Consumer Credit

The amount Americans owe on credit cards and other consumer loans plunged a record $21.6 billion in July, clouding prospects that the budding economic recovery would soon extend to Main Street. The drop in consumer debt for the month was the largest since the Federal Reserve began tracking the data in 1943 and the sixth straight monthly decline in outstanding consumer debt, the longest streak since 1991. The amount of the decrease -- five times what analysts had predicted -- along with continued job losses and an uncertain housing market show that consumers are still skittish about borrowing money for big-ticket purchases, even though economic data show that the deep recession may have technically ended.

Consumer borrowing fell for a third straight month in December, the longest such stretch in 17 years, as households cut spending amid the economic downturn, the Federal Reserve said. Borrowing dropped at an annual rate of 3.1% for the month. The $6.6-billion decline was nearly double what analysts expected. It followed an $11-billion drop in November that was the biggest monthly plunge since 1943.

Consumer borrowing rose unexpectedly in January after three months of declines. The Federal Reserve says borrowing increased at an annual rate of $1.76 billion in the first month of 2009. Economists expected borrowing to decline at a rate of $5 billion. Still, the small rise in January is unlikely to shake economists' views that borrowing will remain weak this year as consumers tighten their belts in the face of massive layoffs and the recession. Consumer spending accounts for about 70% of U.S. economic activity.

American Express Co., the biggest U.S. credit card company by purchases, agreed to pay $500,000 in fines and $3.5 million in refunds after causing customers to incur penalties on convenience checks. The Office of Thrift Supervision and the Federal Deposit Insurance Corp. fined two subsidiaries of the New York company $250,000 each. The regulators said American Express sent out convenience checks that consumers could use to tap their credit card accounts, then lowered their credit limits and didn't honor some of the checks, triggering penalties for the customers.

Consumer borrowing rose again in November as credit card debt shot up by the largest amount in six months. The Federal Reserve reported Tuesday that consumer borrowing climbed at an annual rate of 7.4% in November, far higher than the 1% rise in October. The category that includes credit card debt surged at an annual rate of 11.3%, a six-month high, an indication that shoppers were relying heavily on credit cards to finance purchases since home equity lines of credit became harder to get.

Easy credit is great. Except when it's too easy. Millions of people are now in danger of losing their homes as a result of the meltdown in the sub-prime mortgage market. But millions more face the prospect of financial ruin because of an even more ubiquitous problem: the danger of making only minimum payments on monthly credit card bills. Michelle Schimeck, 35, discovered this for herself after running up a combined balance of more than $20,000 on five credit cards.

Students at Corinthian Colleges and other for-profit learning institutions are getting a painful lesson in credit-crunch economics: Some lenders, including giant Sallie Mae, are turning off the money faucets for less credit-worthy applicants. That means students at these commercial schools who use high-rate private loans to bridge gaps in their tuition costs or who fail to qualify for conventional loans and grants may have a harder time financing their educations.

More Americans have fallen behind on consumer loans than at any time in nearly 16 years as credit problems once concentrated in mortgages spread into other forms of debt. In a quarterly study, the American Bankers Assn. said the percentage of loans at least 30 days past due rose to 2.65% in the fourth quarter from 2.44% in the third quarter and from 2.23% a year earlier. The rate of delinquencies was the highest since a 2.75% rate in the first quarter of 1992.

Alan Greenspan says don't blame him for the U.S. housing bubble, the sub-prime meltdown and the resulting credit crisis. The real culprits are professional investors, the former Federal Reserve chairman wrote in an article published Sunday in Britain's Financial Times newspaper. Some critics have asserted that the easy U.S. monetary policy during the last several years of Greenspan's Fed tenure was responsible for the rapid rising in U.S. housing prices.

Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein said Thursday that markets are probably in the late stages of the global credit crisis that began last summer. "We're closer to the end than the beginning," Blankfein said at the bank's annual shareholder meeting. He wouldn't forecast how long the crisis would persist. In the meantime, Goldman is cutting deep into its ranks, eliminating posts in mortgage and investment banking as the credit crunch saps demand. The company declined to quantify the latest round of head-count reductions, which are taking place this month.