Make us your home page

Will recession permanently cut our addiction to plastic?

For decades, the credit card has symbolized the American way of life, but this recession may force both the symbol and the reality to change.

Spooked by plunging home prices and mounting job losses, consumers have cut back on credit card use, pumping less cash into an economy that depends on their ability and willingness to spend.

Meanwhile, Congress, reacting to complaints about credit card marketing practices, has tightened the rules on penalties and fees — spurring bankers to warn that consumer credit will become more costly and difficult to obtain.

The credit card issue is part of a larger problem of how to ensure that the financial system supplies enough credit to keep the economy moving without providing so much that it overheats and collapses.

Industry critics say soaring debt helped cause this recession, which has now unleashed economic forces that will end the free-spending behavior symbolized by credit cards.

"As a society, we'll never be able to go back to the way things were," said Robert Manning, a professor of consumer behavior at Rochester Institute of Technology in New York and author of the antidebt manifesto Credit Card Nation.

But James Chessen, chief economist for the American Bankers Association, said consumers rely on credit cards to enhance their lifestyles and will want credit available when better times return.

"The fundamental desire to buy things today and pay interest for the privilege will remain part of the culture," Chessen said.

Daniel Ray, editor in chief of, said credit cards began as exclusive perks in the 1960s and 1970s but evolved into mass-market products in the 1980s and beyond, thanks to the use of credit-scoring technologies.

Using credit scores, he said, banks could tailor rates and terms to an individual's likelihood of making or missing payments.

"They created a multitude of products for a multitude of needs," Ray said.

This credit retreat could prove temporary or permanent. But Ray said the recent congressional legislation was intended to curb the marketing practices that enabled banks to expand card ownership over the past two decades.

"You could get zero percent for the first year, but after that, if you tripped up, the low introductory rate became very high in a hurry," he said.

The bill signed by President Barack Obama on May 22 will prohibit banks from raising rates on existing balances unless a card holder falls more than 60 days behind on minimum payments.

The banking industry, which fought the changes, now warns that the bill will force issuers to restrict access to cards and raise the overall cost of borrowing.

But critics say banks targeted vulnerable consumers and then profited when they missed payments or exceeded credit limits.

The credit card situation is just a microcosm of the larger wave of debt that has swamped the economy in the past 20 years.

The Federal Reserve Bank of San Francisco recently issued a report on total household debt — everything from mortgages to credit cards. It showed that consumers doubled their debt load over the past two decades. By 2007, the average household had $1.33 in obligations for every $1 in personal disposable income.

Manning, the credit industry critic, said now that the recession has thrown millions out of work, that burden has become more difficult to sustain.

"We have more debt than at any other time in history and less income to pay it back," he said. "That's really where we are right now."

September 1988


September 2008


Federal Reserve figures show

that consumers' revolving debt rose more than fivefold from 1988 to 2008. About 90 percent of revolving debt is credit card balances.

• • •

Since October, however, the Fed survey shows that revolving debt has dropped for six months in a row.

Will recession permanently cut our addiction to plastic? 06/06/09 [Last modified: Saturday, June 6, 2009 4:31am]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, San Francisco Chronicle.

Join the discussion: Click to view comments, add yours

  1. In advertising, marketing diversity needs a boost in Tampa Bay, nationally


    TAMPA — Trimeka Benjamin was focused on a career in broadcast journalism when she entered Bethune-Cookman University.

    From left, Swim Digital marketing owner Trimeka Benjamin discusses the broad lack of diversity in advertising and marketing with 22 Squared copywriter Luke Sokolewicz, University of Tampa advertising/PR professor Jennifer Whelihan, Rumbo creative director George Zwierko and Nancy Vaughn of the White Book Agency. The group recently met at The Bunker in Ybor City.
  2. Tampa Club president seeks assessment fee from members


    TAMPA — The president of the Tampa Club said he asked members last month to pay an additional assessment fee to provide "additional revenue." However, Ron Licata said Friday that the downtown business group is not in a dire financial situation.

    Ron Licata, president of the Tampa Club in downtown Tampa. [Tampa Club]
  3. Under Republican health care bill, Florida must make up $7.5 billion


    If a Senate bill called the Better Care Reconciliation Act of 2017 becomes law, Florida's government would need to make up about $7.5 billion to maintain its current health care system. The bill, which is one of the Republican Party's long-promised answers to the Affordable Care Act imposes a cap on funding per enrollee …

    Florida would need to cover $7.5 billion to keep its health care program under the Republican-proposed Better Care Reconciliation Act of 2017.  [Times file photo]
  4. Amid U.S. real estate buying binge by foreign investors, Florida remains first choice

    Real Estate

    Foreign investment in U.S. residential real estate recently skyrocketed to a new high with nearly half of all foreign sales happening in Florida, California and Texas.

    A National Association of Realtors annual survey found record volume and activity by foreign buyers of U.S. real estate. Florida had the highest foreign investment activity, followed by California and Texas. [National Association of Realtors]
  5. Trigaux: Tampa Bay health care leaders wary of getting too far ahead in disruptive times


    Are attempts to repeal Obamacare dead for the foreseeable future? Might the Affordable Care Act (ACA), now in dire limbo, be revived? Will Medicaid coverage for the most in need be gutted? Can Republicans now in charge of the White House, Senate and House ever agree to deliver a substitute health care plan that people …

    Natalia Ricabal of Lutz, 12 years old, joined other pediatric cancer patients in Washington in July to urge Congress to protect Medicaid coverage that helped patients like Ricabal fight cancer. She was diagnosed with Ewing's sarcoma in 2013 and has undergone extensive treatments at BayCare's St. Joseph's Children's Hospital in Tampa. [Courtesy of BayCare]