Study: Credit cards face bleak future

By Cara Henis

Charging used to be en vogue. The general adage was if you want it, put it on plastic. However, as reeling credit card companies continue to pass on their losses to customers, many consumers are abandoning their dependence on credit.  

Research from TowerGroup, a research firm specializing in financial industries, indicates that consumers may permanently dump credit cards in favor of debit and prepaid options as a possible consequence of the more arduous card attainment processes and higher fees.

As of now, TowerGroup says that credit card companies face a bleak market. Delinquencies are up, card usage is down. Increases in card use aren't foreseen to occur until mid-2011. Even then, the increase is projected as modest.

Coupled with this dire forecast are the changes imposed on card issuers under the new Credit CARD Act of 2009.

"It's evident there is no single cause behind U.S. credit card issuers' current business woes, but pressure is mounting for issuers to adjust their business strategies and rebuild," said Dennis Moroney, research director for bank cards at TowerGroup, in a press release.

According to TowerGroup, issuers will face the risk that consumers will get used to having reduced access to credit and will then change their purchasing behavior permanently, meaning the need for credit will vastly decline in future.

"Charge it" may be replaced with a "pay now" or a "let's save" mentality.

"The United States is clearly seeing a trend away from the days of unharnessed overconsumption," said Brian Riley, who is also a research director of bank cards at TowerGroup, in a press release. "Putting it simply, today's consumers are saving more and spending less because they are unsure of the future."

See related: Q&A with John Grund: A look at the future of credit cards, A comprehensive guide to the Credit CARD Act of 2009, Credit card interest rates rise ahead of new law

Published: July 21, 2009

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