Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- Stay-at-Home Mom Fights New Credit Card Rule
CNN Money 16 May 2012
A grass-roots campaign is gaining momentum against a new provision of the 2009 CARD Act that, starting in October of last year, has made it more difficult for stay-at-home parents to qualify for their own credit cards. The Federal Reserve rule dictates that credit card issuers consider individual income, rather than household income, to determine eligibility. As a result, many parents who rely on their spouse's income feel shut out of access to credit. One Virginia mom whose application for a Target card was rejected has refused to acquiesce to the new guideline, recently launching an online petition to persuade the Consumer Financial Protection Bureau -- which assumed jurisdiction over the rule last summer -- to amend it. The petition at Change.org already has garnered in excess of 30,000 signatures. "I used to be CEO of a small software consulting business and am now staying at home to take care of a toddler and first grader," wrote one stay-at-home mother on the petition. "If you had to pay someone to do what I do now, it would cost you at least $120,000, which is a lot less than what I used to earn. ... Don't you think I should be allowed to get a credit card on my own?" Holly McCall, the 34-year-old mother of two who organized the petition, delivered the signatures to the CFPB on May 15, supported by a handful of petitioners. Some of the women dressed as 1950s housewives, to illustrate how the rule "feels like a flashback to the 1950s because of the way women aren't empowered financially."
- Late Payment Rate on US Credit Cards Dips in 1Q
Associated Press 15 May 2012
U.S. credit card users are getting better about submitting their payments in a more timely manner, even as banks increasingly are issuing cards to borrowers with imperfect credit. The rate of payments 90 days or more overdue dipped in the first quarter to 0.73 percent, TransUnion reports, down from 0.78 percent in the fourth quarter of 2011 and 0.74 percent in the first quarter of 2011. While late payments are trending downward, cardholders are amassing more debt. The average credit card balance in the first three months of the year was $4,692 -- a jump of 6.1 percent from the same period of last year. Some of that shift may be explained by the cardholders themselves, as nearly a fourth of new cards issued in the 2012 first quarter went to higher-risk consumers. "We expect these consumers have been making active use of their cards, because in many cases they may not have had access to cards in the past couple of years," explains TransUnion's Charlie Wise.
- Recession Added Debt, Drained Families' Savings
USA Today 14 May 2012
One out of five families owes more on credit cards, medical bills, student loans, and other unsecured debt than they have in savings, finds a new University of Michigan report. Moreover, the share of families surveyed at the end of last year that have zero savings increased to 23.4 percent, up from 18.5 percent in 2009. The study also suggested that the mortgage meltdown has not yet come to a close, either. Among homeowners polled, 1.7 percent anticipate that they will fall behind on their house payments in the near future -- although that is down slightly from 1.9 percent who expected to have problems meeting their mortgage obligations in 2009.
- Higher Credit Card Fees Are Bad for Bank Business, Report Finds
Huffington Post 09 May 2012
According to a new report from the Center for Responsible Lending (CRL), excessive credit card fees are unfavorable not only for consumers but also for bank business. The study found that credit card companies that marketed aggressively and practiced deceptive pricing suffered double the charge-offs during the Great Recession than companies than issuers that did not. "When consumers are duped and are taken by surprise by costs and fees, they are more likely to default," explained CRL senior researcher Joshua Frank. The report looked at nearly two dozen marketing and pricing practices at the top 100 card issuers between 2006 and 2010. The report undermines the argument often put forward by financial institutions that higher fees offset the risk of lending to those with questionable credit.
- Chase Launches New Alternative to Checking Account
Associated Press (NY) 08 May 2012
JPMorgan Chase has introduced its new prepaid card, intended to provide an alternative to checking accounts. The reloadable Chase Liquid card is now available at 200 branches and will roll out nationwide this summer. The move comes as the mega-bank and others tries to recoup fees lost in the wake of a regulatory crackdown. In 2010, rules took effect prohibiting banks from signing up customers for overdraft programs without their consent. Banks took an additional hit last summer when rules were issued limiting debit card interchange fees. Chase's prepaid carries a fee of $4.95 per month. The bank is calling the card a "low-cost alternative to traditional checking accounts" with "clear and simple" terms. An increasing number of big banks have cut rewards program, introduced new accounts with higher fees, and launched new products such as prepaid cards. Chase said customers will have to provide a $25 deposit for the Liquid card but are not required to have a checking or savings account with the bank. Withdrawals and customer service support do not cost anything.
- Prepaid Debit Cards Come With Fistful of Fees
Fox Business 07 May 2012
In an examination of whether having a prepaid debit card makes financial sense, given the accompanying fees, Bankrate surveyed 18 such cards from March 19-23. Of them, 11 charged activation fees ranging from $3 to $14.95. Fees varied widely among issuers, indicating the importance of conducting some due diligence. On the plus side, unlike conventional checking accounts, it may be impossible to overdraft an account with most prepaid debit cards. About a third of the cards charged a declined transaction fee; but the penalty ranged from 25 cents to $2, compared to the average $30.83 per overdraft on a traditional checking account. This can be an advantage for spenders who struggle to manage a traditional checking account. Of the 18 cards in the survey, 14 also did not charge for automatic bill pay. Most prepaid cards, like many checking accounts, do have built-in monthly fees. Some cards offer an option to avoid that fee by setting up direct deposit or loading a certain amount of money each month. Consumers who frequently use ATMs may want to avoid prepaid debit, as many issuers charge a fee for each ATM transaction. However, only three of the 18 surveyed debit cards charged a fee for making PIN-based, point-of-sale purchases. Card issuers also generally charge a fee for running a balance inquiry at an ATM, getting account information in the mail, or checking balances. The survey found that the American Express Prepaid Card, the H&R Block Emerald Card, and the PNC Bank SmartAccess Prepaid Visa Card appeared to be the most consumer-friendly.
- Pesky Fees That Could Surprise You Are Out There, And They Can Add Up In a Hurry
Detroit Free Press 03 May 2012
Although most consumers are familiar with annoying fees, many of them often go unnoticed. In Michigan, for example, lenders can charge a 45-cent verification fee for each payday loan transaction verified through a state database that makes sure individual consumers do not take out too many loans at the same time. Failure to repay the loans on time also attracts fees. Payday lenders can charge a returned check fee of $26.88, regardless of whether the loan was for $100 or for $600. "People can get into trouble because this can snowball into a bigger problem," according to Lisa Ross of the Michigan Office of Financial and Insurance Regulation. Some credit unions and banks charge fees of up to $5 for mail returned from an invalid address, so consumers should promptly update their addresses if they move. When buying or selling a home, the average home inspection should run about $350 to $700, but some places will try to charge as much as $1,000. Some scams try to charge individuals $20 to claim a fake sweepstakes prize, a practice that the Federal Trade Commission is cracking down on. There are also fees associated with secured credit cards, such as for raising the credit limit or a processing fee. Consumers looking to buy a car should also watch out for inflated documentation fees.
- Alumni Credit Card? First, Lose the Greedy Pitch
Time 03 May 2012
Although the Credit CARD Act aimed to stop issuers from marketing to students, a study from the University of Houston Law Center found that the practice is still going on. Many students still receive mailed offers and gifts for applying for credit. To avoid suitability restrictions, card companies may consider student loans as a source of income. Some card offers even recommend that users "carry a low balance" on a card because "this helps your [credit] score more than paying off the balance in full each month," although this is not always true. Card holders have nothing to gain by paying interest on their balance. Card offers also have suggested that borrowers not use more than half of their available balance, or credit limit. In fact, users should keep the balance below 30 percent of the credit limit, or even closer to 10 percent. Some cards may include good offers for college students, such as no annual fees, a good starting fixed rate, and free credit scores. Since universities can earn millions of dollars through credit card programs, they may also want to look toward promoting sound financial habits as well.
- Credit Card Companies Still Advertise to College Students
Daily Cougar 30 Apr 2012
Although a 2009 law forbids the practice, many credit-card companies are still advertising to students under age 21, according to research by a University of Houston professor. The Credit Card Accountability Responsibility and Disclosure Act was meant to change the unfair practices of consumer credit plans. The law included a revision of the 1970 Fair Credit Reporting Act, which said credit card marketing companies could not get information on anyone under 21 from organizations providing credit reports. The bill also encourages limits on college campus promotions by card companies. UH Law Center Assistant Professor Jim Hawkins' survey of over 500 students found that 68 percent had received credit card offers in the mail within the past year. Forty percent of respondents said they had seen credit card marketing companies promoting gifts to students after the bill took effect in 2010. Hawkins looked at 300 credit card agreements between college students and credit card issuers, finding that about 64 percent had not changed since the bill was passed.
- Walmart to Allow Shoppers to Use Cash Online
WAFB Channel 9 (Baton Rouge, La.) 27 Apr 2012
Wal-Mart shoppers now have the option of using cash to buy products online. When on walmart.com, shoppers can choose the "cash" option at check-out, after which they receive an order form to take to any Walmart store. At the store, the customer makes the payment, and the order is shipped. This service may help shoppers who do not like to use their credit cards online, or for underbanked consumers who have limited access to bank services and credit cards.
- Women Pay More for Credit Cards, Study Finds
ABC News 23 Apr 2012
A FINRA Foundation study found that female borrowers on average pay a half a point higher interest rate on their credit cards than men do -- even after accounting for income level, education, and financial savvy. Additionally, the research discovered that women were five percentage points more likely to carry a credit card balance, four percentage points more likely to remit only the minimum payment, and six points more likely to incur a late fee. However, among financially literate men and women, these last three differences disappeared.
- Consumer Financial Protection Bureau Wants to Reverse Ban on High Credit Card Fees
Washington Post 13 Apr 2012
The Consumer Financial Protection Bureau this week proposed to roll back the ban on high credit card enrollment fees. "Fee-harvester cards," marketed to consumers with bad credit, are at the center of the issue. Along with low limits and high fees, the cards carry interest rates of up to 36 percent. Three years ago, Congress capped credit card fees at 25 percent of the card’s limit during its first year of use. For example, a card by First Premier Bank with a $300 credit limit has a $75 annual fee, which is legal. However, it also has a $95 processing fee; but the bank skirts the law by requiring consumers to pay it before opening the account. The Federal Reserve tried to extend the cap to include those kinds of charges; but when First Premier sued, the U.S. District Court in South Dakota granted the bank a preliminary injunction, keeping the rule from being applied during the legal challenge. The CFPB's proposal essentially would undo the Fed’s extension of the cap and permit First Premier's sign-up fee. Some consumer advocates are disappointed by the move, saying that the regulator appears to be avoiding a legal battle but instead should defend its regulatory authority. "The way to protect consumers is to push back when courts make mistakes," remarked Ed Mierzwinski of U.S. PIRG.
- Hawaii Files Suit Against 7 Credit Card Companies
Associated Press 13 Apr 2012
Hawaii has filed seven lawsuits against banks and credit card companies -- Bank of America, Barclays, Capital One, Chase, Citi, Discover, HSBC, and their subsidiaries -- alleging misconduct tied to payment protection programs. The policies are billed as a consumer safeguard against unauthorized charges, lost or stolen cards, and identity theft; and they also may offer benefits if the cardholder becomes disabled or unemployed. However, some borrowers enrolled in payment protection plans, including seasonal workers or those who are self-employed, are ineligible to receive the benefits; and others are signed up without their knowledge or consent. A monthly fee for the policy may be small enough to go unnoticed, according to state Attorney General David Louie. "Be careful, be aware and go scrutinize your credit card bills," he advises. "You may not notice there's these little changes, but those little changes can add up." An estimated 110,000 credit cards in Hawaii -- percent of all cards -- have protection plans, according to Rick Fried, one of the lawyers representing the state, and the fees add up to about $150 per card on average. "It's a deceptive practice," declares Louie, "because over a large number of people you can make a lot of money doing this thing. We want to make sure this is stopped." There has been a high volume of complaints about credit card payment protection plans on the mainland -- with West Virginia, New Mexico, and Minnesota -- working on related litigation, but much fewer in Hawaii. The lawsuits could increase the number of complaints, however.
- AZ Senate Votes Down Credit Card Bill
KPHO.com 11 Apr 2012
The Arizona Senate has rejected a bill that would allow debt collectors to accuse almost anyone of owing a debt without needing to produce a contract. Sen. Ron Gould (R-Lake Havasu City) made a motion for reconsideration, which could trigger another vote soon. Sponsored by Rep. Jeff Dial (R-Chandler), HB 2664 was meant to protect credit card users -- although critics say it would allow debt buyers to target consumers who have had their debt dismissed. The measure would empower debt buyers to sue a person based on little evidence. The debt buyer could show entitlement to a money judgment by submitting either the "final billing statement" or an "electronic record." The Arizona Senate Banking and Insurance Committee originally denied the measure, but then the panel reviewed the decision and passed the bill.
- U.S. Borrowing Up but Consumers Resist Credit Cards
Fort Wayne News-Sentinel 09 Apr 2012
Americans took out more student and auto loans in February, but credit-card use declined for the second straight month. According to the Federal Reserve, consumer borrowing increased by $8.7 billion during the month -- the sixth month in a row of increases. However, credit-card borrowing fell by $2 billion after a $3-billion decline the month before. Total consumer borrowing rose to seasonally adjusted $2.52 trillion, nearly pre-recession levels. Consumers carried $799 billion in credit-card debt in February, 15 percent less than in December 2007, the first month of the recession. Some analysts say that Americans may be choosing cash over credit cards to keep paying down their debt. The saving rate fell to 3.7 percent of after-tax income in February, the lowest level since August 2009.
- Credit Card Companies Get Kiss From Arizona
Courthouse News Service 09 Apr 2012
Legislators in Arizona have pushed forward a bill that would allow debt collectors to declare that use of a credit card account signals acceptance of the terms of the card agreement. House Bill 2664, introduced by Rep. Jeff Dial (R-Chandler), says that a cardholder's written or electronic signature, or use of the card, establishes a "cardholder's acceptance of the terms and conditions of a credit card account." The chamber approved the bill in a 33-26 vote. If the bill becomes law, creditors essentially will be able to claim money is owed even if the debt has been dismissed or paid off. Additionally, the measure would allow creditors to create the contracted interest rate through a "billing statement" or the "terms and conditions that contain a stated or variable interest rate." Prior to the bill's passage in the House, it was rejected by the state Senate Banking and Insurance Committee. Rep. Debbie McCune Davis (D-Phoenix) said a lobbyist pushed the bill through the panel. On her Web site, McCune Davis argued that the bill "gives debt collectors the power to accuse almost anyone of owing a debt without having to show a contract. If this bill passes a debt buyer would be able to sue a person with little evidence."
- Survey: Students Fail the Credit Card Test
CreditCards.com 09 Apr 2012
Credit-card debt and general financial illiteracy is an increasing problem among American college students, according to a survey conducted on 725 students by researchers from five American universities. These survey results were published as "Financial Literacy and Credit Cards: A Multi Campus Survey" to coincide with Financial Literacy Month. Researchers found that 70 percent of American college students have credit cards. The majority of card holders do not know their interest rates, late payment charges, or over-balance-limit fees. Over 90 percent of college students with credit cards are carrying monthly credit-card debt. "In America, credit cards on campus have been a disaster, leaving students buried in debt before graduation, often with little hope of paying off the debt before high fees and interest double the amount," the study authors wrote. This problem is rampant not only among college students, but across the millennial generation. In 2004, the average college student had $946 in credit-card debt, but that average increased to more than $4,100 by 2009. Only 9.4 percent of college students paid off their credit-card debt in full each month, a drop from 32 percent in 2003.
- US Consumers Are Having an Easier Time Paying Debt
Reuters 05 Apr 2012
According to a report by the American Bankers Association, on-time repayment of debt improved on all 11 of the consumer loan categories in the final quarter of last year. The group said that delinquency rates are still high, but the fourth quarter showed significant improvement from the prior quarter in consumer's ability to make timely payments. The ABA's chief economist James Chessen said the shift is due, in part, to a higher number of Americans who are rejoining the workforce. The report found that the overall delinquency rate fell from 2.59 percent to 2.49 percent, the lowest it has been since 2004. Credit card delinquencies fell from 3.25 percent to 3.17 percent. But the banking group said the delinquency rate on mortgages is not keeping up with other forms of credit, falling from 4.12 percent to 4.08 percent. While the trend is expected to continue, the high gas prices could put a crimp in reducing American's debt obligations.
- Consumer Loan Delinquency Rates Drop Across the Board
International Business Times 05 Apr 2012
Consumer loan delinquency rates fell in all 11 categories that the American Bankers Association (ABA) tracked in the fourth quarter of 2011. This indicates that Americans are reducing private debt and stabilizing their personal finances. "It's very rare that delinquencies improve in every single loan category. The last time that happened was in the fourth quarter of 2004," ABA Chief Economist James Chessen said. Despite the declines, however, loans in certain housing categories remain high compared to historic levels. The health of the jobs market also remains poor compared to pre-recession levels, though this market has seen improvements since mid-2009. The Federal Reserve's financial obligation ratio (FOR) is also below pre-recession levels. The FOR compares obligations in debt, automobile, rental, homeowners' insurance, and property tax payments to disposable personal income; it is now at the lowest level since 1984.
- Pay by Phone: More Merchants Embrace Direct Mobile Billing
USA Today 05 Apr 2012
Direct-phone-billing payment offered by Zong, Boku, and BilltoMobile is currently accepted by hundreds of businesses, including Facebook and Zynga, in spite of the high commission rates that merchants must pay. The option is alluring to customers who do not have a credit card or who do not want to use it on a Web page or an application. However, U.S. wireless carriers limit the range of merchandise that users of direct-phone-billing payment services can buy to songs, data products, and videos. Domestic expansion will entail the companies assuaging the concerns of customers who have fallen victim to fraudulent and un-itemized billing in the past, according to mobile analyst Chetan Sharma. Another persistent issue is security anxiety from users who lose their phones, although BilltoMobile CEO Jim Greenwell says his company sees very little fraud because the payment function is cut off immediately if the phone is reported lost to the carrier. Analyst Steve Mott notes that retailers, carriers, and the direct-phone-billing companies also need to convince customers that charges will be clearly itemized and that refunds will be managed expediently. "They have to accept some sort of liability," he says. "Whether that's as good as credit cards remains to be seen."