Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- Credit Card Rules Help to Lower Fees, Rates
Associated Press 23 Mar 2011
Federal officials at the Consumer Financial Protection Bureau say consumers are being hit with fewer over-limit penalty charges, rate hikes, and late fees one year after new regulations cracked down on questionable billing practices. The CFPB will administer the regulations once it goes live in July. The agency examined the impact of specific regulations but did not look at the full range of costs customers pay for cards, which may be on the rise in the form of higher annual fees and higher interest rates for new cardholders. Still, penalty charges overall are down, falling to $427 million in November from $901 million in January 2010. One reason for this drop in late fees is a new $25 cap on penalty charges. Consumers also benefited from new rules on interest rates, which prevent card issuers from raising rates on existing balances or within the first year after an account is opened. Before the regulations, some 15 percent of accounts were slapped with rate increases over the course of a year; but that number dropped to 2 percent in the year after the rules took effect.
- 6 Reasons You Don't Need A Prepaid Debit Card
San Francisco Chronicle 17 Mar 2011
Though a prepaid card can be the only solution to some problems, there are six situations in which the cards are not necessary -- even if they seem like a good idea. The first circumstance is when giving a gift. It may seem outdated to give cash or a check, but giving prepaid cards to people who are unfamiliar with them means also giving them the hassle of a card that essentially comes with a complex user's manual of terms, conditions and fees. Second, prepaid cards are not a wise choice for paying children allowances, because teaching kids to spend with cash will likely make them more responsible spenders in the long run. The cards also do not need to be used for a tax refund, which can be deposited directly into a person's bank account. For people without a checking account, refund checks can be cashed for a minimal fee -- just $6 at Walmart, for example. Nor should prepaid cards be used to avoid monthly banking fees, primarily because most of the fees on a checking account can be avoided with prudent management of the account. Using prepaid cards to limit spending or restrict access to money also is not the best plan, and consumers would be wise to use a debit card or cash to keep a tight leash on their spending. Finally, consumers should be wary of feeling as though they must use the cards for online shopping. Prepaid cards can be beneficial for some consumers who are savvy enough to understand the terms and conditions so as to avoid fees; but despite their conveniences, they can make finances more complicated for many.
- Looking for a Credit Card? It Pays to Be Rich
Associated Press 22 Feb 2011
A year after far-reaching credit card regulations changed the face of the industry, banks are unloading perks and rewards on big spenders with pristine credit scores. At the same time, they are hammering customers with flawed financial histories with higher interest rates, lower credit limits, and new annual fees. In some instances, the riskiest customers are being dropped altogether. "When you look at the regulations, it's a net positive for consumers," insists American Bankers Association Spokesman Peter Garuccio. "But there have been some trade-offs." The growing disparity between how customers are treated is largely the result of new limitations on card issuers. A key change under the Credit Card Accountability, Responsibility and Disclosure Act, or the CARD Act, is that issuers can no longer increase rates on existing balances or in the first 12 months that an account is open. The regulations are already transforming the cards on the market. To make up for the decline in revenue, banks are levying new annual fees and hiking interest rates, but mostly for those with the lowest credit scores. The best customers are more valued than ever.
- Debt Settlement Industry in Flux as New Rules Start
Fox Business 11 Jan 2011
Consumer advocates are outraged that borrowers are still being tricked into signing up for debt settlement services, despite federal rules that took effect more than two months ago with the intent of curbing shady practices. The industry has changed since the legislation went into place, but advocates say the changes has not necessarily been for the best and has not come quickly enough. Debt settlers generally have responded to the new regulations in one of three ways: by going out of business, changing their business models to comply with the rules and stop collecting upfront fees for debt negotiations, or changing their marketing tactics in an effort to circumvent aspects of the rule that apply to telemarketing. As of Oct. 31, 2010, the companies are no longer allowed to charge fees until after they have negotiated settlements with credit card companies and other creditors. Restrictions are also placed on the amount of fees that can be charged and the kind of claims that settlement firms can make in their advertising. The industry has grown from nearly a dozen players in the early 2000s to about 100 as of 2006, and only about a quarter of clients who remain in debt settlement programs for three years actually complete their debt repayment plans. The Association of Settlement Companies, an industry trade group, says it is as interested as consumer advocates in weeding out the companies that are doing business poorly, but abuses still continue. A coalition of consumer groups sent a letter in December 2010 urging the Federal Trade Commission to increase enforcement of its rules. Though the FTC pledged to do so, consumer groups say the agency is not adequately staffed to truly police the industry. Since telemarketing has been banned, consumers have seen an increase in spam e-mails touting their qualifications for the services. The companies have also increased their usage of radio advertising, which suggests to many that a more comprehensive federal law is needed.
- Credit Cards Still Use Soon-to-be-Banned Policies
Associated Press 28 Oct 2009
An analysis conducted by the Pew Charitable Trusts' Safe Credit Cards Project concludes that the nation's 12 biggest credit card issuers are still engaging in practices that will be considered illegal once new restrictions kick in early next year. The organization examined nearly 400 cards offered by the banks that account for 90 percent of outstanding credit in this country. What it found is that most of them continue to hike interest rates on outstanding balances, trigger penalty interest rates with just one or two late payments or over-the-limit transactions, and apply payments to the lowest-interest portion of balances first -- all policies that are outlawed under the Credit Card Accountability, Responsibility and Disclosure (CARD) Act signed by President Obama in May. Additionally, penalty interest rates have climbed, as have the lowest interest rates offered to new customers; and issuers have added fees -- or raised existing ones -- for balance transfers, cash advances, overdraft protection, and other services. "It's clear that until the law takes effect, or Congress accelerates the implementation date of the law, these practices are going to continue to be out there," declares study co-author Nick Bourke. "Once it takes full effect next year, it's going to stop a lot of unfair and deceptive practices." If consumer advocates have it their way, the crackdown will start sooner. Responding to ongoing complaints from the public, Congress is considering moving the effective date of the CARD Act to Dec. 1 instead of waiting until February to fully implement the law.