Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- 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.
- 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.
- 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."
- Card Rewards Programs Lose Some Luster, Survey Says
American Banker (04/04/12) Kline, Alan 04 Apr 2012
Consumers are becoming less pleased with credit cards rewards programs as stipulations such as expiration dates and spending minimums take away from the experience, based on the results of a new survey. Only about half of the estimated 1,000 consumers surveyed in February rated the value of their rewards programs as "very good" or "excellent, compared to 55 percent who did so in a similar survey just three months earlier. The share of respondents who expressed satisfaction with how quickly they can redeem rewards also declined, slipping to 47 percent from 52 percent in the November survey. The Capital One Rewards Barometer -- conducted each quarter by Capital One Financial and the consumer marketing firm BIGinsight -- additionally found that cash continues to be the No. 1 redemption choice, with those consumers applying the money toward their card balance.
- More Consumers Pay Car Loans Before Credit Card and Mortgages
USA Today 03 Apr 2012
According to a recent study by TransUnion, many consumers were more likely to pay their car loans before their credit cards and mortgage payments last year. The study of about 4 million consumers who had at least one open auto loan, bank card, and mortgage in 2011 found that approximately 39 percent were delinquent on their home loan while still making payments for their car loan and credit card. On the other side of the spectrum, just 9.5 percent of consumers were behind on their car loans while remaining current on their mortgage and charge cards. Ezra Becker, vice president of research and consulting at TransUnion, said the trend illustrates how consumers need their cars to get to their jobs or to look for employment. Additionally, experts say consumers see the value in protecting their vehicles as a positive asset, compared to a house that may have an underwater mortgage. The study also found that 17.3 percent of consumers who were behind on their credit card payments were current on their car loans and mortgages. Since the housing crisis, there has been a shift in payments, with more consumers paying off their credit cards before their mortgages.
- Oregon Court of Appeals Says Consumers With Unpaid Credit-Card Debt Are Not Off the Hook Unless Six Years Have Passed and No Lawsuits Are Filed
Oregon Live 30 Mar 2012
In a series of rulings this month, the Oregon Court of Appeals said that debt collectors can sue delinquent credit card borrowers for up to six years after card charges are incurred. The court overturned orders by two Clackamas and Washington county judges who had declared that collectors had only three years to pursue delinquent borrowers in court. The rulings will affect those who have settlement agreements with banks based in states with three-year statute of limitations on delinquent debt, including Delaware and New Hampshire. The court was asked to decide whether three Oregonians, whose unpaid card debt was sold to debt collectors, were required to pay the late payments and interest more than three years but less than six years later. The borrowers hired an attorney to argue that the three-year statute of limitations in Delaware, where the card issuer is based, had already expired. Credit card agreements said that Delaware laws applied. But the Court of Appeals said that Oregon law applies because of a provision in the federal Fair Debt Collection Practices Act that says debt collectors are not allowed to sue in other states.
- TransUnion Sees Consumers Favoring Auto Payments Over Home, Credit Card
Wall Street Journal 29 Mar 2012
A TransUnion study found that mortgages --historically the debt most likely to be paid by borrowers -- are now the most vulnerable to missed payments as home prices have weakened and protecting equity through timely payments is no longer a priority. The firm looked at a sample of nearly 4 million consumers through last year, finding that only 9.5 percent of delinquent consumers had lapsed on their car payments while remaining current on their home loans and credit cards. By comparison, 17.3 percent lapsed only on their credit card, and 39.1 percent lapsed only on their mortgage. Credit card payments more recently have trumped home payments, said Ezra Becker, TransUnion vice president of financial services research and consulting, as more consumers have needed to supplement their incomes or pay for daily needs with credit. Auto loans, however, have emerged as the most protected payment, according to TransUnion executive Ezra Becker, because keeping a car in order to get to work or seek employment is a more immediate need in post-recession America.
- BET, NetSpend Join to Market Prepaid Payment Card
Huffington Post 29 Mar 2012
BET Networks is entering the growing prepaid card business by teaming up with industry leader NetSpend to offer prepaid cards to black Americans. The conglomerate began taking orders in March for its Control Prepaid MasterCard which, like others, targets people who cannot get bank accounts or who do not trust banks. About 22 percent of black households fall into this category, compared to just 3 percent for whites, the Federal Deposit Insurance Corp. found in a 2009 study. "Unbanked" households often use high-cost services such as payday loans and check-cashing businesses, but prepaids can help bring unbanked or underbanked spenders into the financial mainstream. "There are so many people still using check-cashing services, so many people paying exorbitant bank fees, so many people who are managing their financial affairs solely on a cash basis," noted BET President and COO Scott Mills. With the Control card, users pay $7.95 per month, $2.50 per ATM withdrawal, $1 for overspending, and 50 cents to check their account balances via telephone or ATM. Those who directly deposit at least $500 per month qualify for a lower monthly fee of $5, a high-yield checking account, and a $10 "purchase cushion" that allows users to overdraw their accounts without penalty. Because of the high fees many prepaid card companies charge, consumer groups have called on the Consumer Financial Protection Bureau to require clearer fee disclosures. The agency is taking a closer look at the prepaid card market and may review fee structures, marketing materials, and disclosures.
- Prepaid Debit Cards Booming, But Beware
Consumer Reports 29 Mar 2012
Prepaid card fees are beginning to decline, but they still are not always disclosed upfront, according to a new Consumer Reports analysis. Prepaid cards are gaining popularity with consumers who may not qualify for or feel comfortable using traditional financial services, such as bank accounts or credit cards. The cards are accepted in stores and for online payments, for direct deposits, and in ATM withdrawals. Consumer Reports found, however, that prepaids are not as protected as other debit and credit cards -- including, for example, if the card is lost or stolen. In the analysis, which included 16 major prepaid cards, Consumer Reports identified a wide variety of fees. Nine of the cards charged activation or initiation fees, 13 charged monthly fees of up to nearly $10, most charged a fee to withdraw cash from a domestic ATM, and five charged fees when cards are not used for a certain period of time.
- Lenders Opening Up to Borrowers With Shaky Credit
Fox Business 28 Mar 2012
Seeking to stimulate loan growth, lenders are becoming more receptive to borrowers with imperfect credit. The amount of new credit extended to U.S. consumers in 2011 rose more than 10 percent to $782 billion, aided by an increasing number of loans to "subprime" borrowers, according to data from credit bureau Equifax. Data also shows that the number of new bank cards issued last year jumped 21.2 percent to 39.9 billion, with the amount of new cards issued to subprime consumers up by 41.4 percent to 12 billion. If banks continue to warm up to consumers with blemished credit, the trend could benefit those seeking to improve their overall financial standing with banks -- former prime borrowers, in particular, who now are experiencing culture shock as they are offered steep interest rates. "While no one wants to pay for a subprime loan, the irony is that a subprime loan could help some of these folks move out of subprime by establishing a positive payment history," notes Gerri Detweiler, director of consumer education at Credit.com.
- Prepaid Cards Set Good Example for Simpler Disclosures
US Banker (03/12) Tescher, Jennifer; Newville, David 28 Mar 2012
The Consumer Financial Protection Bureau (CFPB) continues to tout the benefits of simplified and standardized fee disclosures for financial products. "This kind of straightforward transparency promotes more informed and more responsible decision-making by consumers across a number of financial markets," according to CFPB director Richard Cordray. But to make a lasting impact, financial providers must perceive the disclosures as more than a requirement: they must view them as an opportunity to positively influence consumers' behaviors and choices. The Center for Financial Services Innovation (CFSI) recently published recommendations for a standardized fee box for general-purpose reloadable prepaid cards. The organization recommends clear and consistent placement of disclosures, as well as thoughtful design, to encourage consumers to actually read them. The CFSI also believes simple, clear, and straightforward language is critical.
- Why Consumers Are Choosing to Pay Credit Card Bills Before Mortgage
Fox Business 26 Mar 2012
TransUnion’s Credit Risk Index bumped up late last year for the first time since its 2009 peak. According to Charlie Wise, research director at TransUnion, this rise in consumers' credit risk was due to mortgage delinquencies. The number of homeowners at least 60 days late in their home loan payments increased slightly in the second half of 2011. Credit card firms are also reaching out to non-prime consumers again, which affects the overall group's risk profile. When mortgage delinquencies jumped in 2008, credit card delinquencies fell. "That’s the reverse of the traditional payment hierarchy," says Wise. Formerly, consumers would first default on their credit cards and then their auto loans, with mortgages taking payment priority. This tendency is now reversing, with consumers paying for their cards before their mortgages. Many Americans are less concerned about preserving their homes, especially if the house is worth less than the outstanding mortgage. Many people consider their home a liability rather than an asset. Due to writedowns of bad accounts, cancelled cards, and tighter credit standards, credit cards have become "a scarce financial asset" that consumers are trying to preserve, Wise says.
- Credit-Card Rewards Get Richer
Wall Street Journal 23 Mar 2012
Banks and credit card companies, eager to obtain new customers with strong financial profiles, have boosted their offers for upfront rewards. J.P. Morgan Chase recently offered up to 75,000 reward points, valued at $900, to customers who accept its Sapphire Preferred card; and Citigroup has offered some would-be ThankYou Premier customers 80,000 points, valued at $1,060. While there may be caveats, such as minimum spending requirements and annual fees, experts say the value of upfront rewards has grown since late 2011. Banks are stepping up efforts to attract well-off, high-spending households in the wake of the financial crisis. Although card issuers formerly earned more from customers who carried a balance and paid interest, the credit card regulations of 2010 have limited penalty fees and make it more difficult for banks to raise rates and charge late fees for customers who fall behind on payments. While some banks seek new customers, other banks are using the best deals on existing account holders. With points programs, however, redemption options can be limited or changed. Customers should watch their points and the trade-in value, and check to see if there is an expiration date. The best deals are usually meant for households with the strongest credit, but those who do not qualify may still receive sizable bonuses. Customers who are planning to refinance or make a big purchase may not want to sign up for a new card, as it could reduce their credit score. Potential signers should also do the math to make sure rewards points are worthwhile, or if they carry fees.
- The Prepaid Debit Card Industry Drains $300 From Our Wallets Every Year
Business Insider 14 Mar 2012
Consumers spend about $300 a year just to maintain their prepaid debit cards and in some cases pay monthly fees as high as $14.95, finds a new study by NerdWallet. Anisha Sekar, vice president of credit and debit products at NerdWallet, says prepaid card providers give customers an "overwhelming amount of information" but instead should provide terms "in a more manageable fashion and restrict the number of fees that can be charged." Some of the fees that catch many customers off guard include the inactivity fee that is charged when a card is not used for a certain amount of time and an occasional fee for calling customer service. Customers' only recourse is to consistently check their spending habits and thoroughly read the terms, which Sekar says often are extremely difficult to parse. To help consumers with this, NerdWallet has a comparison tool on its Web site where individuals can see which card works best for them.
- Consumers Change Credit Card Habits Over Disclosures
Debtmerica 27 Feb 2012
One tactic the Consumer Financial Protection Bureau is using to increase U.S. credit card users' awareness of interest fees seems to be working: a disclosure box on all statements explaining how long it will take to pay off a balance if the cardholder only remits only the minimum every month. According to a new study by the Harvard Business School, the disclosure boxes seem to spur people to pay off more than they are required. Those who tend to up their payments also tend to be the cardholders with the largest balances, lowest credit scores, and a history of repaying their debts more slowly.
- Number of New Credit Card Accounts Jumps 14 Percent in 2011 as Lenders Ease Standards
Associated Press 21 Feb 2012
Stingy with credit during the country's recession, banks have started to relax their standards and open the tap wider for riskier customers. TransUnion reports that the number of new credit cards issued to consumers rose 14 percent last year to about 42.3 million, with roughly 25 percent of those accounts going to individuals with blemishes in their credit profiles. TransUnion's Ezra Becker notes, however, that the increased lending to consumers with lower credit scores does not suggest a return to pre-recession trends. "In some sense, subprime today is stronger than subprime yesterday," he says, explaining that irresponsible lenders of the past have had their debt written off as uncollectible and are unlikely to qualify for new cards for years to come. Consumers who had some financial setbacks that were reflected in a few late payments, meanwhile, are getting a new chance to open accounts. Banks also are more receptive to this population because of lower credit card delinquency rates, which signal that card users are making timely card payments a priority over on-time mortgage payments.
- One in Four Americans Has More Credit Card Debt Than Savings as House Dems Cap Rates
Deseret News 21 Feb 2012
A new Bankrate.com survey reveals that 25 percent of Americans have higher credit card balances than emergency savings; just 54 percent of borrowers have more emergency funds than credit card debt; and 16 percent have neither. "Emergency savings remains a problem area for many Americans, which leaves them only one unplanned expense away from having high-cost debt," warns Bankrate.com analyst Greg McBride, who emphasizes that "Americans need to find ways to sock away more cash for a rainy day." The findings also reflect greater pessimism in terms of financial security. About 27 percent of poll participants expressed a lower level of financial security compared to a year ago, with 24 percent saying they are more confident about their financial situation. The level of comfort with savings increased for 14 percent of respondents but declined for 38 percent of Americans. As emergency funds deteriorate, meanwhile, consumer debt goes up. The Bankrate.com research comes as Capitol Hill legislators are working to place a limit on U.S. credit card rates. A contingent of 12 House Democrats last week introduced HR 4084, which would limit interest to 16 percent.
- Consumer Credit Card Debt Taking a Tumble
Debtmerica 21 Feb 2012
Credit card owners who live in the metropolitan areas with the highest levels of outstanding credit card debt have been making significant payments on their balances in the last year. According to the credit monitoring bureau Equifax, of the 100 U.S. metropolitan areas that had the most credit card debt as a percentage of annual income as of December 2010, nearly six in 10 have experienced double-digit decreases in the amount of money owed at the close of 2011. The areas where those declines were most noticeable were in states hit hardest by the economic downturn, including California, Florida, Louisiana, and Washington. The reductions in credit card debt suggest "that consumers from these hardest hit areas have been especially cautious in their spending and diligent in paying down their credit card debt," said Trey Loughran, president of the personal solutions business at Equifax. The bureau's findings show that individuals' overall debt from mortgages, vehicle loans, credit card balances, and other expenses has decreased by nearly 11 percent from the record high seen in October 2008. While Americans have been making noble efforts to rein in spending since the recession, some statistics reveal that in recent months credit card borrowing has inched up slowly, though some analysts believe this is due largely to a spending uptick during the holiday season.
- It's Finally Done: Fed Approves Capital One-ING Direct
Wall Street Journal 14 Feb 2012
The Federal Reserve on Feb. 14 granted its long-awaited approval for Capital One's purchase of online banking giant ING Direct. Capital One had announced the deal -- which brings it millions in deposit revenue and helps the company finalize a separate deal to purchase HSBC's U.S. credit card business -- last summer. The merger, which makes Capital One one of the largest banks in the nation, drew criticism from numerous community groups concerned about the bank's unsavory history of harming minorities through its credit card lending practices. Others argued Capital One did not give minorities enough access to mortgages, especially those borrowers with subprime credit scores. Under the new agreement, it vowed to donate billions of dollars to communities over the next decade. With the Fed's approval, the deal is expected to be finalized in a matter of days; but some critics have said they will continue to fight the move. One group, the National Community Reinvestment Coalition, which stood against the ING deal and is still opposed to the HSBC buyout, said the Fed's move to okay the deal "without any meaningful conditions" demonstrates that regulators still have not updated their guidelines since the crisis.
- Why Credit Card Rates Remain So High
Smart Money 07 Feb 2012
Interest rates are down on nearly every major consumer product, from bank accounts to mortgages, with one notable exception: credit cards, which remain in the double digits. Credit card holders paid an average of 12.78 percent in interest during the fourth quarter of 2011, according to Federal Reserve data, down from 13.08 percent during the third quarter and 13.67 percent one year earlier. The latest findings reaffirm that, despite the slight dip, credit cards are still one of the priciest forms of financing when compared with the average interest rates on new-car loans and 30-year mortgages, which are about 5 percent and about 4.2 percent, respectively. Banks say they will continue to charge steep interest rates on credit cards because they are riskier than other kinds of loans such as auto financing and mortgages, which are tied to collateral. One factor that impacts credit card rates is that -- unlike other loan types -- credit cards are not necessarily paid down regularly, one analyst says. Rather, they are fluid targets that permit debt to accrue or dwindle at the user's discretion. A borrower's credit score also affects the rate he or she pays, with borrowers having the best scores -- usually above 720 -- getting the most favorable rates.