New Credit Card Rules Will Force Banks To Reduce Credit Lines, Close Accounts, Supposedly

Here’s another reason to wean yourself off of credit cards, and build up a robust emergency fund, in 2009: the credit card party is about to really dry up, says one analyst.

An Oppenheimer & Co banking analyst has warned that the new credit card rules meant to go into effect on July 1, 2010, will have the unintended consequence of “reducing liquidity at a time when consumers need it most.”

The analyst expects lenders to pull back well over $2 trillion of lines over the next 18 months as a result of risk aversion, funding challenges and the just finalized regulatory changes. This means available consumer liquidity in the form of credit card lines is expected to decline by 45 percent over the same period, Whitney said.

The new rules will protect consumers against some of the most flagrant abuses by the credit card industry, but that also means they will “reduce the current economics of the credit card industry to a level in which lenders will ultimately choose to provide fewer credit lines to fewer customers.” We’re not sure this should really be seen as a bad thing, ultimately, considering the problems caused by the explosion of credit in recent years. But Whitney notes that for the 70% of households that have credit cards, 90% of them use the cards as “cash flow management vehicles,” which means they (you?) could lose a primary source of ready cash should their cards be closed on them.

“New credit card rules will reduce consumer liquidity – analyst” [Reuters]

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