A New Headache For The Credit-Card Biz

Robert E. Stone II is the kind of guy credit-card companies hate. When those seductive low-rate card offers come pouring in by mail, he says, “they go right into the recycling bin.” The only thing Stone, a university press marketing manager in Ann Arbor, Mich., wants to do is pay off his debt. Adding more plastic to his wallet, he says, would be “taking two steps forward and three steps back.”

Unfortunately for credit-card issuers, more and more folks are finding ways to move away from plastic. For several years they’ve piled their debt onto their home mortgages through refinancing. And with the refi boom winding down, they’re moving it to low-rate home-equity loans. The shift, along with the higher costs of funds, is dimming industry prospects. Growth in credit-card receivables — what card holders owe — has slipped to low single digits for issuers in the last couple of years, and some industry watchers think the trend is here to stay. “The logic of borrowing at 3% to 7% on a home-equity loan compared to 13% on a credit card is too powerful to ignore,” says Morgan Stanley (MWD ) analyst Kenneth A. Posner.

For this complete story, please visit A New Headache For The Credit-Card Biz.