A New Era Begins for Credit Cards

When gas prices shot up during the recession, Barbara Riggle, ­­a part-time hotel waitress from Merriam Woods, Mo., was ready. Or so she thought. Armed with her plastic panacea, Riggle was able to swipe away the pain at the pump without even realizing quite how far beyond her means she was spending. 

But then the bills started piling up. "It was just too conven­ient," says Riggle, who last year joined the crowd of Americans who have been driven into bankruptcy by credit card debt. "It is a convenience to have that little piece of plastic and to pay for our gas that way, to pay for a hotel room or a dinner or what have you, and before long we realize that we've spent too much." 

[See The Fine Print Behind Credit Card Rewards.] 

Since their introduction, credit cards have had a seductive hold over the psyches of American consumers. As symbols of status and accomplishment, lines of credit have had an empowering effect, leading cardholders to take overly optimistic views of their purchasing power. But as a result of the recession, these fragile illusions of wealth have come crashing down. Now, in the aftermath of sweeping legislative reform, Americans' complicated relationship with credit has reached a historic crossroads. 

[Also see 10 Money Tips for 2010.] 

New attitudes. In many ways, this month was supposed to mark a victory for consumer rights. While part of Congress's Credit CARD Act of 2009 kicked in last year, the legislation's most critical provisions, which include restrictions on rate increases and over-the-limit fees, will take effect on Monday. But in a turn of events that has been troubling for cardholders, credit card issuers used the time window between the bill's passage last year and its start date on Monday to preemptively raise rates, add fees, and cut back on rewards. 

Coupled with the crippling effects of the recession, these maneuverings have proved hard to digest. As a result, consumers have been feeling increasingly vulnerable--and it's starting to show. Notably, several recent studies have indicated that Americans plan to reduce their credit card usage. Meanwhile, outstanding credit card debt, as measured by the Federal Reserve, has been on an unprecedented downward trend. 

While this shift away from credit is largely practical, somewhere along the way consumers also underwent an emotional realignment. And they appear to be not only tightening their belts but also hardening their attitudes toward the cards that fueled and ultimately helped to unhinge the last economic boom. 

Cardholders are "a little bit outraged," Linda Sherry, the national priorities director for the nonprofit advocacy group Consumer Action, says of the response to the flurry of rate increases and other policy changes that have taken place over the past several months. "I think many people think of it as 'I've been loyal to this credit card, and it's not being loyal to me.'" 

Bill Hardekopf, the chief executive of LowCards.com, a company that analyzes and reviews credit cards, speaks of this disillusionment in terms of a shifting partnership dynamic. "That partnership between the credit card issuer and you as the consumer has changed dramatically. The pendulum has kind of swung in favor of the issuer," he says. 

Mixed in with the anger is an element of fear surrounding the pieces of plastic that have had such a transformative impact on the American economy. And as individuals claw their way back to firm footing, they are increasingly likely to steer clear of the behaviors that drove them into debt. 

It's this feeling of trepidation that will prevent consumers like Jim Courtright, an advertising specialist from Chicago, from returning to credit cards. Until he declared bankruptcy last year, Courtright was, in many ways, the ideal credit card user. But after taking the strong line of credit he had built up over a lifetime of on-time payments and staking it to a business venture, he eventually got in over his head. "I literally had to finance myself off of credit cards," says Courtright. "[You don't] realize how much more expensive it gets, how seductive it is, to get pulled into that morass...It sneaks up on you, and you don't realize how quickly you can get in deep."