Credit Cards: Self inflicted wounds and mutual assured destruction!

Credit Cards, getting tougher. getting more blood out of a turnip?

Posted by Yves Smith March 11, 2008 Naked Capitalism
We have other sightings of banks shooting themselves in the foot in misguided attempts to save their hides. Yesterday, we noted that credit card issuers were getting tougher with customers who came to them to restructure their debts via credit counselors. The idea of trying to extract more blood from turnips will backfire. First, if banks get too stringent, customers will quit trying to get themselves out of their debt mess; they'll just default (and if you have a thick enough skin, you might simply outlast your bank, since they are unlikely to go to the expenses of forcing borrowers into bankruptcy. The statute of limitations on bad debts is as little as six years in some states). Second, to the extent customers who don't have enough money to go around will simply rob Peter (their car or house payments) to pay Paul. To the extent that these measures lead to more housing defaults, it's a worse outcome systemically. Third is that these measures are an invitation for Congress to gut the 2005 bankruptcy bill that the industry so eagerly sought.