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By Christina Rexrode | Charlotte Observer
First came trouble with mortgages, then home equity loans and commercial real estate. Now, banks are starting to worry about credit cards.
As the economy slows and unemployment rises, consumers are defaulting on credit-card payments more often. And though that trend is unlikely to create a crisis in line with the mortgage fallout, it's still a headache for banks that are already hurting.
U.S. banks charged off 5.47 percent of all credit card loans in the second quarter, according to the Federal Reserve, representing some $50 billion that they'll likely never collect. That's up from 3.85 percent the year before, and that is a movement that's on the radar of Ken Lewis, chief executive of Charlotte's Bank of America Corp.
Asked in a recent TV interview if credit-card debt would be “the next shoe to drop” for the banking industry, Lewis replied: "It, in some ways, already is," adding that such losses have risen "pretty substantially."
Originally posted by grover
A friend of mine signed up for a card online, mastercharge through some bank in Maryland... well they promised him $500 credit line. When he called up to activate it he was told that he would have $450 in fees right up front and only $50 in credit.
reply to post by Crakeur
platinum and black card holders
But most important, in Roubini’s opinion, is to realize that the problem is deeper than the housing crisis. “Reckless people have deluded themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”