Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- Prepaid Debit Cards Growing in Marketplace
Yakima Herald-Republic (WA) 04 Feb 2013
A growing number of consumers are turning to prepaid debit cards instead of traditional checking accounts. Users also include consumers who have such checking accounts but who still use check-cashing businesses. Companies such as Wal-Mart, JPMorgan Chase, and Wells Fargo are selling their own prepaid debit card services. This part of the payments industry could account for nearly $100 billion in buying power this year. Reloadable prepaid cards, which included store-branded gift cards and payroll cards, carried a total balance of $483 billion in 2011 -- double that of 2007 -- reported Mercator Advisory Group. Banks can use prepaid cards to tap sources of fee revenue and broaden their customer bases. Consumers with prepaid cards benefit from many of the same conveniences of credit cards without relying on credit. However, consumers also should be on the alert for fees charged on the card, such as transaction fees or fees for replacing a lost card. A September 2012 report by the Pew Charitable Trusts found that the median fee to buy a prepaid debit card was $9.95, ATM fees were $2.25, and monthly fees averaged almost $6.
- Fees on State-Issued Prepaid Cards Are Falling: Report
American Banker 30 Jan 2013
Fees on prepaid cards used by state governments to disburse unemployment benefits have declined since 2011, according to a report from the National Consumer Law Center (NCLC). Most overdraft fees and point-of-service fees on the cards have been removed, and ATM fees are easier to avoid. In 2011, the advocacy group gave a negative rating to 16 states for their card programs; but only three states had a negative rating this year. However, the center did criticize California, Indiana, Kansas, Maryland, and Nevada, saying that their unemployment programs violated federal law by failing to offer the option of receiving benefits by direct deposit. The NCLC says that, compared to paper checks, prepaid cards can be a cheaper, more secure option for consumers without bank accounts. The report praises a prepaid card issued by the state of Pennsylvania with JPMorgan Chase; this card eliminated some fees and expanded the size of the ATM network.
- Chains May Avoid Surcharges on Credit-Card Purchases
Bloomberg 29 Jan 2013
Although U.S. retailers can now impose fees on Visa and MasterCard credit card transactions, retail chains that include Target, Macy's, and Wal-Mart Stores say they have no plans to do so. Surcharging is now an option for merchants using Visa and MasterCard networks because of a proposed lawsuit settlement reached between the card companies, large U.S. banks, and retailers. "We fully expect most retailers won’t surcharge credit cards with the abundance of alternatives available to consumers," says Consumer Action's Joe Ridout. However, he notes that smaller, independent merchants may be more willing to add surcharges, given the higher credit card transaction fees they pay to banks. Wal-Mart's Randy Hargrove says his company does not intend to start surcharging. "The proposed modification to the no-surcharging rule for Visa and MasterCard provides no benefit to customers or merchants such as Wal-Mart," he says. Wal-Mart, Target, and other large retailers say the settlement gives card companies an excessive amount of latitude to hike interchange fees in the future. Merchants indicating the possibility that they would add surcharges include Kroger, the largest U.S. grocery store chain.
- Report: Jobless Pay Needless Fees Through Bank-Issued Payment Cards
Lakeland Ledger (Florida) 28 Jan 2013
Unemployed Americans are paying millions in unnecessary fees to access their unemployment benefits via bank-issued payment cards, according to a new report from the National Consumer Law Center (NCLC). Instead of getting unemployment payments via direct deposit, many state policies encourage people to use fee-heavy cards. The report says that states issue the bank cards automatically -- without explaining the associated fees -- but require complicated paperwork or phone calls to establish direct deposit, even though most of the subsidy beneficiaries already have established bank accounts. Many banks switched from paper checks to card programs to save on the costs of printing and mailing checks. Consumer advocates, such as the NCLC, are focused on ensuring consumer access to direct deposit so that card fees can be avoided.
- Using a Credit Card? Watch Out for the 'Checkout Fee'
Fox 13 (Utah) 28 Jan 2013
Effective Jan. 27, retailers in most states now are authorized to levy a "checkout fee" on shoppers who pay with a credit card. The surcharge -- allowed in all but 10 states, including California, New York, and Texas -- is a byproduct of a $7.25 billion deal that Visa, MasterCard, and nine big banks made to settle accusations of rigging card processing fees. The decision on whether or not to impose the new fee -- which cannot exceed the cost of processing the transaction, or typically 1.5 percent to 3 percent of the total purchase -- is up to individual merchants. However, few are expected to adopt the surcharge, largely out of fear of losing shoppers to competitors.
- Credit Card Penalty Fees Fall Again: Report
American Banker 23 Jan 2013
Credit card issuers levied 8 percent fewer penalty fees in 2012, industry consultant R.K. Hammer estimates. The fees --including for late payments, insufficient funds, and exceeding credit limits -- have fallen since 2009, when Congress passed the CARD Act, which restricted the ability of card companies to impose some of those charges. That year, penalty fees yielded about $23.9 billion. The figure shrank to $19.4 billion in 2011 and to $17.8 billion last year, according to the data. Hammer predicts that card companies will adopt new fees in a bid to recoup the lost revenue; and it says some issuers already have created new fees -- including for inactive accounts, replacement cards, paper statements, and customer service calls.
- CARD Act Fight to Offer Clues to Future CFPB Regs
American Banker 23 Jan 2013
Three years after implementation of the Credit Card Accountability Responsibility and Disclosure Act (the CARD Act), the Consumer Financial Protection Bureau (CFPB) must determine whether or not the law has helped the public. While consumer advocates argued that it would increase transparency and fairness in the card market, critics in the industry said it would make credit more elusive as well as more expensive. The CFPB is now taking comments on the law's impact and examining a variety of claims, including studies with conflicting results. If the CARD Act is found to have increased costs and reduced credit availability, it would undermine arguments for price restrictions. If consumers are found to have benefited, on the other hand, consumer advocates may be encouraged to pursue further restrictions on card pricing. In general, however, it is agreed that the law successfully reduced the specific fees that it targeted, such as over-limit penalties and late charges.
- Good-bye Checking Account, Hello Prepaid Card
Fox Business 22 Jan 2013
Many large banks are now charging for services that were once free, such as checking accounts. A Wall Street Journal report found that bank customers must now keep an average minimum checking balance of $723 to avoid fees. The average monthly fee on non-interest-bearing checking accounts is now a record $5.48. In response, more Americans are using prepaid cards instead of traditional accounts. The cards allow the user to load a specific amount of money that can be used at any location that accepts the sponsoring card issuer, such as Visa, MasterCard, or American Express. One in four U.S. households have used such alternative financial services, according to a recent study from the Federal Deposit Insurance Corporation. Ten percent of households have no checking account. The majority of banks offer prepaid cards, but a significant market player this year could be American Express' Bluebird card, offered in partnership with Walmart. It is marketed to Walmart customers, with the hopes of cashing in on consumers who are unhappy with big banks. While prepaid cards may offer lower fees than checking accounts, consumers should still comparison shop for the best deals and determine which prepaid product is right for them. Based on 52 reloadable cards studied, they may carry seven to 15 individual fees ranging from 50 cents to $9.95.
- The Perils of Prepaid Debit Cards
U.S. News & World Report 22 Jan 2013
Consumers loaded $82 billion onto prepaid cards in 2012, according to the Mercator Advisory Group, and that number could reach $117 billion this year. Banks have been hiring celebrities -- from Hilary Duff and Usher to Suze Orman and Carmen Electra -- to endorse a variety of prepaid cards. However, financial experts warn that the products carry a number of fees for functions such as activating the card or using an ATM. "These cards prey on the under- and unbanked, who mistakenly believe they're more economical than having a traditional checking account," says Mitchell Weiss, co-founder of the University of Hartford's Center for Personal Financial Responsibility. Justin Bieber's new SpendSmart prepaid card, for example, is aimed at teenagers and charges a relatively modest monthly fee of $4. However, consumers could save that $4 a month if they look to other financial options, such as a traditional bank checking account. Because the Credit CARD Act of 2009 does not regulate prepaid card fees, the Consumer Financial Protection Bureau may start to look closer at the product this year. Weiss also notes that prepaid debt cards are marketed as a way to help consumers avoid debt by capping their spending, but says that this "perpetuates the problem by infantilizing consumers." Prepaid debit cards also cannot help consumers rebuild their credit -- another common misconception -- and are not insured by the Federal Deposit Insurance Corporation.
- Younger Americans Have More Credit-Card Debt Problems: Study
CNBC News 15 Jan 2013
Americans in their late 20s and early 30s have more credit card debt than older spenders, according to a study published in the journal Economic Inquiry. Younger consumers also repay their credit card debt more slowly and are at risk of carrying debt their whole lives if they do not curtail their spending habits. For their results, researchers analyzed two large monthly surveys that included borrowing and repayment data on 35,542 people from 1997 to 2009. People born between 1980 and 1984 were found to have, on average, $5,689 more debt than their parents had at their age and $8,156 more than their grandparents. "If what we found continues to hold true, we may have more elderly people with substantial financial problems in the future," said study co-author Lucia Dunn, an Ohio State University economics professor.
- Helping the ‘Unbanked’ Get Affordable Financial Services
Holly Springs Sun (NC) 15 Jan 2013
A recent survey by the Federal Deposit Insurance Corp. and the Census Bureau found that 17 million U.S. adults lack a traditional checking or savings account. On top of that are 51 million "underbanked" Americans, who patronize alternative lenders such as check-cashing services or payday loans because their basic financial needs are not all met by a bank or credit union. Americans may not conduct financial transactions through a bank for many reasons, including lack of sufficient funds to need or open an account, lack of proper identification, language barriers, lack of trust in banking institutions, or ineligibility due to a bad banking track record. Retailers and other alternative providers are trying to fill the void for customers who cannot or will not use banks or credit cards. Bankrate.com lists dozens of prepaid cards that offer functionalities such as direct deposit, online purchases, and bill pay. Other businesses may provide check cashing, money orders, or wire transfers. However, these services can carry fees and other charges that can add up to much more than the $5 to $15 a month that a regular bank's checking account may cost. Consumers can find competitive bank account rates at Bankrate.com and can seek a credit union for which they may be eligible at ncua.gov.
- Credit Cards' New Gambit: Miss a Payment, No Penalty
Wall Street Journal 13 Jan 2013
Some credit card companies are being more lenient with delinquent borrowers and may even market their cards as lacking in late fees and "penalty rates." Certain cards by Discover Financial Services, Citigroup, and Barclays could be a good option for consumers who occasionally forget to pay their bills and who do not want to pay extra charges or incur a higher interest rate. Late payments, however, will still show up on a credit report and could affect a consumer's credit score. The new Discover It card advertises no annual fees or penalty rates, and it waives the late fees for a customer's first delinquency. In 2011, Citigroup's Citi Cards unit launched its Simplicity card, which has no late fees regardless of how many times a customer has paid late. Last year, Barclays' Barclaycard unit began marketing the Ring credit card, whose users are part of an online community that can vote for how some of the card's profits are used. The card allows users to waive one late fee annually and charges no penalty rate for late payments. The CARD Act that took effect in 2010 limited lenders' ability to change some account terms, including late fees and interest rates. Lenders now must give 45 days advance notice of interest-rate increases in some situations, and are limited in the size of late fees to $25 on the first instance and up to $35 the second time in a six-month period.
- 5 Credit Card Offer Tricks to Watch Out For in 2013
U.S. News & World Report 09 Jan 2013
Credit card offers that sound "too good to be true" usually are, but consumers can avoid these traps by reviewing disclosures carefully and being aware of several tricks that card companies use. For starters, they should understand that the term "pre-approved" offers no true value; consumers still must meet the company's criteria, including credit score and credit history, in order to qualify for credit. And while card issuers may market their products with stand-out words like "Gold," or "Platinum" and label their envelopes with “Important” or “Confidential,” this should not convince a consumer to sign up for the card without first scrutinizing the terms. The best card rates only go to consumers with the best credit; so it is important to keep in mind that the advertised rate may not be the actual rate a consumer is assigned after enrolling. Rewards and bonuses are another way that card companies try to entice borrowers, but these programs often have restrictions -- such as spending a certain dollar amount before receiving the bonus. Cash-back offers, meanwhile, could help card users save money; but they should be aware of how the rewards program works and understand any limits on how much they can earn.
- New York Antitrust Trial Begins Over Credit Card Arbitrations
New York Times 07 Jan 2013
American Express, Discover Financial Services, and Citigroup Inc. are in court over accusations that they violated antitrust laws and colluded to force customers to agree to settle disputes through arbitration instead of class-action litigation. Two antitrust lawsuits were filed against the credit card issuers by customers who had to sign arbitration clauses as part of their credit card agreements. Arbitration -- to settle disagreements over fees or other problems -- costs more for individuals compared to collectively pursuing claims in class actions, say consumer advocates. Plaintiffs are not seeking damages, but are asking the judge to order the three companies to remove arbitration clauses from their cardholder agreements. In the first day of testimony, lead plaintiff Robert Ross said that he did not consider arbitration a "fair venue" for consumers. Citigroup, Discover, and American Express say they each adopted arbitration agreements independently. They also argue that plaintiffs failed to show that arbitration clauses curb competition or cause injury under federal antitrust law.
- Justin Bieber's Latest Gig: Prepaid Debit Card Promoter
Daily Finance 07 Jan 2013
BillMyParents, a teen-oriented financial company, is launching a new prepaid debit card promoted by Justin Bieber to his 30 million Twitter followers and 50 million Facebook fans. Other celebrities that have become involved in promoting prepaid cards include Suze Orman, Russell Simmons, Magic Johnson, and the Kardashians. BillMyParents CEO Mike McCoy says Bieber's star power will help the company "empower countless families with teens to think about responsible spending in a new and better way." Although the card is not yet available, it will carry the same fees as the BillMyParents SpendSmart prepaid cards, which have a monthly fee of $3.95. On these cards, withdrawing money from an ATM costs $1.50 per transaction, inactivity for 90 days costs $3, and replacing a lost card costs $7.95. The expenses associated with SpendSmart cards are steep compared to those charged by other prepaids, according to CardHub.com. SmartCredit.com CEO John Ulzheimer suggests that consumers avoid prepaid cards completely and instead choose a conventional debit card from a bank that does not charge monthly fees.
- Regulators Cut JPMorgan Community-Lending Grade
Wall Street Journal 03 Jan 2013
The Office of the Comptroller of the Currency reduced JPMorgan Chase's primary deposit-taking bank and credit-card-lending unit to "satisfactory" from "outstanding" after examining their compliance with the Community Reinvestment Act (CRA), a federal law designed to spur banks to lend to low- and moderate-income neighborhoods. JPMorgan is the only one of the four major commercial lenders to receive a "satisfactory" CRA rating. The downgrades are the most recent sign of a more aggressive strategy by the OCC, which has cautioned all big banks that it is going to be tougher on enforcing laws that ban practices considered unfair or deceptive to customers.
- Consumer Bank Card Delinquencies Are Lowest Since 1994, ABA Says
Bloomberg 03 Jan 2013
The American Bankers Association (ABA) reported that U.S. bank-card delinquencies dropped to the lowest level in 18 years as consumers bolstered their personal finances amid uncertainty over the country's economy. Bank-card accounts overdue by 30 days or more fell to 2.75 percent of all accounts between July and September 2012 from 2.93 the previous quarter, the ABA said. ABA Chief Economist James Chessen said the decline in bank-card delinquencies was a bright spot in a report that neglected to show improvement across eight loan-installment categories tracked by the industry group.
- Some Retailers May Impose a Fee on Credit Card Transactions Beginning Jan. 27
Pittsburgh Post-Gazette 02 Jan 2013
The advocacy group Consumer Action is raising the red flag on "checkout fees" that some retailers may impose on credit card purchases starting on Jan. 27. Due to fears of customer backlash, most retailers are unlikely to charge such a fee, merchant trade groups assure. However, because it is a possibility, Consumer Action is informing cardholders of their options for fighting back. The group's Ruth Susswein points out that the practice is banned in 10 states. Consumers who encounter such fees should make register complaints with the retailers, which may persuade them to drop the fees. A checkout fee allows merchants to recoup the swipe fees they pay for processing credit card transactions, which are usually between 1.5 percent and 3 percent of the purchase amount. Checkout fees do not apply to debit card transactions. Visa and MasterCard have reported that they are making preparations for checkout fees.
- Consumers Warned on Deferred-Interest Cards
Wall Street Journal 28 Dec 2012
Personal finance experts are warning shoppers that an unpaid balance, even a small one, on some credit cards from major retailers can lead to significant finance charges later on. The deferred-interest credit cards offered by those stores let customers pay for purchases interest-free for a set period. But borrowers who fail to repay their initial purchases in full by the end of the promotional period must pay interest on the original amount that they charged -- even the amount they have already paid off -- at backdated interest rates as high as 25 percent. The National Consumer Law Center calls deferred-interest credit cards "one of the worst abuses" by credit card lenders. The group plans to urge the Consumer Financial Protection Bureau to propose rules that would restrict lenders from offering the cards.
- Consumers Climb Out of Debt
Wall Street Journal 24 Dec 2012
While incomes have been stagnant in the past three years, American household debt payments are at a new low, which helps paychecks go further. U.S. households spent 10.6 percent of their after-tax income on debt payments in the third quarter of 2012 -- the lowest level since 1983 -- Federal Reserve data shows. Many families have been working off debt and rebuilding savings in the past five years. Some of it has not been voluntary, such as in foreclosures and bankruptcies. Tighter lending standards also have made it difficult for many people to borrow; but those who do qualify are benefiting from historically low interest rates. And home prices are beginning to increase again, making it possible to refinance. Consumer spending has risen 7.7 percent since mid-2009, after adjusting for inflation. However, not everyone can reduce their payments, as rents are increasing and still-low property prices have kept most homeowners from qualifying to refinance. The share of renters' income that goes to required financial obligations was 24.1 percent in the third quarter, the highest level since early 2010.