Economic Environment. The fourth quarter of 2002 found consumers exhibiting little confidence in the economy, unemployment at over 5.7%, individual bankruptcy filings at an annual rate of 1.6 million, interest rates at a forty-year low, and unsecured credit delinquencies at an all-time high. In the beginning of 2003 the stock markets are still depressed and low interest rates make the bond market a less than attractive alternative. Retirees have seen their fixed-incomes plummet.

Many consumers have taken low interest second mortgages or refinanced to take the available equity from their homes to consolidate their bills. While refinancing and acquiring new second mortgages are currently popular due to historically low interest rates, the lack of critical consumer education will result in borrowers finding themselves right back in serious debt trouble after a short time. Increased delinquencies are beginning to show against these new loans, thereby threatening home ownership for a growing segment of borrowers. . Travel and tourism are having a serious impact on businesses that depend upon leisure spending.

Even with unprecedented low interest rates, capital spending is stalled as business retrenches for the bear market over the long haul. Some business leaders are predicting a slow recovery beginning the third quarter of 2003. However the growth of new jobs has slowed to zero and the projection for capital expenditure remains uncertain.

Creditors are reeling from bankruptcies and delinquencies. American consumers ended last year with $660.9 billion in bank credit card debt, an 8.8% increase over the previous year.

The growth was driven by MasterCard’s 14.5% gain in credit card outstandings last year, as the country’s second largest payment card network overtook VISA as the largest provider of bank credit cards. At the end of 2002, MasterCard had 266.9 million credit cards in-force compared to VISA’s 258.4 million. It is expected that MasterCard will surpass VISA in outstandings this quarter. However, VISA maintains a much larger share of credit card volume, 42%, versus MasterCard’s 34%. VISA also dominates the off-line debit card market. The overall growth in bank credit card outstandings last year was an improvement over 2001’s 6.9% gain, but well below 2000’s 16% gain in outstandings.

Since 84 million U.S. households have at least one credit card, the average bank credit card debt per household now stands at $7,868. Retail credit card debt is expected to fall between $95 billion and $98 billion for 2002.

New credit card solicitations reached an all time high in the third quarter at a 3 billion annual rate (50 solicitations for every household in the nation). The response rate from these solicitations reached an all- time low during this period (0.4%).