Our friend from the government is here to help us-now we’re in trouble!

Our friend from the government is here to help us-now we’re in trouble! Washington weighs in on consumer protection-but missed the real boat


Yep, it’s an overly long title, and an extremely serious topic. The president and congress are now taking steps to protect us (God help us) from the “Big Banks.” Well it was about damn time! Let me clue you in, the mortgage –housing problem is only half the problem, the proverbial other shoe is unsecured credit card debt, let me cite you a few statistics: (thanks to www.creditcards.com).

• Average credit card debt per household with credit card debt: $15,788*
• Total credit cards in circulation in U.S: 576.4 million, as of yearend 2009 (Source: Nilson Report, February 2010)
• Total debit cards in circulation in U.S: 507 million, as of yearend 2009 (Source: Nilson Report, February 2010)
• Average number of credit cards held by cardholders: 3.5, as of yearend 2008 (Source: "The Survey of Consumer Payment Choice," Federal Reserve Bank of Boston, January 2010)
• Average APR on new credit card offer: 14.10 percent (Source: CreditCards.com Weekly Rate Report, May 2010.)
• Average APR on credit card with a balance on it: 14.67 percent, as of February, 2010 (Source: Federal Reserve's G.19 report on consumer credit, May 2010)
• Total U.S. revolving debt (98 percent of which is made up of credit card debt): $852.6 billion, as of March 2010 (Source: Federal Reserve's G.19 report on consumer credit, March 2010)
• Total U.S. consumer debt: $2.45 trillion, as of March 2010 (Source: Federal Reserve's G.19 report on consumer credit, May 2010)
• U.S. credit card 60-day delinquency rate: 4.27 percent. (Source: Fitch Ratings, April 2010)
• U.S. credit card default rate: 13.01 percent. (Source: Fitch Ratings, April 2010)
Total bankruptcy filings in 2009 reached 1.4 million in 2009, up from 1.09 million in 2008. The vast majority were personal bankruptcies -- Chapter 7 and Chapter 13. Business bankruptcies made up 6 percent of all filings. (Source: AACER, the American Bankruptcy Institute, January 2010)
Clearly the American Consumer is in trouble, but why?
Americans at least the vast majority of Americans are decent hard working extremely giving people, just take a look at charitable giving, the world has never seen, nor will it ever see again, a people so enormously generous. According to the National Philantropic Institute 89% of American households give. (Thanks to http://www.nptrust.org/). This is part of the American psyche hardworking and giving, so it is extremely unlikely if you buy off on my presupposition of the American psyche, that Americans would be ducking their obligations. The reason is that Americans are not able to pay.
This brings me back to primary theme of this blog, small to medium business, entrepreneurship, and jobs. What America and Americans needs are jobs and they are not going to be provided by big business or labor unions. What is needed is a leg up for the small to medium businesses of America not another regulatory commission for greedy bankers. The main idea is that Americans should not need credit cards in the first place and if there were enough decent paying jobs, the need for credit cards and it’s new regulatory commission would be moot.

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The business Outlook: It’s Starting to Look Better

Sorry to spoil President Obama’s parade but the most important issue for average Americans is not healthcare. It is very important but it not number one. Number one is the American economy and more importantly job stability. Can you find or keep a job? Some of the economic news is depressing. American’s still aren’t spending much money on durable goods, and soaring credit card debt is the proverbial other shoe to drop on the economy.

It’s not all gloom and doom however. An important but little known index is rising and that it is good news-the index is the Baltic Dry Index. What this index does is measure how much it would cost to ship basic raw materials and the Baltic just hit a two month high according to transportationweekly.com. This is especially good news since it measures what might be in pipeline for the future to affect other indexes like the PMI (Purchasing Managers' Index) which measures new orders, inventory, supplier deliveries, and production levels amongst other things.

So is it time to go out and invest in growth stocks or buy a new sports car? I wouldn’t go that far, but it might be all right to go ahead and send your kids to camp. Before orders can be produced, and people brought on to work those orders, someone in purchasing has to buy the raw materials to start the process, and nothing is final until the product ships. Well, good news, basic raw materials are shipping and its time to look at some of the other reports with a little more optimism!

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Now you’ve taken an order but your supplier does not want to extend a credit line.

This is one of the more frustrating things that you can encounter as a business owner. You or your sales person has gone out and “won the battle” by bringing back a good sized order, and now the credit person on the other end of the phone does not want to extend terms or enough credit line to cover the business. The first reaction is to call up and vent on the credit person, but this, as we have discussed earlier, is not in your company’s long term best interest. The first question many business owners want to ask is “why,” but it is probably more important to ask “who.”

Why is a question that leads to debate and confrontation while who gives a business owner what he or she might need-more information to get a review or reversal. Was the decision made by a credit manager, senior credit analyst, or accounts receivable clerk? If it was a clerk, they might be following a strict set of guidelines and are not encouraged to think “out of the box.” Same thing for a junior credit analyst, they do not have years of experience to draw on to get the deal done or be experienced enough to offer creative financing. Your first step is to call your liaison with your suppliers company-your sales person. Make sure you get the name of the person making the decision and ask the sales person their job title. Your sales representative should be able to convey how much clout the person making the decision has within their organization. Many sales people (who want the sale) might make a visit back to the credit department for you. A few hours later the deal might show up totally approved! (By the way, even finance people have a heart; I approved a deal that I knew I should not have. The sales rep told me,” Without this deal my kids won’t get Christmas.” What would have you done, probably what I did-approved. Boy was I hating life about March when the company could not pay-the key thing- this deal was approved and it was nothing about business or credit analysis).

If the deal is quashed by a Senior Credit Analyst or Credit Manger who is much respected inside their own company for years of prudent judgment, then make them your ally-ask them to draw on their experience to help you get the deal done. Remember without A/R these people don’t have jobs, so present yourself as a cooperative potential customer needing their expertise. They will begin to like your approach immediately. They might offer to finance half the deal with the other half on American Express. If after 5 deals-paid with in terms, then they will offer a total credit line of x amount. Also ask them if they report to D & B or TRW business reporting, and if they would do this for your company. Most will be glad to help!

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Credit Card Companies Saving Themselves

Today credit card companies are doing more and more to try and save themselves from the crisis that is effecting so many of our financial intuitions. But in reality they may just end up losing and hurting their customers. The latest scheme now being used by some credit card companies involves watching where and how you use your credit card. When they observe purchases that they deem to be a characteristic of a risky customer they play to lower you credit limit and even possibly closes your credit card.

As credit tightens the credit card companies only want to give credit to the people that are 100% sure to be responsible customers and pay back their debt. They will also keep track of what you say when you call the customer service number in order to figure out if you are a risk for the company or not. The top places that could hurt you when using a credit card are: Bars, nightclubs, gambling institutions, cash advances, charging the necessities, marriage counseling, and massage parlors and strip clubs.

The credit card companies are now starting to look at the lifestyles of their customer and decide whether or not they are the type of customer they want to do business with. Not all credit card companies are of course adopting all of these tactics but the trend is disturbing. For example Visa may not have the same list of purchases that are disapproved of as American Express, and the next company may have no such policy at all. Each company is developing their own model that they go by to determine what and who is a risky customer making risky purchases.