Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- CFPB Seeking Comment on Future Card Rules
American Banker 20 Dec 2012
The Consumer Financial Protection Bureau on Dec. 19 opened up a 60-day comment period on future credit card rules. Specifically, it wants feedback on how the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 has affected consumers and the industry. The CFPB said the remarks on how cost and access to credit have changed, whether abusive or deceptive practices are still being used, and other aspects will help it with policy decisions down the road.
- Credit Cards Are Back as Preferred Way to Buy Holiday Gifts
Sarasota Herald-Tribune (FL) 19 Dec 2012
With one in three holiday shoppers failing to plan in advance for the shopping season -- and more people feeling bold enough this year to make big-ticket purchases such as homes and new cars -- more people are turning to credit cards to bridge the shortfall and still make holiday purchases, according to a survey by the credit firm TransUnion. Following the Great Recession, more and more people began paying for gifts in cash, as credit limits inched up to record highs and 2009 regulations left more than 15 million Americans without credit cards, according to the Nilson Report, a credit card industry publication. TransUnion data show that the level of credit-card debt nationwide increased by nearly 5 percent to an average of $4,996 debt per borrower between December 2011 and December 2012.
- Read Fine Print on Card and Convenience Check Offers
WSAV News 3 13 Dec 2012
Consumers who receive offers for new credit cards, “convenience checks” from existing credit card accounts, and prepaid debit cards should look into the terms and conditions to be sure they understand how to use the products and are aware of any hidden costs. Convenience checks from a consumer's credit card provider can be written like regular checks to merchants or to pay off other debts. However, they usually carry a higher interest rate than normal credit card transactions; and they typically do not carry the same level of protection as a credit card. Prepaid debit cards, meanwhile, often bear costs such as activation fees or a transaction fee. The terms and conditions of these offers may go on for pages and may not always be simple to understand. Consumers who are having a difficult time should call an available information number and ask a customer service representative about the fees.
- Late Credit Card Payments Low and Expected to Stay There
New York Times 13 Dec 2012
Although higher-risk borrowers are opening more credit card accounts, TransUnion believes delinquencies on the cards may stay low. The mortgage delinquency rate also is expected to fall to 5.06 percent by the end of 2013, compared to an anticipated 5.32 percent at the close of 2012. In its annual forecast, TransUnion additionally predicts that 34 states and the District of Columbia will see a decline in mortgage delinquency rates. Credit card delinquency rates may actually rise from 0.83 percent currently to 0.87 percent at the end of 2013, but that is still very low considering that the rate averaged 1.24 percent in the final three months of the year from 2000 to 2011. Even when they fall behind on mortgage payments, more consumers are keeping their credit cards current, TransUnion officials note, as they are relying on them for liquidity in a slow economy. The number of new cards issued has been on the rise, with nonprime borrowers making up a larger share of new account holders.
- The State of Lending: Progress & More Work
Huffington Post 10 Dec 2012
The Center for Responsible Lending (CRL) on Dec. 12 will launch the first in a series of reports on the impact of predatory lending in consumer markets, confirms CRL Executive Vice President Ellen Schloemer. The reports, under the umbrella of "The State of Lending in America and its Impact on U.S. Households," will cover mortgages, auto loans, credit cards, and student loans. Schloemer notes that there has been a record of strong reforms that help consumers regarding mortgage lending and credit cards. However, abuses in auto financing and student loans continue. Car dealers earn more when they encourage consumers to take out loans at higher rates than the consumer qualifies for; while students often turn to private loans even when they are eligible for cheaper, federal student loans. Future CRL reports will also look at payday and car title loans, checking account overdrafts, and debt collection.
- U.S. Consumer Borrowing Rises to Record $2.75 Trillion
Associated Press 08 Dec 2012
The Federal Reserve reported Friday that consumers increased their borrowing by $14.2 billion in October from September. Total borrowing rose to a record $2.75 trillion. Borrowing in the category that covers autos and student loans increased by $10.8 billion. Borrowing on credit cards rose by $3.4 billion, only the second monthly increase in the past five months.
- 'Zombie Charges,' Other Credit Card Fees Merchants Sneak by You
Deseret News (UT) 07 Dec 2012
Consumers' credit cards could be infected with "zombie subscriptions," a hidden charge, warns an NBC News article. Investigators found six “gray charges” that merchants often add without consumers' knowledge. A zombie subscription is one that "comes back to life" after it has been canceled. Individual charges, such as zombie subscriptions, typically range from $12 to $18 but can amount to an annual cost of about $358. For example, 3 million people last summer still paid AOL for dial-up Internet Access service because of automated monthly billing. Many of them turned off AOL when they found out about the charges. Other gray charges include unwanted auto-renewals, services that start out free but must be paid when a free trial period expires; gradual increases in the cost of monthly purchases; and unwanted services that are bundled with a legitimate purchase.
- Credit Card Debt Is Top Worry, Survey Finds
ABC News 06 Dec 2012
According to a November study by myFICO, the consumer division of FICO, credit card debt continues to be the biggest financial worry of the year. While half of survey respondents said they will rely on credit cards for their holiday purchases this year, a third said they would only use credit cards for more expensive gifts. One third of consumers reported they are cutting back on their holiday spending in 2012. However, a quarter of survey participants said they will need more than three months to pay off their 2012 holiday expenses, compared with 18 percent in a 2010 survey. Sixty-two percent of respondents said they were concerned about identity theft during the holidays. "Regularly monitoring your bank statement and credit report for errors can be instrumental for identifying fraudulent charges and maintaining an accurate credit report," said myFICO spokesman Anthony Sprauve.
- Households Back to Slashing Debt, Fed Says
MarketWatch 06 Dec 2012
Consumer credit, including student loans and car loans, rose by 4.3 percent in the third quarter, while mortgages fell 3 percent, the Federal Reserve reported. Overall, household debt fell an annualized 2 percent in the third quarter to $12.87 trillion. This is the largest drop since the second quarter of 2011. U.S. households have deleveraged by about 13 percent since the onset of the last recession, accounting for inflation. Housing prices are still more than 25 percent below their peak levels, CoreLogic said last week. In the third quarter, household net worth rose by $1.7 trillion to a total of $64.8 trillion.
- Capital One to Refund $150 Million to Credit Card Customers
Los Angeles Times 18 Jul 2012
In the Consumer Financial Protection Bureau's first major enforcement action since the agency went live last July, it has ordered Capital One Bank to refund $140 million to credit card consumers for questionable marketing of add-on products. At the same time, the federal Office of the Comptroller of the Currency hit Capital One with its own $10 million consent order tied to unfair billing practices from May 2002 to June 2011, for total refunds of $150 million. Additionally, Capital One must pay $60 million combined in civil penalties for the practices. CFPB director Richard Cordray said the bank's call center operators tricked customers with low credit scores or credit limits into buying "products they didn't understand, didn't want, or in some cases, couldn't even use" -- such as payment protection and credit monitoring -- when they activated their credit cards. As part of the consent orders, Capital One has agreed to refund the full amount of add-on products, plus interest, to customers who enrolled in them or tried unsuccessfully to cancel them on or after Aug. 1, 2010. Finance charges and other associated fees will be refunded as well. "We are putting companies on notice that these deceptive practices are against the law and will not be tolerated," Cordray declared.
- Prepaid Debit Cards Scrutinized by Regulators
Raleigh News & Observer (NC) 19 May 2012
As free checking accounts become more scarce, prepaid debit cards are taking the spotlight. The reloadable cards have been one of the fastest-growing bank products for years as lower-income customers look to avoid overdraft charges and fees. According to a new survey by the National Foundation for Consumer Credit Counseling, there are currently more than 30 million Americans using such cards. Adam Rust of Reinvestment Partners said approximately $300 billion was put on the prepaid cards last year, up from $30 billion in 2006. However, many say the cards carry high fees of their own. Now, the Consumer Financial Protection Bureau (CFPB) is getting involved. The agency recently announced that it will hold a hearing about the cards in Durham, N.C. It is seeking consumer feedback. Those in attendance will include CFPB director Richard Cordray and Martin Eakes with the Center for Responsible Lending.
- Stay-at-Home Mom Fights New Credit Card Rule
CNN Money 16 May 2012
A grass-roots campaign is gaining momentum against a new provision of the 2009 CARD Act that, starting in October of last year, has made it more difficult for stay-at-home parents to qualify for their own credit cards. The Federal Reserve rule dictates that credit card issuers consider individual income, rather than household income, to determine eligibility. As a result, many parents who rely on their spouse's income feel shut out of access to credit. One Virginia mom whose application for a Target card was rejected has refused to acquiesce to the new guideline, recently launching an online petition to persuade the Consumer Financial Protection Bureau -- which assumed jurisdiction over the rule last summer -- to amend it. The petition at Change.org already has garnered in excess of 30,000 signatures. "I used to be CEO of a small software consulting business and am now staying at home to take care of a toddler and first grader," wrote one stay-at-home mother on the petition. "If you had to pay someone to do what I do now, it would cost you at least $120,000, which is a lot less than what I used to earn. ... Don't you think I should be allowed to get a credit card on my own?" Holly McCall, the 34-year-old mother of two who organized the petition, delivered the signatures to the CFPB on May 15, supported by a handful of petitioners. Some of the women dressed as 1950s housewives, to illustrate how the rule "feels like a flashback to the 1950s because of the way women aren't empowered financially."
- Returning Veterans Can Lower Credit Card Interest Rates
KSTP Eyewitness News ABC 5 (Minnesota) 16 May 2012
Although not widely known, the 2003 Servicemembers Civil Relief Act (SCRA) offers valuable protections for current and past members of the U.S. military. Under it, deployed veterans can serve out their missions overseas without worrying about finances. For example, the law prevents banks from foreclosing on veterans who are deployed. This applies not only during the active-duty period but also for nine months after. During this time, creditors cannot foreclose or repossess items from veterans without a court order allowing them to do so. The SCRA also caps loan interest rates at 6 percent while enlisted persons are on active duty, a limit that also applies to credit cards, auto loans, and business financing. Veterans who send a letter to lenders to request the 6 percent cap, within 180 days of coming home, are entitled to a credit or refund if their loan is fully paid.
- Late Payment Rate on US Credit Cards Dips in 1Q
Associated Press 15 May 2012
U.S. credit card users are getting better about submitting their payments in a more timely manner, even as banks increasingly are issuing cards to borrowers with imperfect credit. The rate of payments 90 days or more overdue dipped in the first quarter to 0.73 percent, TransUnion reports, down from 0.78 percent in the fourth quarter of 2011 and 0.74 percent in the first quarter of 2011. While late payments are trending downward, cardholders are amassing more debt. The average credit card balance in the first three months of the year was $4,692 -- a jump of 6.1 percent from the same period of last year. Some of that shift may be explained by the cardholders themselves, as nearly a fourth of new cards issued in the 2012 first quarter went to higher-risk consumers. "We expect these consumers have been making active use of their cards, because in many cases they may not have had access to cards in the past couple of years," explains TransUnion's Charlie Wise.
- Recession Added Debt, Drained Families' Savings
USA Today 14 May 2012
One out of five families owes more on credit cards, medical bills, student loans, and other unsecured debt than they have in savings, finds a new University of Michigan report. Moreover, the share of families surveyed at the end of last year that have zero savings increased to 23.4 percent, up from 18.5 percent in 2009. The study also suggested that the mortgage meltdown has not yet come to a close, either. Among homeowners polled, 1.7 percent anticipate that they will fall behind on their house payments in the near future -- although that is down slightly from 1.9 percent who expected to have problems meeting their mortgage obligations in 2009.
- Higher Credit Card Fees Are Bad for Bank Business, Report Finds
Huffington Post 09 May 2012
According to a new report from the Center for Responsible Lending (CRL), excessive credit card fees are unfavorable not only for consumers but also for bank business. The study found that credit card companies that marketed aggressively and practiced deceptive pricing suffered double the charge-offs during the Great Recession than companies than issuers that did not. "When consumers are duped and are taken by surprise by costs and fees, they are more likely to default," explained CRL senior researcher Joshua Frank. The report looked at nearly two dozen marketing and pricing practices at the top 100 card issuers between 2006 and 2010. The report undermines the argument often put forward by financial institutions that higher fees offset the risk of lending to those with questionable credit.
- Chase Launches New Alternative to Checking Account
Associated Press (NY) 08 May 2012
JPMorgan Chase has introduced its new prepaid card, intended to provide an alternative to checking accounts. The reloadable Chase Liquid card is now available at 200 branches and will roll out nationwide this summer. The move comes as the mega-bank and others tries to recoup fees lost in the wake of a regulatory crackdown. In 2010, rules took effect prohibiting banks from signing up customers for overdraft programs without their consent. Banks took an additional hit last summer when rules were issued limiting debit card interchange fees. Chase's prepaid carries a fee of $4.95 per month. The bank is calling the card a "low-cost alternative to traditional checking accounts" with "clear and simple" terms. An increasing number of big banks have cut rewards program, introduced new accounts with higher fees, and launched new products such as prepaid cards. Chase said customers will have to provide a $25 deposit for the Liquid card but are not required to have a checking or savings account with the bank. Withdrawals and customer service support do not cost anything.
- Prepaid Debit Cards Come With Fistful of Fees
Fox Business 07 May 2012
In an examination of whether having a prepaid debit card makes financial sense, given the accompanying fees, Bankrate surveyed 18 such cards from March 19-23. Of them, 11 charged activation fees ranging from $3 to $14.95. Fees varied widely among issuers, indicating the importance of conducting some due diligence. On the plus side, unlike conventional checking accounts, it may be impossible to overdraft an account with most prepaid debit cards. About a third of the cards charged a declined transaction fee; but the penalty ranged from 25 cents to $2, compared to the average $30.83 per overdraft on a traditional checking account. This can be an advantage for spenders who struggle to manage a traditional checking account. Of the 18 cards in the survey, 14 also did not charge for automatic bill pay. Most prepaid cards, like many checking accounts, do have built-in monthly fees. Some cards offer an option to avoid that fee by setting up direct deposit or loading a certain amount of money each month. Consumers who frequently use ATMs may want to avoid prepaid debit, as many issuers charge a fee for each ATM transaction. However, only three of the 18 surveyed debit cards charged a fee for making PIN-based, point-of-sale purchases. Card issuers also generally charge a fee for running a balance inquiry at an ATM, getting account information in the mail, or checking balances. The survey found that the American Express Prepaid Card, the H&R Block Emerald Card, and the PNC Bank SmartAccess Prepaid Visa Card appeared to be the most consumer-friendly.
- Alumni Credit Card? First, Lose the Greedy Pitch
Time 03 May 2012
Although the Credit CARD Act aimed to stop issuers from marketing to students, a study from the University of Houston Law Center found that the practice is still going on. Many students still receive mailed offers and gifts for applying for credit. To avoid suitability restrictions, card companies may consider student loans as a source of income. Some card offers even recommend that users "carry a low balance" on a card because "this helps your [credit] score more than paying off the balance in full each month," although this is not always true. Card holders have nothing to gain by paying interest on their balance. Card offers also have suggested that borrowers not use more than half of their available balance, or credit limit. In fact, users should keep the balance below 30 percent of the credit limit, or even closer to 10 percent. Some cards may include good offers for college students, such as no annual fees, a good starting fixed rate, and free credit scores. Since universities can earn millions of dollars through credit card programs, they may also want to look toward promoting sound financial habits as well.
- Pesky Fees That Could Surprise You Are Out There, And They Can Add Up In a Hurry
Detroit Free Press 03 May 2012
Although most consumers are familiar with annoying fees, many of them often go unnoticed. In Michigan, for example, lenders can charge a 45-cent verification fee for each payday loan transaction verified through a state database that makes sure individual consumers do not take out too many loans at the same time. Failure to repay the loans on time also attracts fees. Payday lenders can charge a returned check fee of $26.88, regardless of whether the loan was for $100 or for $600. "People can get into trouble because this can snowball into a bigger problem," according to Lisa Ross of the Michigan Office of Financial and Insurance Regulation. Some credit unions and banks charge fees of up to $5 for mail returned from an invalid address, so consumers should promptly update their addresses if they move. When buying or selling a home, the average home inspection should run about $350 to $700, but some places will try to charge as much as $1,000. Some scams try to charge individuals $20 to claim a fake sweepstakes prize, a practice that the Federal Trade Commission is cracking down on. There are also fees associated with secured credit cards, such as for raising the credit limit or a processing fee. Consumers looking to buy a car should also watch out for inflated documentation fees.