NightBlogger

Moody’s Investors Service said credit card charge-offs rose 48 percent in August, according to the ratings agency’s latest data on $435 billion in credit card loans backing securities Moody’s rates. Moody’s said Thursday it expects charge-offs — loans written off as not being repaid — to continue to rise into and throughout 2009, eventually surpassing peak rates seen during past recessions. While more balances were written off, customers making payments also paid less of their balances. More

Since credit card debt has been growing much faster than the economy - more than 8% in last year’s third and fourth quarters and over 7% in May (the most recent month reported)- people are apparently using it as a substitute for income. Thus, for the past year or so we have still maintained the standard-of-living illusion.

But a big crunch is coming - and here’s why. Credit card debt, like mortgage debt, gets bundled, securitized, and sold off by banks. Citigroup (C, Fortune 500), one of America’s largest credit card lenders, just reported that it lost $176 million in the second quarter through securitizing such debt. That happens when the buyers of those securities observe rising delinquency rates and rising interest rates, and decide the debt is worth less than Citi thought. More generally, the amount of credit card debt that is securitized nationwide has plunged by more than half in the past five months because it’s getting riskier. That means credit card issuers will be charging customers higher interest rates, and since the banks can’t offload as much of the debt as before, they’ll have less money to lend to cardholders.

The squeeze has already started, which is why Congress is in the process of passing the Credit Cardholders’ Bill of Rights, which would prevent issuers from changing rates and terms without warning, among many other provisions. But bottom line, the credit card money window is going to start closing - and soon. More

Sacbee.com
The charge in question is something called the “interchange fee,” a percentage of the sale price paid to credit card companies on every retail transaction, including filling up at the pump. On average, the fee across the country is about 2 percent. Credit card companies charge that whether gas is $2.50 a gallon or $4.50 gallon. That means that as prices rise and drivers pay more to fill up, the amount station owners pay for interchange fees rises, too.

Here’s why: A 2 percent fee on $4-per-gallon gasoline comes to 8 cents a gallon. When gas was $3 a gallon a year ago, the same fee came to 6 cents. U.S. station owners typically mark up gasoline by 11 to 12 cents a gallon. In California, where prices have topped $4.50 or more a gallon of late, the interchange fee can run 9 cents to 10 cents per gallon. That cuts into profits. The fees apply only to mainstream bank cards such as Visa and MasterCard, not cards issued by the oil retailers.

Competition, station owners say, keeps them from pushing prices higher. “If I’m 2 or 3 cents off, I’m going to lose 500 gallons a day … because (customers) will go somewhere else where it’s cheaper,” said Dennis DeCota, who owns a 76 station in Marin County and is executive director of the Santa Rosa-based California Service Station and Auto Repair Association.

Some station operators in other states reportedly have banned the use of major credit cards to purchase gas. Norris said he hasn’t seen that in California, but he has heard that some of his colleagues may start offering a discount for customers paying in cash. More