News : Cheap Credit Cards
Date : 21/11/2008
SAN FRANCISCO (Reuters) - The need by U.S. retailers' to sell in hard times has put them at odds with the lenders backing their credit cards. While stores aggressively promote use of their cards, lenders are increasingly wary of consumer defaults.
That conflict of interest, a direct result of the global credit crunch, could fuel escalated risk in 2009 following a holiday season in which more consumers are offered store credit cards that they may be less likely to repay.
"From the retailers' point of view, the more people who open up cards, the better it is for sales," said Laura Nishikawa, an analyst with Innovest Strategic Value Advisors.
But in the midst of the economic downturn, banks are working hard to protect themselves against defaults from existing cardholders, not to mention weeding out consumers with bad credit and maxed out accounts who seek new cards.
"As a bank right now, you're afraid you're picking up the bad apples," Nishikawa added. "That's one of the reasons a lot of the banks are tightening their standards."
The tug-of-war between retailers and lenders is accelerating, particularly as store chains pull out all the stops to ring up holiday sales in what is expected to be the worst shopping season in nearly two decades.
Stores from Home Depot Inc (HD.N: Quote, Profile, Research, Stock Buzz) to online jeweler Blue Nile Inc (NILE.O: Quote, Profile, Research, Stock Buzz) have seen potential sales evaporate due to their customers' inability to access credit to pay for big-ticket items, whether a diamond ring or a kitchen remodel.
"Large consumer durables are extremely credit sensitive," said Citigroup analyst Steven Wieting, citing autos, furniture and electronics as vulnerable sectors. "People simply do not buy a new car without credit."
Blue Nile Chief Executive Diane Irvine said recently the credit freeze had hurt "purchases of high-ticket items, as traditional avenues of financing have now closed."
NO CREDIT? USE THIS CARD!
One solution for retailers is to offer shoppers yet another credit card. These private label cards, backed by lenders such as GE Money (GE.N: Quote, Profile, Research, Stock Buzz), Citi (C.N: Quote, Profile, Research, Stock Buzz) or HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz), carry varying interest rates and limits set by the lenders themselves based on credit worthiness.
Source : http://www.reuters.com/
