Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Credit Card Rates Rise for Rewards Cards
Fox Business 05 Feb 2012
While the U.S. bank prime rate held steady at 3.25 percent in the second half of January, the rate on consumer rewards credit cards rose, shifting overall credit card rates up as well. Consumer credit card rates fell by an average of 0.13 percent for the year ended Jan. 31, 2012. However, consumer rewards and non-rewards rates went in opposite directions during that time frame. Consumer non-rewards cards rates fell 0.60 percent, while consumer rewards cards rates rose 0.08 percent. Student credit cards saw the biggest increase, climbing 0.83 percent. As a result of changes in rate tiers in the consumer non-rewards category, the spread between average offers for strong and weak credit customers grew. The spread between rates for those with good credit and those for the overall market widened, rising one basis point to 4.08 percent.
- What Will It Take to Save the Unbanked?
Forbes 30 Jan 2012
Among the one in four U.S. households that are unbanked, many remain disconnected from traditional financial institutions because they cannot access them; but even more make a conscious decision to be unbanked. Among those consumers, 37 percent say they do not have enough money to need an account; 18 percent say they did not write enough checks to justify an account; roughly 13 percent say the minimum balance is too steep; and an additional 13 percent see no need to have an account. There are repercussions to choosing this financial lifestyle, however. According to one estimate, a household with net income of $20,000 may spend as much as $1,200 annually on alternative financial service provider fees such as for money orders for expenses and to cash payroll checks. Unbanked households have fewer savings and more retirement risk as well as restricted access to credit-building products such as credit cards and loans. Moreover, without a bank account, families cannot build and safeguard their wealth in an FDIC-insured place. Low-income unbanked populations with no place to save tend to live paycheck-to-paycheck in what becomes a vicious and routine cycle. The best alternatives for these consumers are a no-fee checking account -- typically found at credit unions, community banks, and online banks -- and a secured card. Individuals should look for accounts with no monthly maintenance fee, no debit card fees, and no minimum balance.
- Credit Card Debt Drops 11 Percent
CNNMoney 17 Jan 2012
Consumers reduced credit card debt by 11 percent in 2011, with average debt loads falling in each of the 50 states. The average credit card balance last year was $6,576 -- a decline from $7,404 in 2010, according to a report from credit tracking and financial education Web site CreditKarma.com, based on data from more than 300,000 of its users. The highest average was documented in Alaska, with average credit card debt of $7,937, followed by New Hampshire and Connecticut; and it averages were lowest in Wisconsin, at $5,062, followed by Mississippi and Alabama. Despite a consecutive two-year drop in outstanding credit card balances, CreditKarma CEO Ken Lin predicts that debt will surge again as the economy picks up and banks relax their credit criteria.
- Expect More Credit Card Offers From Credit Unions
Debtmerica 17 Jan 2012
Many consumers are finding more -- and more generous -- credit card offers from a number of major lenders in recent years, but other financial institutions are likely to expand their campaigns as well. Federal credit unions, in particular, are viewed as the next big players when it comes to offering credit cards to customers who have had difficulty with their accounts in the past, according to a new report from Business Insider. That is because CUs are ramping up their marketing efforts, especially to those with limited or impaired borrowing histories. These accounts may be helpful to those with poor credit ratings because federal law limits the interest rate that can be charged on all kinds of loans -- including credit cards -- by these institutions at a low 18 percent, the report stated. That is notably lower than the interest rate most low-credit borrowers can expect from lenders, which is usually in the range of 25 percent.
- Court Rules for Arbitration in Credit Card Case
Bloomberg 10 Jan 2012
The U.S. Supreme Court has ruled for Synovus Financial and CompuCredit Holdings, agreeing that credit card claims by consumers under the Credit Repair Organizations Act must be handled in arbitration -- not in court. The decision, which overturned a ruling by a U.S. appellate court in San Francisco that said the language in the 1996 law was intended to bar arbitration of claims, favors businesses by keeping customer claims from being lodged as a class action. Three customers of CompuCredit and Synovus sued the firms in federal court over the marketing and issuance of a low-rate Aspire Visa card to borrowers with poor credit. The plaintiffs claimed they were promised $300 in available credit but were charged $257 in fees during the first year the account was open. The fees, they argued, were illegal; and they also accused the companies of failing to make required disclosures. While the customers sought to represent a national class of card holders nationwide, CompuCredit and Synovus cited a binding arbitration clause in the card contract that the customers signed in order to receive the card. "Had Congress meant to prohibit these very common provisions," Justice Antonin Scalia wrote in the decision, "it would have done so" in a more direct fashion.