Already they are talking about it and voices are getting louder and louder ...If one were to adopt the same logic that was responsible for the US subprime housing woes, it then follows that the credit card industry is going to suffer the same fate too. Because the same modus operandi is applied when credit cards are issued to the consumers. Credit is made easier and accessible to almost the whole of a nation's working population. Present day lifestyle of ordinary folks is very much influenced by the availability of credit extended to cardholders. We can now afford to shop till we drop.
There are so many innovative ways to sell credit cards. They have inducements such as promotions, balance transfer, lower interest rate (per month mind you and not per year which usually works out to be more expensive than bank finance cost), loan-on-phone (can you imagine you can have loans through phone conversation?), fee waiver, cash rebates, discounts etc. .. . the list goes on.
Every working adult seems to own a credit card. Some take pride in displaying the number of credit cards but not the cash they have in their wallets. In the olden days, you needed to go to the bank to apply for a credit card. You have to go through very stringent credit evaluation before a credit card was issued to you. Nowadays, the credit card salesperson will call on you. He will ask you a few questions and if all goes well, he will arrange for an application to be faxed to you. You don't even have to know what he or she looks like and you are on your way to spend, spend and spend. The bank officer of olden days would interview you face-to-face; he would request for 'convincing' documents such as your salary slip, tax return, copy of bank statement and even required you to produce a guarantor.
If consumers are badly affected by the current financial turmoil and could not even afford to pay the minimum installment amount, the adverse effect on the credit card industry will be disastrous.
In the case of the housing bubble, governments of the world are actually saving financial institutions from going bankrupt. But will they save the individual men or women in the streets in the event of a credit card bubble?
No comments:
Post a Comment