Consumers Turn to Credit Cards Amid the Mortgage Crisis, Robert Paisola Reports

Consumers Turn to Credit Cards Amid the Mortgage Crisis
February 22, 2008

The Center for American Progress Thursday released a report examining in detail the relationship between slowly growing U.S. mortgage markets, the suddenly aggressive growth of credit card debt, and what both trends could mean to borrowers, their lenders, and global financial markets. The Center will also be holding an event centered on the report on Monday, February 25 at 10:00 AM.

The U.S. credit card market is showing signs of trouble just as the home mortgage crisis surges to unprecedented heights across the United States and throughout the global financial marketplace. Against the backdrop of record-high numbers of home foreclosures, lenders are tightening mortgage lending standards, making it harder for families to maintain their consumption in the face of weakening income growth. At the same time, credit card issuers present their all-too-convenient lending product as a much needed but inevitably dangerous pressure valve for cash-strapped borrowers.

A possible unraveling of the U.S. credit card market, with all the attendant costs to global financial markets, could be partially nipped in the bud with improved transparency for credit cards. The report encourages policymakers to take two approaches.

First, implement a credit card safety rating system that can give consumers better information about their credit cards and thus help them make better decisions. This system would be similar to the five-star crash test rating system for new cars. Credit cards would be awarded stars based on a points system, with cards earning points for consumer-friendly terms and losing them for terms designed to get consumers into trouble.

Second, in addition to a credit card safety rating system Congress should go further to mandate a higher level of fairness in credit card terms. Several members of Congress have introduced bills that would do that. Rep. Carolyn Maloney (D-NY), with the backing of House Financial Services Committee Chair Rep. Barney Frank (D-MA), recently introduced the Credit Cardholders’ Bill of Rights Act. This bill takes a balanced approach to banning several of the most abusive credit card practices.

Read the full report on the Center for American Progress website.