A recent article over at Slate points out that more Americans are paying off their credit cards as interest rates are heading up. This has been eating into the profits of many credit card companies.

This should be a springtime of joy for credit card companies. On Wednesday, President Bush signed the new bankruptcy bill, which they helped to write. Short-term interest rates are on the upswing, which means they can jack up interest rates from, say, 13 percent to 17 percent, without customers asking too many questions. And with employment growing modestly and new unemployment claims down, credit card delinquencies should be on the decline.

But all is not tulips and nectar over at MBNA, the largest independent issuer of credit cards. Yesterday it reported a poor quarter and ratcheted down earnings expectations for the year. Its stock sank to a two-year low. Credit card giant Capital One Financial had a better quarter, but its stock has been slumping lately, too. Bad news for the credit card companies may be better news for us. There are signs at both companies that consumers may be responding to higher rates by doing something almost completely unexpected and practically un-American: paying down credit card debt.

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Daniel Drezner
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