Credit Card Dominoes are Beginning to Fall

In the coming weeks and months, Robert Ian will be discussing many of the major changes taking place in the world today. Some will be good. Some will be bad. Many of these changes will have no apparent solution.... But together, we can not only conquer change, but our fears as well. Join him weekly for practical analysis and tips. Read Full Bio

Several weeks ago, I commented about New York Banking Analyst Meredith Whitney and her analysis of the credit card industry. She recently discussed how everyone would have their credit lines cut as this year unfolds. A good friend of mine who read that commentary, sent me a letter she received from one of her credit card companies. She had a $30k line of credit with this company. Imagine the devastation a letter like this would inflict on your small business if you received this in the mail:

Dear Customer: Your Advanta business card account is funded by an independent trust which owns the balances you owe on your account and provides funding for new transactions. We expect the trust to stop funding activity on our accounts. The trust also restricts our flexibility to fund activity on your account. Unfortunately, as a result, effective May 30th, all Advanta business credit card accounts, including your account, will be closed. This means that you will not be able to use your card or account for new transactions including purchases, checks and balance transfers beginning on May 30th.

The letter goes on with details about making payments and their rewards program, but you get the idea. Now imagine if you were one of the small businesses that relied upon your Advanta credit line to operate your business? As you can see, the dominoes are just beginning to fall.

According to, Advanta has more than 1 million accounts that will be affected. The bank will continue to offer deposit products and online banking, but said it plans to wait out the recession before reevaluating its credit card business.

More credit has just vanished right in front your very eyes. The lifeblood of American small business is being drained at an alarming rate. Small business historically creates most of the new jobs. Small business cannot survive when one funding source after another evaporates every other week. Banks are not lending. Credit lines are disappearing. Retirement savings has been lost. The U.S. government has started, as a matter of practice, to nationalize U.S. businesses. Where’s the outrage? Where’s the panic? Where’s the public discussion? These are serious, life-changing events.

So many people are in so much pain and don’t know what to do, so for now they are acting like a deer in the headlights. They remain fixated on something they don’t understand, that is moving toward them at rapid speed, that will seriously injure them, or worse, when it hits.

The media has induced a trance that continues to say everything “is fine” or “better than expected” or “less bad.” The talking on heads on TV keep promising “green shoots” that will be in full bloom later this year. I understand optimism is important. But so is realism. A happy medium between the two is best.

If people don’t start waking up from all this “happy talk” on financial TV and start planning for the worst (and working toward the best), then it’s going to be a long, hot summer and a cold, dark winter.