SAN FRANCISCO - It's not just lower credit limits and the difficulty of getting a credit card that's striking fear into the hearts of retailers desperate for holiday sales -- it's consumers' new desire to save.

No matter if their personal credit scores are good or bad, shoppers will manage their money more carefully.

That bodes ill for the holiday shopping period in which the bulk of most retailers' profits are made. In addition, tougher restrictions on credit card fees and other terms mean many stores will offer more creative ways to use debit, or cold hard cash, to pay for gifts.

A recent survey by Javelin Strategy & Research found eight out of 10 consumers have adopted a system to manage their money.

What we'll see this holiday season is more self-imposed spending limits, said James Van Dyke, Javelin's president and founder. This won't be a shopping season in which people are feeling exuberant, confidant and willing to shop but being held back by their credit limits. People will be cautious and curtailing spending on their own.

That self-imposed frugality deepens the pain for retailers, said Laura Nishikawa, an analyst with RiskMetrics Group.

There's a demand effect happening now, Nishikawa said. With the combination of less availability of credit and these changes in consumer behavior, I think we'll see less Christmas charged on credit cards.

Deloitte expects total holiday sales to be flat with a year ago but others expect grimmer numbers, such as America's Research Group, which said sales could fall 3.5 percent or more.

While analysts believe that bad credit card loan defaults have already peaked, the losses have put credit card companies on the defense. Since the beginning of the U.S. financial crisis last fall, issuers have imposed more limits on their cardholders' spending, or have shut them down entirely.

The number of U.S. cards is down by 82 million, or 19 percent, over the past year and new cards are down 55 percent, according to credit bureau Equifax.

In that time, credit limits have been slashed by $721 billion. But while retailers steeled themselves for the effect of tight credit limits in 2008, the bulk of the decline has occurred since January of this year, leaving even more shoppers in the lurch.

Meanwhile, Equifax estimates the U.S. personal savings rate is now more than 4 percent, a rate unmatched in the past decade.


New federal regulations due to take hold in February 2010 could further impede spending, experts say. In the biggest overhaul of the credit card industry in at least 20 years, credit card issuers will now be limited in their ability to hike fees and will have to provide earlier, and more explicit warning of changes in terms to their cardholders.

On Tuesday, the U.S. Federal Reserve proposed additional restrictions on lenders to protect consumers.

This greater transparency could scare off potential spenders, some say, as the costs of carrying overdue credit card balances will not be as hidden. Since it will be harder for credit card issuers to raise fees, upfront charges may also be higher and give shoppers more reason to pause.
The question is how much consumers will be willing to charge now that they have more of a transparent view of how much it will cost, said Nishikawa.

Confronted with the more stringent regulations, credit card issuers are doing away with offers that may have spurred a holiday purchase in prior years, such as zero-interest cards.

A lot of these promos and teaser rates are going away and I think that will affect spend volume, said Nishikawa. It will be harder to get a credit card in the next few months ... and then all these buy-now, pay-later bells-and-whistles cards will be history.

To lure spending, retailers are offering more payment options this holiday, and online retailers have the upper hand.

At eBay Inc, more people are using debit cards or bank accounts rather than credit to fund their PayPal accounts: It just gives them a feeling of more financial responsibility and control, Chief Executive John Donahoe told Reuters.

The vice president of marketing at, Jeff Wisot, said purchases using alternative payments now make up about a third of the company's sales from 15 percent a year ago.

He cited a recent move by that allows shoppers to place an order online but pay in cash at partner retailers from Wal-Mart Stores Inc to RadioShack Corp.

The companies that have been innovative and insightful enough to see these things coming, those companies will benefit from offering their customers more options, he said.

Wisot said he was quizzed by very big retailers after speaking at a recent trade show on the need to embrace alternate payment strategies to spur spending.

They seemed very concerned and felt they would be affected more this fourth quarter than any other holiday season.

(Reporting by Alexandria Sage; Editing by Michele Gershberg and Derek Caney)