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Bill Hardekopf, Www.lowcards.com
Published: 10 April 2010

The Federal Reserve released a monthly report this week that shows credit card debt continues to decrease at a significant rate.
Revolving credit, which is primarily credit card usage, fell for the 17th consecutive month in February, declining at an annual rate of 13.1 percent. The
$858.1 billion in revolving credit represents a $100 billion decrease since the fourth quarter of 2008.
"Consumers seem to be taking some steps to reduce their credit card debt, some of it out of necessity, some voluntarily. They are using cash and debit cards more often and charging less on their credit card, possibly due to the APR increases they have seen. But significant actions by the issuers have also contributed to this decrease," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.
Nearly 42 percent of consumers are using more cash than they were a year ago, according to a survey by the consulting firm Market Strategies International. A study by BIG Research in January showed that 30.5 percent of the respondents said they would pay with cash more often, up from 23.0 percent a year earlier.
Debit card usage is increasing. According to their annual reports, MasterCard's debit card usage in this country increased 10.5 percent in the fourth quarter of 2009 versus year ago levels, while Visa reported a 17 percent increase.
But the actions of issuers have also helped decrease credit card debt.
"To protect themselves from future risk, issuers have closed accounts, cut the credit limits on millions of customers, and have become much more selective on which customers receive approval on a credit card,"
says Hardekopf.
There are signs that steps taken by issuers to reduce risk may be working.
Bank card defaults fell to 4.39 percent in the fourth quarter from 4.77 percent in the prior quarter, according to a report released this week by the American Bankers Association.
The drop in defaults is not by accident. In a recent letter to shareholders, Jamie Dimon, CEO of JP Morgan Chase, said, "the industry as a whole reduced limits from a peak of $4.7 trillion to $3.3 trillion. While we believe this was proper action to protect both consumers and card issuers, doing so in the midst of a recession did reduce a source of liquidity for some people.
Ultimately, however, the change may make the card business a more stable and better business."
He also said that in the future, Chase will have to reduce risk in light of the new regulations and they will "no longer be offering credit cards to approximately 15 percent of the customers to whom we currently offer them."
He admitted that Chase reduced limits on credit lines and canceled credit cards for customers who had not done business with Chase over an extended period.

Link to Jamie Dimon's letter to JP Morgan Chase shareholders:
http://media.ft.com/cms/1d11280c-3d20-11df-b81b-00144feabdc0.pdf

Link to the latest Federal Reserve Consumer Credit statistics:
http://www.federalreserve.gov/releases/g19/Current/

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