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A "perfect storm" of unfavorable events could affect the credit card industry in 2009, according to a new report by Mercator Advisory Group LLC. A confluence of worst-case events is unlikely to happen but is not impossible, Ken Paterson, director of Mercator's credit advisory service, tells CardLine sister publication Cards&Payments. If the U.S. Federal Reserve and U.S. Treasury Department do not begin soon enough to loan up to $200 billion for investments in asset-backed securities through the new Term Asset-Backed Loan Facility (CardLine, 11/25), card issuers could begin to reduce credit lines and outstanding card loans, according to Paterson. Banks will have to compete harder for consumer deposits, thus reducing the net interest margins that also help fund card loans, he adds. If the card-loan charge-off rate reaches 10% of receivables, this would further reduce investor confidence in asset-backed securities, according to Paterson. Interchange regulation or litigation outcomes also could be unfavorable to issuers by reducing revenues and permitting merchants to add surcharges to some card transactions, he writes. And legislators could enact strict cardholder-protection laws, housing prices could continue to decline, and unemployment could grow throughout the year. If all of those events happen, they potentially could lead to a consumer- and issuer-led decline in credit card spending and balances, dramatic pull-back in card-reward programs, merchant surcharging that would limit credit and debit card purchase volumes, implementation of annual account fees to compensate for lost interchange and fee income, and significant consolidation of issuers, Paterson writes. "Some of these disruptive factors really affect issuers' ability to continue to accommodate consumer credit as they have in the past," Paterson tells Cards&Payments. "And a lot of these are factors over which issuers don't have a great deal of control." Even if the worst case happens, Paterson stresses that the credit card industry is "resilient."
