines of credit. If you visit Amex’s website only credit cards are available – no loans, no lines of credit – all products gone.
Do a google search for “amex reduces line of credit” and its quite amazing to see how many people have the same story.
Americans are just credit monsters. Never learned to spend money depending on the income they have.
The time is here to learn the hard way and now all these people with 5, 8 or 10 credit cards maxed out will finally know how large there depth is. Also they will learn that just paying there interest back is not getting them out of there misery.
Life on credit is 24/7 worries.
IMHO, there is only one thing for an average person which he or she will need credit for and that is buying or building a house.
Everything else and I mean everything else can be paid with out credit. People need to learn not just to spend there total income but also stop spending more than they have available.
I find it unbelievable that people can’t manage there money from one month to the next and need to be paid every 2 weeks because they are so immature of handling there finances.
It makes me sick to see people for example charging there credit card for coke at Mcdonalds.
This not being able to afford $25 bill has been here for years only now people are noticing there stupidity of how they have been living.
All I can say is
Change!
Duane,
I agree “Americans are just credit monsters” but it’s also how many of the most successful GLOBAL companies have been started. Regardless of people’s positions on whether or not people spend too much on credit solutions need to appear in this US banking system and not just a blanket “they should have never spent that much in the first place” response.
Any cardholder who gets their limit decreased to just above the available credit also gets a lower credit score.
The person with great credit is now being reduced to medium or poor credit since all their available credit is gone and according to the credit report – you are now maxed out.
Let’s say you use $5,000 a month on a card but pay it off in full every month. Very responsible indeed and you simply want to earn miles. With a $10,000 credit limit your spending never impacted your credit. Now with the new credit line – you will be maxed out every month since credit reports DO NOT differentiate between customers who pay the minimum and those who pay in full. Pay the minimum and you have the same checkmark as somebody who pays the entire balance.
I hear people all the time speak about credit and why many people never should have got loans in the first place.
People in general suck at Math. It’s a fact that most people find it difficult to do fractions in their hard without the use of a calculator – even calculating simple interest is hard.
The point is regardless of whether or not a customer “deserves” a loan is there not a social responsibility by the banks?? … who take our money … to find solutions for those who are over extended instead of just increasing credit guidelines to make sure nobody qualifies and let the people fend for themselves?
Changing an economy to only assist the top 20% of people with credit is a little elitist and almost socialistic don’t you think?
Long term change is needed for sure, and people need to stop utilizing credit as much but do banks need to just cut people off overnight without a moment’s warning?? .. then turn around and ask the government to give them the money WE pay in taxes.
There is no easy solution but your argument doesn’t help the case – it simplifies the problem when the problem is much bigger.
In fact, we will always have the people who over extend and do hoola-hoops when they get another credit since it means a spree at the mall but today’s situation is much worse.
Its the people with good credit, the small business owners, the people are committed to building a life for their family, people with a plan – yes, the core population of this nation are now being affected.
I could go on and on about this but its just too early and I need coffee ….
Duane, excellent points but also realize there’s a flip side.
For example, my wife and I charge absolutely everything we can on AMEX; gas, groceries, business expenses, the monthly cable bill and even Cokes at McDonalds. The accumulated Skymiles at the end of the year pay for a cheap vacation (3 free Delta flights). Subtract the annual $60 fee and add accumulated bank interest (albeit nil these days) and it’s actually a good strategy.
Hotel and Fedex shipping discounts as well as the implicit extended warranty on items purchased also help out. The extended warranty option actually saved us the cost of a new TV (long story…).
Of course it goes without saying that the bill gets paid every month on time so absolutely no interest ever gets paid.
Just pointing out that credit card use doesn’t always equate to desperation. Lots of us are using it as a carefully managed method to save some money.
Skip,
Well said. “Credit Monsters” probably equate to a small percentage of the US but its thier bad rap which is causing a lot of people to view the issue as black and white.
Not unlike any other topic really where the percentage of “abuse stories” get more press than the good stories.
Plus, if soooo many credit monsters exist banks would simply never loan money in the first place.
The Credit card industry is facing the same dilemna as the sub-prime mortgage industry. Many lenders are just saying lets stop or retrace to accepting only to very best clients and than ease into new lending standards as they go.
Its this gap in time when lenders are sitting back and re-adjusting thier gameplan which is leaving a lot of “good” customers in hot water.
About 60 days ago, my wife angerly handed me a letter she just opened. She was really, really pissed.
One of her frequently used credit cards had drastically reduced the credit line. I think it went from $ 15K to $ 3K. The irony is that she didn’t owe anything. She paid the full amount every month.
Plus, they included new terms.
She use to have a lot of loyalty towards that bank/credit card. Not anymore.
Maybe, just maybe, that 10% prior porn consumer base wised up and found a far better use of their money by cancelling the credit card at some point in the year. Just maybe.
WOW!
This is really bad news for your friend!
Thats cash he was expecting not there anymore, this isnt a surprise though banks are SCREWED!
Look at RBS in the uk yesterday annouced losses of wait for it £28 Billion – Thats right 28 Billion Pounds about $50 billion dollars in LOSSES!
The banks are screwed.
Cash is KING!
Keep your money safe!
Regards,
Robbie
I no that there is more than one problem way past the few words I wrote earlier and this could go on and on with different examples of why, what and if.
The biggest problem I see is within the system itself. Credit score’s depending on how many credit cards and loans which have been paid back on time or in the same month.
The system is BS. I call Banks, credit card company’s and loaners the most ignorant people in the system! Top of all Lehman!
Credit scores should depend on monthly income, cash flow and net revenue going in and out of Bank accounts, Tax payments. That is math, everything else speculation.
I call the government, the CEO’s and Wall Street speculators the most irresponsible.
These are the ones which started the credit blood sucking game and on top of all this it has been known by the Government that this final day of collapse was coming.
If for any reason at all one of these mention of not knowing this was going to happen then all we have in these top notch positions are nothing but sorry and worthless fools.
Mr. Black
Just to be clear, these customers cards were no canceled, just didn’t have $25 of credit left on them.
Also he is experiencing the same renewal rate he has for years, around 75%, so these people are not customers that wanted there subscription canceled.
Robbie
“””This is really bad news for your friend!””
Actually the moral of the story is that its really bad news for all of us.
If 10% of the population who have a credit card in good standing, don’t have $25 of credit available, then its very bad news for anyone in business.
my best banking story…years ago denied a home loan based on being self employed…in 1989 was making 38k… Was told by banker a person working st 7-11 at $4 an hour had a better chance at a loan than I did even though I made 4x his pay.
Bank are so backward and are paying the piper now.
Tim
I hear you. Been there, done that and got the T-Shirt.
A few years ago i set me a goal.
Be my own Bank and never have to rely on one again.
Not qiet there yet, but getting there step by step.
Well he would not be told why the credit did not go through so there could be cancellations, what fool in this day and age is paying to watch porn, when there are millions of places to see it for free ? WoW now there are some idiots forget the credit card.
And by the way what person over 10 does not know the economy is that bad, was this story supposed to be a surprise or get a reaction ? because if it was you must be writing to a lot of clueless people.
Hugh
Is is told why each transaction did not go through.
And yes we all know the economy is terrible, but everyday we learn more about how terrible it is.
I for one didn’t know that 10% of cardholders don’t even have $25 available to spend.
And I guess your one of the clueless readers because I got a reaction out of you.
Ok, Mike. Then those customers had not actually wised up. Tragic on this day of “hope”….So besides an intelligence deficit, they have a reduced potential for credit deficit. Fitting I suppose.
jblack – so if you watch porn you have an “intelligence deficit” – That is the stupidest thing I’ve heard in a while .. You must have watched a lot of porn in your time.
Maybe not as stupid as those that make contradictory assertions. Too funny!
100’s of thousands who can’t cover a $25 annual fee?
Sad.
100’s of thousands who will no longer be supporting a pornography company?
Priceless.