Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- 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.
- 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.
- Credit Makes Holiday Comeback
Washington Post (12/28/11) P. A11 Mui, Ylan Q. 28 Dec 2011
Following several years of shoestring holiday budgets, consumers in 2011 dusted off their credit cards for Christmas shopping. Credit card purchases jumped more than 7 percent in November and spiked again in early December, according to First Data, which tracks consumer payments. On the one hand, the rise of credit can be a benefit to retailers and the overall economy; however, spending growth driven by credit card debt could come at a cost. Research from Consumer Reports confirms that 14 million Americans are still paying off credit card debt generated during the 2010 holiday season. And the card comparison site CreditDonkey estimates that a shopper who puts $700 on a card with a 13 percent interest rate will need four years to resolve the debt if he or she pays only the minimum balance each month. While recent legislation has sought to educate spenders by compelling issuers to disclose how long it would take to pay off a balance while making only the minimum payment, a new study out of Boston College shows that knowing that information is not making a difference in how much borrowers pay. "There's a misunderstanding that the minimum payment is sort of an adequate payment," according to lead researcher Linda Court, a marketing professor at the school. "If you pay the minimum every month, the cost to you is going to be enormous."
- What's New for Credit Cards in 2012
Fox Business 21 Dec 2011
John Ulzheimer of smartcredit.com predicts that going into 2012, lenders and issuers still will be strict with underwriting, but less so. "A consumer with a FICO 600 score will get decent credit card offers," he says. Ulzheimer analyzed recent findings from FICO, which reveal that credit scores have been rising for more consumers. "People have been making changes in how they manage credit, which is what has caused the large movement in scores," he explains. "They've been paying down credit card debt and loans, and maybe they got something negative off their credit report." Meanwhile, Dennis Moroney of the Boston-based industry consulting firm Tower Group notes that banks have been more generous with their credit offerings. "The issuers have been modestly going into lower-band credit scores, to people with a lower income." Credit cards that offer rewards are still the most popular type of card. "Seventy-eight percent of offers are rewards now, whereas it was down in the 50s in 2009," said Moroney. "Banks want to develop a relationship with customers and have them use more products, especially a checking account."
- Sen. Menendez Targets Prepaid Debit Card Fees, Aims to Ramp Up Consumer Protections
Newark Star-Ledger 20 Dec 2011
Sen. Robert Menendez (D-N.J.) has announced plans to reintroduce legislation that would crack down on the business of prepaid card issuers, which have continues to dodge strict regulation. The bill would -- among other directives -- prohibit fees such as charges to check account balances, call customer service, and terminate accounts. It also would force card issuers to present clear, upfront disclosure about all of a card's fees that consumers can view before purchasing a card. Issuers additionally would need to package cards with a wallet-sized summary of fees, such as charges for activating the card and quarterly service.
- Credit Card Delinquency Rates to Fall Further Next Year: TransUnion
American Banker 09 Dec 2011
According to TransUnion, U.S. credit card delinquency is expected to fall further next year as consumers continue to pay down what they owe and abstain from racking up new debt. The credit bureau said the average card delinquency rate on accounts 90 days or more past due will drop approximately five more basis points from the current 0.74 percent level down to 0.69 percent of all credit card accounts by the fourth quarter of 2012. Additionally, TransUnion said consumers will continue to pay down their outstanding balances. Data shows that the average credit card debt per borrower during the third quarter came in at $4,762, down $1,000 from a year earlier. However, the agency noted a decline in borrowing from wealthy individuals as well. "Our data show there is a large group of more-affluent consumers who never went delinquent and have healthy credit lines available to them who are voluntarily choosing to pay down balances and not carry credit card debt," said Steve Chaouki, group vice president in TransUnion's financial services business unit.
- Consumers Still Pay Credit Card Bills First, Even as Economy Lifts
American Banker 07 Dec 2011
U.S. consumers traditionally have made payments first on their mortgages -- typically their biggest asset -- but the housing market slump that sparked in 2008, combined with job losses, since then have led borrowers to pay on credit cards before home loans. Steve Chaouki of TransUnion explains that credit cards are viewed as liquidity in tough times; and the residential property market is still in a chokehold as home values sink further. A new TransUnion report finds that consumers three years later still are prioritizing credit card payments over mortgage payments despite some improvement in the economy. Chaouki says the trend may reverse itself "when there is some real home equity to protect, or when credit becomes so freely available that it won't be seen as a rare commodity to preserve," but he believes it will be quite a while before consumer credit lines are so accessible that consumers become comfortable with putting credit cards lower in payment priority.
- Consumer Bureau Introduces 2-Page Credit Card Agreement
Plain Dealer 07 Dec 2011
The Consumer Financial Protection Bureau on Dec. 7 introduces its new credit card agreement, which is easier to understand. The abbreviated form decreases the lengthy credit card disclosures from 5,000 words to about 1,000 in a two-page document. The agency is unveiling its "Know Before You Owe" campaign in Ohio, just one day before the Senate is scheduled to vote on whether to confirm Richard Cordray as the bureau's first official director. Forty-four of 46 GOP senators have pledged to block confirmation of the director unless the bureau's structure and funding are dramatically scaled back. "Every day we go without a consumer watchdog in place is another day when a student, or a senior citizen, or member of our Armed Forces could be tricked into a loan they can't afford," warned President Barack Obama. He has promised to veto any measure that would delay, defund, or dismantle the new rules set up by the Dodd-Frank financial overhaul. A recent report by the bureau found that there is widespread confusion over credit card terms.
- Credit Card Use Is on the Rise
CNNMoney 05 Dec 2011
After hunkering down on spending over the past couple of years, First Data reports that consumers are returning to credit card use. Purchases made with credit cards rose 8.2 percent in the first quarter of 2011, 9 percent in the second quarter, and 10.6 percent in the third quarter, according to the company. That compares with gains in debit card use of 9.6 percent, 8.3 percent, and 5.9 percent for the same quarters. Credit card mailings, meanwhile, have surged 85 percent since the beginning of 2010 to 1.3 billion credit card offers in the third quarter of 2011, according to analysis conducted by research firm Mintel Compermedia. Besides increasing solicitations, banks have been winning back more customers by sweetening credit card terms. While debit rewards programs have been disappearing, credit card issuers are offering more generous rewards. Mintel notes that 80 percent of credit card offers this year have included rewards points, miles, or cash rebates -- up from 60 percent two years. Other perks include no foreign transaction fees or balance transfer fees. While the incentives are enticing, LowCards.com CEO Bill Hardekopf says consumers must tread lightly. "If you switch to credit cards for payments, pay off your balance in its entirety each month," he advises. "Otherwise, the interest payments could become overwhelming and are sure to be greater than any new debit card fee."
- Chase Makes It Easier for Consumers to Overspend
Los Angeles Times 02 Dec 2011
With U.S. households trying to "deleverage," in the tight economy, including by scaling back their use of plastic, some banks are trying to return debt levels to a bloated state by making it easier to run up credit card balances. Chase Freedom MasterCard holders, for example, are receiving notices that, in addition to new benefits, their accounts are being automatically switched from having credit limits to credit access lines — unless customers opt out of the change. While credit limits restrict how much a borrower can spend, a credit access line puts more money in reach and makes it easier to tap those funds. A Chase spokesman confirms that "a credit access line means that you may be able to go over credit limit without any over-limit fee. It gives you the ability to spend." If the bank's goal simply was to get customers to do more of their spending with the bank, as it claims -- and not just to get them to spend more -- columnist David Lazarus of the Los Angeles Times notes that it could have offered lower interest rates or extended other incentives. "It's a way to get people deeper into debt just as many households are at last making wiser decisions about their futures," he writes.
- More Shoppers Are Whipping Out Credit Cards
USA Today 01 Dec 2011
More shoppers are paying for holiday purchases with plastic, as credit card transactions climbed 7.4 percent on Black Friday compared to a 3.4 rise in debit card payments, reports First Data. Meanwhile, Javelin Strategy and Research predicts that credit card payments for Web purchases will surge 63 percent over the next five years, versus 2 percent for debit cards. The Federal Reserve Bank of New York says that concurrent with a continued general decline in consumer debt in the third quarter was a rise in the number of credit applications for the second consecutive quarter. Many studies demonstrate that consumers spend more when they use credit than when they pay with cash or debit cards. Factors underlying the credit card resurgence include more incentives to use the cards, as federal debit interchange fee reductions prompted banks to remove debit card rewards programs and sweeten rewards for credit cards. In addition, more credit has been made available while discretionary spending has increased, with consumers more likely to use credit cards to pay for such purchases. Meanwhile, "Reduce Debt, Reduce Stress" author Gerri Detweiler speculates that consumers are spending more on credit cards out of frustration with practicing frugality for so long.
- Students Use of Credit Cards Decreasing
Middletown Journal 30 Nov 2011
Roughly 40 percent of college students had their own credit card in spring 2011, down from 57 percent a decade earlier, the Student Monitor Financial Services Study determined. A report released earlier this year by the Federal Reserve, meanwhile, showed that the number of marketing agreements between issuers of credit cards and colleges, alumni associations, and other groups with university affiliations is falling. Such partnerships declined 4 percent to 1,004 in 2010 from 1,045 the year before, according to the Fed research, with most affinity credit cards now issued to alumni and non-students. The changes were driven by the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which bars students under the age of 21 from getting a credit card unless they have a co-signer or can demonstrate their ability to pay each month on their own. The law prompted big credit card issuers to abandon their aggressive marketing campaigns on college campuses.
- Consumer Agency Sees Confusion on Credit Cards
Reuters 30 Nov 2011
In its first three months in operation, the Consumer Financial Protection Bureau received roughly 5,000 complaints from credit card customers, led by billing disputes and interest rate problems. The agency on Nov. 30 released the first batch of data collected on credit card grievances since it opened for business on July 21. According to the Treasury adviser Raj Date, who is running the CFPB for now, "we are learning that there is a lot of consumer confusion about credit card terms." So far, the CFPB has only been fielding complaints on credit cards. But as early as Dec. 1, it plans to open up the process to mortgage grievances. In 2010, possibly as soon as March, it will start collecting complaints about other bank products such as checking and savings accounts.
- Will Credit Cards Be Safer in 2012?
Fox Business 29 Nov 2011
Although magnetic stripe cards are vulnerable to skimming and other forms of fraud, U.S. merchants and consumers have been hesitant to use PINs to authenticate purchases as their counterparts in Europe have done. Visa says that just 25 percent of American consumers choose to enter a PIN when given the opportunity to do so, which it found was due to the inconvenience and the expense involved in making a PIN-based transaction. Because consumers are reluctant to use PINs, Visa and other payment platform providers have promoted the use of contactless versions of the EMV chip, which has helped reduce the severity of identity theft attacks in Europe. A version of this technology also is being used in some Google-branded smartphones. Visa is promoting its contactless technology by offering financial incentives to merchants, but it may be as long as five years before merchants install EMV-compatible card readers at the point of sale. Meanwhile, banks are offering consumers protection from identity theft, and are working to identify fraudulent transactions. Javelin Strategy & Research president James Van Dyke says banks are doing the right thing by trying to identify fraudulent transactions instead of relying only on new technologies such as contactless EMV.
- Sweet Rewards For Those With Good Credit
Seattle Times 26 Nov 2011
Credit card issuers scaled back their rewards programs during the credit crunch and while they waited to see how much federal regulation would cut into their bottom line, card experts say. But now those concerns have been alleviated, and banks have been bringing back rewards to make their cards stand out. Two-thirds of credit card offers in September featured a reward or rebate, according to Synovate, which follows direct-mail solicitations. Though that is less than in June, rewards since that time have become more plush, said Synovate's Roy Persson. Issuers are expected to fatten up deals for the holidays to attract consumers just when they are likely to do some serious spending. Discover, for instance, is promoting a cash-back card with a $150 holiday bonus to consumers who spend $1,000 in the first 90 days. Rewards are not back for everyone, though. Card companies are being extremely selective and are in pursuit of the same customer: the one with prime credit. These days, that could mean someone with a credit score of 750 or higher out of a possible score of 850.
- Lil Wayne Endorses Fee-Heavy Prepaid Debit Card
American Banker 23 Nov 2011
Following the failure of the Kardashian Kard last year, more celebrities are recognizing the perils in endorsing prepaid debit cards that charge exorbitant fees. So when rapper Lil Wayne's music recording label Young Money Entertainment decided to introduce a Discover-branded prepaid debit card, the company evaluated it extensively, according to Tim Clark, CEO of Accent InterMedia, the company managing the program. While the card has many features -- including online bill pay, direct deposit, a spend analyzer, prescription drug discounts, and shopping discounts -- it also carries some fees. The card's purchase price is $6.95, plus a $3.95 monthly maintenance fee. Additionally, ATM withdrawals costs $2; while reloading the card costs $4.95. However, a portion of every card sold does go to nonprofit organizations, such as Lil Wayne's One Family Foundation. And, in comparison, buyers of the now-defunct Kardashian Kard had to pay $59.95 for six months and $99.95 for a year, which included a $7.95 monthly fee and initial load fee of $5.
- Consumers May Save on Credit Card Cash Back Deals
USA Today 22 Nov 2011
Credit card companies and retailers with credit cards will be more aggressive than ever this holiday season in promoting cash-back deals and savings benefits, credit card experts say. "Card issuers are courting consumers again," according to Beverly Harzog at Credit.com. "This is the perfect time, when people are really looking to get a deal to make it through the holidays." Despite the benefits, shoppers using rewards cards must also be aware of the potential disadvantages. Failing to pay the credit card balance in full and on time, for example, will "negate any rewards you get," warns Harzog. Retailers, meanwhile, will promote their store cards aggressively during the holidays; but consumers should know that interest rates on those accounts generally are 10 percentage points higher than on Visa, American Express, and other cards.
- Debt Collection Company Barred From Colorado
Debtmerica 21 Nov 2011
A company that thrived on collecting bad debt from consumers has been ordered to stop operating in Colorado. The order bans Regent Asset Management Solutions and its CEO, Michael A. Scata, from engaging in debt collection, for which it does not have a license, according to a statement from state Attorney General John Suthers. Additionally, the company also must pay the state $70,000 in civil fines for violating the Colorado Consumer Protection Act. The decision stems from a December 2010 lawsuit that accused the company of collecting debts from consumers in the state even after its license to do so lapsed in July of that year. Regent also failed to produce for consumers sufficient proof that they owed the debts it was attempting to collect, frequently rendering them unable to determine the accuracy of the claims being made against them.
- Consumers More Satisfied With Credit Cards These Days
Debtmerica 17 Nov 2011
According to the latest annual survey from the Consumer Reports National Research Center, more borrowers are satisfied with their credit card lender. Only 12 percent suspect that a lender has subjected them to unfair treatment, and the number that were denied credit cards declined 10 percent from last year's survey. Despite the positives, 35 percent of survey respondents say they have seen a higher interest rate, lower credit limit, new annual fee, or restrictions on rewards -- all of which will make it difficult for consumers to curtail their debt.
- Card Fees Bite Students
Boston Globe 17 Nov 2011
After taking a drubbing for trying to stick customers with exorbitant fees, Bank of America has slinked out of the spotlight, for now. But numerous other financial firms are getting away with the same. Higher One, for instance, nets most of its annual revenue -- a projected $180 million this year -- from fees, collected primarily from struggling college students. Higher One gives students immediate access to the loan and grant money remaining after they have paid tuition. It deposits what is left of students' aid money on debit cards. Students can opt for a check or direct deposit instead, but the debit card is so convenient that at least half of students keep it. Colleges save time and money, and students avoid long lines at bursars' offices waiting to receive a paper check. Not everyone wins, however. Higher One charges fees that would put any major bank to shame, among them an overdraft charge of $29; a $2.50 charge for using non-Higher One ATMs; and a 50-cent fee whenever students key in a PIN on a debit card purchase instead of signing for it. Higher One's fees are way up there compared with most community banks and credit unions, according to Mark Kantrowitz, publisher of Finaid.org, a college finance Web site. And the fees are levied on public money intended for education and loans on which students already pay interest.