Report: Credit lending may remain limited

High unemployment combined with the new credit card law may make it increasingly difficult for consumers to access credit, according to the American Bankers Association.

“Increased unemployment is highly correlated with consumers’ inability to pay off their credit cards,” Kenneth Clayton, ABA Vice President and General Counsel, said in a conference call. “This in turn means card companies suffer higher losses, which makes less capital available for them to provide new loans.”

Starting February 22, the second part of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 will require that companies give 45 days’ advance notice before increasing interest rates, fees or finance charges. This added consumer protection could lead to lost revenue from borrowers who routinely fall behind on payments.

Credit card issuers have responded by pricing ahead or reducing lending, according to Clayton. Some steps they have taken include closing accounts, adding membership fees, increasing interest rates and introducing cards with annual fees. Conversely, Clayton noted one credit card firm that offered to lower rates for consumers who pay on-time for three consecutive months.

Unemployment is among the forces that drive the credit market, Clayton said. Last month saw a decrease in the unemployment rate from 10 to 9.7 percent, its lowest level since last August.

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