**Consider This**

**before cutting up the credit cards....**

February 14, 2008

Dear Colleague:

We must consider credit card legislation carefully, not only on its own,
but also in the broader picture of our national economy.

Attached for your review is a Wall Street Journal article from February
8th. It correctly raises the concern that banks are tightening lending
standards, which in turn could result in a pullback \"in consumer
spending that would further weaken the slowing U.S. economy.\" And, as
the article points out, an attempt by President Carter in 1980 to cut
back consumers\' use of credit cards led to a sharp decrease in consumer
spending.

Last week, Rep. Carolyn Maloney (D-NY) introduced *H.R. 5244, the
\"Credit Cardholders\' Bill of Rights.\"* As in 1980, it may be
reasonable to assume that legislation, which limits the ability to price
for risk may also lead to less consumer spending and have a negative
impact on the current slow growth environment. As you know, Financial
Services Ranking Member Rep. Bachus and Subcommittee on Financial
Institutions and Consumer Credit Ranking Member Rep. Biggert expressed
in a separate letter last week their concerns with the bill.

**Before endorsing legislation in the current slow growth economic
environment, Congress needs to be able to answer the following
question:**

**Can the sponsor quantify the cost/benefits of the legislation on
cardholders and to the economy?**

Please feel free to contact Travis Johnson at 5-4501
(<travis.jounson@mail.house.gov>) or Erin Kanoy at 5-2706
(<e.kanoy@mail.house.gov>) for further information.

> Sincerely,
>
> Tom Price Tom Feeney
>
> Member of Congress Member of Congress

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     **February 8, 2008**                                                       
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**Credit-Card Pinch Leads To Pullback In Spending**

*By Robin Sidel, Sudeep Reddy and Jane J. Kim February 8, 2008 The Wall
Street Journal*

**America\'s love affair with credit cards may be headed for the
rocks.**

Credit-card delinquencies are rising across the nation, a sign that some
Americans are at the end of their rope financially. And these mounting
delinquencies, in turn, have prompted banks to tighten lending
standards, keeping people who have maxed out their cards from finding
new sources of credit.

The result could be a sharp pullback in consumer spending that would
further weaken the slowing U.S. economy.

Such a pullback may already be taking shape. Yesterday, the Federal
Reserve reported an abrupt slowdown in consumers\' credit-card
borrowings. In December, Americans had \$944 billion in total revolving
debt, most of it on credit cards, a seasonally adjusted annualized
increase of 2.7%. That was off sharply from seasonally adjusted growth
rates of 13.7% in November and 11.1% in October. And it reflects the
volatility in consumers\' spending habits as economic growth sputters.

Sinking home prices have made it much harder to convert home equity into
cash for living expenses. At the same time, plastic has pushed into
every corner of American life, making new inroads that worry some
economists and card issuers.

In past economic downturns, Americans used credit cards mainly for
discretionary purchases, such as furniture, appliances and jewelry. Now,
however, many of them regularly whip out plastic to pay for groceries,
gasoline and other everyday necessities. Credit-card issuers won\'t
disclose exact figures, but they say it is evident that a growing
percentage of card volume is for basic purchases. Many issuers even dole
out extra rewards for such transactions.

Evidence is mounting that the plastic-fueled spending spree won\'t last.

In

December, an average of 7.6% of credit-card loans were either at least
60 days delinquent or had gone into default, up from 6.4% a year
earlier, according to research firm RiskMetrics Group. The analysis
includes a broad swath of more than \$200 billion of credit-card loans
that are sold off to investors by major card issuers like Citigroup
Inc., Capital One Financial Corp., American Express Co. and J.P. Morgan
Chase & Co.

Card delinquencies are ticking up from historically low levels, but the
trend is sending shudders through lenders already reeling from the
subprime-mortgage tumult. As a result, leery card issuers are bulking up
their reserves against future card-related losses \-- and getting so
much tougher on borrowers that some consumers are reining in overall
spending.

After J.P. Morgan doubled the interest rate on her credit card to around
30% and lowered her credit limit in December, Jennifer Campion, a
39-year-old computer-software instructor in Chandler, Ariz., decided to
eat out less often and to forgo her daily coffee at Starbucks so she can
pay off her outstanding card balances. \"Our whole lifestyle has changed
at this point because of this strict budget we\'re on,\" says Ms.
Campion, who has a total of about \$7,000 in credit-card debt.

Yesterday, card issuer Discover Financial Services said 49% of consumers
it surveyed in January plan to reduce their discretionary spending this
month.

That was an increase of five percentage points from its December survey
and a 10-point jump since September.

Consumers typically increase their borrowing in the early stages of an
economic downturn as they try to maintain their living standards amid a
weakening job market and slowing wage growth. That trend seems to be
holding true to form so far.

For consumers who are in financial distress, paying for basic needs with
plastic \"is the easiest way out of that box,\" says Bryan Derman, a
partner at Glenbrook Partners LLC, a Menlo Park, Calif., consulting firm
that specializes in the payments industry.

After American Express and Barclays PLC\'s Juniper Bank cut his credit
lines recently, 54-year-old Marv Hedrick, of Spring Hill, Fla., cut back
on his purchases of DVDs and electronic gadgets. But Mr. Hedrick,
director of finance for an auto dealership, still uses a credit card to
buy groceries and gasoline. His household expenses, including his cell
phone, cable and utility bills, are automatically charged to his credit
card every month.

\"I cannot tell you the last time I\'ve written a check or used a debit
card. I never carry cash on me,\" says Mr. Hedrick.

Indeed, many Americans are so dependent on their credit cards for basic
needs that about 25% of the clients walking into Margo Mitchell\'s
credit-counseling office in Tulsa, Okla., have opted to pay their
monthly credit-cards bills before their mortgages. \"The credit card is
a means for them to supplement their income and becomes a cushion to buy
groceries,\" she says.

But when recessions hit, consumer borrowing typically drops off
substantially as consumers, facing the mounting threat of job losses and
lower household income, can no longer keep up with their card payments.

\"Many Americans don\'t realize the direct correlation between the need
to change their behavior and their income,\" said Bill Druliner, a
credit counselor for GreenPath Inc. \"The longer somebody maintains that
lifestyle, the bigger the crash is when it finally comes down to
earth.\"

In the past decade, card issuers have made it easier than ever for
Americans to put more of their spending on plastic, in part through
juicy rewards programs. At the same time, banks persuaded more merchants
to accept cards, touting data showing shoppers often spend more when
paying with credit cards, rather than cash.

McDonald\'s Corp. started accepting credit cards in 2003, and some
utilities have started letting customers pay with plastic. Cards
emblazoned with the MasterCard logo now are accepted at more than seven
million merchant locations in the U.S., up from 4.3 million in 2001 and
2.9 million in 1991.

As a result, three out of four American families have credit cards.

Their balances averaged \$5,100 in 2004, up 16% from 2001, according to
the Federal Reserve.

Much of the card industry\'s growth has come from debit cards, which
aren\'t included in the government\'s revolving-credit data because they
immediately draw funds out of purchaser\'s checking account. Still,
credit-card portfolios managed by card-issuing banks are growing at
single-digit percentage rates each year as consumers put more small
payments and everyday purchases on their cards.

This isn\'t the first time changes in credit-card usage have affected
consumer borrowing. In 1980, then-President Carter sought to cut back
consumers\' use of credit cards, blaming them in part for the nation\'s
runaway inflation at the time. Consumer spending tumbled as a result.

Politicians have also turned to credit cards as a way to spur the
economy. In 1991, as the economy rebounded from a recession, President
George H.W. Bush, the current president\'s father, tried to urge banks
to lower interest rates in order to propel consumer spending.