Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- 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.
- Banks Having to Defend Credit Card Insurance
Reuters News 16 Nov 2011
Complaints on consumer Web sites to federal regulators and in a bevy of lawsuits filed by West Virginia and other states, consumers have lambasted credit card insurance, saying the coverage often leaves them feeling shortchanged. Debt protection products are sold on the idea that they suspend or cancel credit card debt for a time following a critical event, such as a lost job, disability, or death. However, many customers complain that they were unwittingly enrolled in the coverage or unfairly turned down for benefits. A government watchdog has directly urged the new U.S. Consumer Financial Protection Bureau to take a hard look at payment protection, after other attempts to rein in the product fizzled. The Government Accountability Office said in March that the bureau, which was set up under last year's Dodd-Frank financial oversight law, should assess the value of the products. It said cardholders only receive 12 cents of benefit for every dollar they spend on debt protection fees. The nine largest credit card issuers amassed $2.4 billion in fees for debt protection products in 2009, and only remunerated $518 million of that to consumers in benefits. The banking industry argues that payment protection plans can be expensive but provide a necessary service.
- Credit Card Defaults, Late Payments Stabilize; Points to Typical Seasonal Pattern Returning
Associated Press 15 Nov 2011
The stabilization of credit card defaults and late payment rates indicate that cardholders are reverting to seasonal payment patterns that predated the Great Recession. The six leading credit card-issuing banks posted mixed outcomes for customers' payment behavior last month, with three reporting small hikes in default rates and three reporting slight drops; four of the banks disclosed declines in the rates of payments late by 30 days or more, while two reported small increases. Reasons underlying the low default and delinquency rates include card companies cutting off delinquent borrowers when the housing crisis struck and unemployment began to spike; problem payment rates have been suppressed by the inability of consumers who defaulted on cards from 2008 to 2010 to get new credit. TransUnion reported on Tuesday that in June through September, nearly 250,000 more cards were issued to consumers with credit scores that indicate some past payment difficulties.
- Consumer Borrowing Grows in September, but Credit Card Use Falls
Associated Press 07 Nov 2011
Americans borrowed more in September to buy cars and attend college, but they charged less to their credit cards for a third straight month, according to data from the Federal Reserve. Total consumer borrowing rose $7.4 billion in September, a 5.8 percent increase, but credit card purchases dropped 1 percent after larger declines in July and August. Credit card use has fallen nearly 19 percent since September 2008.
- Credit Scores Down But Credit Card Debt Up
Time 21 Oct 2011
Credit score and product site CreditKarma.com compared the amount of credit card, mortgage, and student loan debt in all 50 states -- along with the average FICO score in each -- and found that many Americans are still struggling for financial stability more than two years after the recession "officially" ended. The average consumer's score was 663 in the third quarter, down four points from the previous three months, even as average credit card debt climbed to $6,513. A few surprises were revealed in the state-by-state breakdown, meanwhile. The top-scoring states were California and New Jersey, with average FICO scores of 682 and 680, respectively. At the other end of the continuum are South Carolina and Mississippi, where average scores are 638 and 626, respectively. But these numbers only reveal a part of the picture. Despite its high average credit score, New Jersey also tied with Connecticut and Wyoming for the highest amount of credit card debt: $7,666 per cardholder. And Maryland boasts the highest average student loan debt in the nation -- $33,359 -- despite a modest average FICO score of 667.
- Consumers Starting to Shy Away From Debit and Credit Cards, Moving Back to Cash
Cleveland Plain Dealer 17 Oct 2011
Americans' obsession with credit and debit cards may be coming to an end, which means cash could reign once again. It has been 10 years since fast-food restaurants began accepting credit and debit cards and since consumers started using plastic more frequently than they were writing checks. But life has changed considerably; consumers are now more averse to debt, some banks are beginning to charge fees for debit card use, and merchants as of October can begin offering discounts to consumers who are paying with cash, check, or debit card -- rather than credit card. "The consumer wants to be back in control of their money," says Kevin Foster, a methodologist at Boston's Federal Reserve Bank. "Cash is just much easier to control." Jean Ann Fox, director of financial services for the Consumer Federation of America, says banks were highly successful at encouraging customers to use debit and credit cards. They offered rewards like airline miles and cash back and threw in comprehensive advertising campaigns. The economic crash of 2008, however, turned the trend around. Banks scaled down credit limits and became more selective about qualifying borrowers for new credit cards; and, now, overdraft and other fees tied to debit cards also are turning consumers off from the payment method. The amount of cash that people keep on their person or in their homes jumped from 2008 to 2009 and are expected to climb further for the 2010 numbers.
- Credit-Card Issuers Vie for Risky Business -- Subprime Borrowers
Wall Street Journal 17 Oct 2011
Credit card companies, seeking ways to expand their business amid fierce competition, are returning to high-risk subprime borrowers. Banks issued 5.4 million new credit cards to borrowers with checkered credit histories through June. That is up 64 percent from the previous year, according to recent data from credit bureau Equifax, which defines a subprime borrower as having an origination score of less than 660. While the number of subprime cards issued this year falls well below the 14.7 million issued by banks in the first six months of 2007, their growth outpaced the 27 percent year-over-year in total credit cards issued through June 2011. The move, coming with the subprime-mortgage fiasco still fresh, is part of a larger effort by banks to attract more credit card customers at a time of stagnant economic growth. A spike in losses from failed loans during the recession and a regulatory reform prompted many of the largest card issuers to focus exclusively on borrowers with better credit.
- Credit Card Issuers Circling Subprime Borrowers Again
Dow Jones Newswires 11 Oct 2011
Credit card issuers are knocking on the doors of subprime borrowers again as they look for ways to grow their business amid heightened competition. The move is part of a broader effort by banks to lure more credit card customers after many lenders retrenched from the subprime market. While issuers are still approaching the market with caution, offering those customers small credit lines and charging higher rates, experts anticipate the trend will accelerate. SmartCredit.com's John Ulzheimer believes that more banks will focus on consumers in the "meaty part of the FICO distribution" range of 620 to 650. "There are more nuggets of gold in that … score range," he notes, adding that credit scores have fallen for many Americans due to job losses or other circumstances beyond their control. Banks issued 5.4 million new credit cards to subprime borrowers through June, up 64 percent from a year earlier, according to the most recent data from Equifax.
- Credit Card Delinquencies Poised to Rise, FICO Survey Data Suggest
American Banker 04 Oct 2011
Concern is growing that credit card delinquency rates, in a downward pattern for more than two years, may start to move up again if the economy stagnates, according to new FICO survey data. The credit-scoring firm, owned by Fair Isaac Corp., said that 40 percent of the 188 bank risk managers it polled in August expected credit card delinquencies to increase over the next six months. Roughly half of respondents -- 49.8 percent -- said they believed average credit card balances will rise over the next six months, although 63.9 percent found it unlikely that credit card use will return to pre-recession levels for another five years or more. Half of the risk-management executives predicted that it will be 2020 before U.S. home prices return to 2007 levels. Additionally, 48.3 percent of respondents said they fear the country is on the brink of another economic downturn.
- Discover Faces Enforcement Action From FDIC Over Fee Products
Dow Jones Newswires 28 Sep 2011
The FDIC plans to issue an enforcement action against Discover Financial Services over its marketing of fee-based products, the company said in a regulatory filing Wednesday after market close. Discover's payment protection plan, also known as debt deferment, costs cardholders a fee of 89 cents per $100 in balances, allowing them to put monthly payments on hold in the event of job loss, hospitalization or other serious event. The company currently faces eight class action U.S. District Court cases stemming from the product. Discover says it entered a preliminary global settlement of all pending class action cases in June. U.S. consumers paid $2.4 billion in fees for payment protection plans on 24 million accounts in 2009, according to a March report from the Government Accountability Office based on data from nine credit-card issuers. "The products can protect a cardholder's credit rating in times of financial distress" but "can be difficult for consumers to understand," the GAO said.