Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- 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.
- Rev. Jackson Hits at Capital One
Wall Street Journal 28 Sep 2011
Consumer advocacy groups and Rev. Jesse Jackson criticized Capital One Financial's business model at a hearing the Federal Reserve held in Chicago to allow the public a chance to comment on Capital One's planned acquisition of ING Direct USA. Jackson said the bank's credit card business is so risky it would pose a threat to the U.S. financial system. Despite Capital One's vows to hire new workers and invest in underserved communities, the civil rights icon said the bank markets expensive credit cards to vulnerable borrowers. The $9 billion deal would make the bank the fifth-largest in the nation based on deposits. Capital One's general counsel, John Finneran, denied that the bank is too entrenched in the credit card business, claiming that it paired down its cards beginning in 2005. Still, consumer interest groups such as the National Community Reinvestment Coalition oppose the deal, claiming the bank has a poor track record of unsavory lending.
- Debit Fee Cuts Could Boost Credit Card Use -- Fed
American Banker 26 Sep 2011
According to a Federal Reserve Bank of Boston research paper, new regulations reducing debit card interchange fees are causing some banks to charge customers more for using debit cards -- which, in turn, could result in customers ramping up use of their credit cards. While explicit debit card fees have not been the norm, Boston Fed policy adviser Joanna Stavins said it is "feasible" that banks will begin to add fees or per-transaction charges in an effort to recoup lost interchange revenue. The Fed's July 29 ruling will limit the fees that merchants pay to banks when customers make a purchase with their debit cards. The fees will drop to between 21 cents and 24 cents per transaction, down from 44 cents on average currently. In an attempt to make up for losses in the field, some big banks have already begun to charge customers for checking accounts or related debit cards. However, the rise in debit card fees could cause more consumers to use their credit cards, as there will be no fee attached to that card. "It is reasonable to expect that an increase in the cost of debit would lead to an increase in the use of credit cards," Stavins concluded.
- Credit Card Debt on the Rise, Again
CNNMoney 22 Sep 2011
Americans added $18.4 billion to their debt load in the second quarter, a 66 percent increase from the debt they accumulated in the same quarter last year and 368 percent more than they tacked on in 2009, according to credit card research firm CardHub.com. The last time consumers charged up this much debt during this time period was in 2008, when credit card balances climbed by $25.2 billion. Total outstanding credit card debt as of July was $792 billion, down 18 percent from the September 2008 peak of $972 billion, according to data from the Federal Reserve. CardHub estimates that consumers will run up about $54 billion more in credit card debt by the end of 2011 than they did in 2010. Helping to fuel the increase are credit card issuers, which have started to loosen their standards and extend credit to consumers with so-so credit again now that government regulations like the CARD Act and the debit card swipe fee cap have been finalized, says SmartCredit.com credit specialist John Ulzheimer. Additionally, debit card fees and disappearing debit rewards programs have driven many consumers back to credit cards.
- Capital One's Business Model 'Not Sound,' Community Groups Tell Fed
Washington Post 20 Sep 2011
Before a small crowd at the Federal Reserve's first in a trio of public hearings, Capital One Financial Corp. officials defended the proposed purchase of ING Direct as a union of simple, traditional institutions that pose no risk to the financial setup but produce enormous public benefit. Community groups countered that the credit card behemoth is simply using the $9 billion purchase to feed its card business, which if permitted to grow any larger could throw the system off balance. Analysts and regulators have pinpointed credit card securities as the likely driver of America's next financial crisis, and Capital One is too entrenched in the niche, according to National Community Reinvestment Coalition President and CEO John Taylor. "Capital One's business model is not sound," he declared. Stella Adams of the National Association for the Advancement of Colored People, meanwhile, has voiced fear that Capital One would increase its subprime credit card lending at a risk to minorities, on which she says the bank has preyed.
- Debit or Credit? Citi Places Its Bet
Wall Street Journal 20 Sep 2011
Citigroup mailed an estimated 346 million credit card offers to North American customers in the third quarter, according to figures from Mail Monitor -- more than one for every man, woman, and child in the United States. One in three credit-card offers that landed in consumers' mailboxes last month came from Citi, Mail Monitor estimates. The postal blitz is expected to make Citi the largest mailer of credit-card offers, ahead of longtime industry leader Chase, for the first time in eight years. It shows how Citi is trying to regain ground ceded to rivals after losing hundreds of millions of dollars on credit cards following the 2008 financial crisis. In its efforts, Citi is betting that customers, alienated by charges being imposed on debit cards, will turn to credit cards instead.
- Credit Probes Go Beyond Scores
Atlanta Journal-Constitution 14 Sep 2011
When consumers apply for new loans, request a store credit card, or sign up for a cellphone, the companies they do business with may delve more deeply into their credit history than they used to. Following the Great Recession, more lenders are sifting through consumers' personal financial information in ways they have never done before, according to industry experts and consumer groups. Additionally, they are more likely to rely on information other than just a traditional credit score. Data companies are now collecting information relevant to consumers' job history, income, and net worth -- which lenders can use to flag anyone it considers a credit risk. Consumer groups acknowledge that lenders should take greater care in their lending practices but worry that incorrect conclusions could actually impede some creditworthy borrowers when they attempt to get loans.
- Consumer Debt Rises on Nonrevolving Surge; Credit Cards Fall
Dow Jones Newswires 08 Sep 2011
U.S. consumer credit made another gain during July, led by a big increase in nonrevolving debt. Consumer credit jumped by $11.97 billion, according to the Federal Reserve. The surge in outstanding credit was the biggest in more than three years. Nonrevolving credit drove the overall increase in July, rising by $15.41 billion to $1.662 trillion. Revolving credit, which includes credit-card debt, fell by $3.44 billion to $792.48 billion. That July drop followed two promising increases. Consumer spending has slowed sharply this year, amid a 9.1% unemployment rate and only soft gains in workers’ earnings. The latest report by the Commerce Department on retail sales showed those rose in July less than forecast. Economic growth hasn’t met the Fed’s expectations and central bank officials have said they would keep interest rates at very low levels into 2013. Consumer spending has slowed sharply this year, amid a 9.1 percent unemployment rate and only soft gains in workers’ earnings. The latest report by the Commerce Department on retail sales showed those rose in July less than forecast. Economic growth has not met the Fed’s expectations and central bank officials have said they would keep interest rates at very low levels into 2013.
- Banks Still Not Easing Credit Card Standards
Time 02 Sep 2011
The Federal Reserve's most recent Senior Loan Officer Opinion Survey on Bank Lending Practices finds that consumers are reining in their spending habits, with credit card late payments and card default rates falling steadily. The quarterly poll follows credit card activity at 55 U.S. banks and 22 foreign banks. The trend may appear to herald good news for individual spenders; but for those awaiting an economic rebound, the exact opposite is true. Less spending, even on credit, equals slower growth and fewer jobs. In addition, the Fed observes that banks are doing little to reverse the decline in credit card use. According to the Federal Reserve, fewer than 11 percent of U.S. banks queried report that they have loosened credit card lending standards. Additionally, only 18 percent of large banks say their credit card lending standards have "eased somewhat"; 0 percent of all banks say their card lending standards are "easing considerably"; and 78 percent of all banks and 63.6 percent of big banks say their credit card approval standards have remained "unchanged."
- FTC Orders Refunds for Those Tricked Into Prepaid Cards
Credit.com 01 Sep 2011
Thanks to a settlement reached by the Federal Trade Commission (FTC), more than 110,000 consumers who applied for online payday loans but were deceived into paying for prepaid cards instead will soon be receiving a refund by mail. The total of $1.9 million is going back to consumers, but individual checks are likely to be just $10 to $15. According to the FTC, consumers were looking for loans online, but a cleverly designed application form tricked them into signing up for the Ever Private Card or the Secret Cash Card Debit Card. Applicants who inadvertently signed up for the cards paid up to $54.95. To ensure wary consumers that the refund checks are, in fact, being sent by the FTC, consumers can confirm that the check is legitimate on the FTC's Web site.
- Recession Leaves Many in Permanent Cutback Mode
USA Today 30 Aug 2011
New Federal Reserve Bank of New York data indicates that total U.S. household debt -- including mortgages -- has contracted by more than $1 trillion, or roughly 8.6 percent, since 2008's third quarter as the nation's consumers reacted to recession. While some of the decline can be blamed on banks tightening credit, making it tougher for people to borrow, the trend also can be attributed to more Americans abbreviating their mortgage terms, saving instead of spending, and using credit cards more judiciously. In the first three months of this year, for instance, 34 percent of home refinancers paid off a 30-year loan and shifted into a 20- or 15-year product. That is the highest level in seven years. Freddie Mac notes that fewer than 25 percent of the refis were "cash out" deals, as opposed to 67 percent in 2008, and 26 percent were actually "cash in" deals where borrowers boosted their equity instead of extracting it. Additionally, more account holders are paying off their credit card debt each month, suggesting that plastic is seen today as a way to earn rewards while making purchases rather than as a source of short-term loans. "There is a fundamental difference in how people are using credit cards" now, compared to before the recession, notes Silvio Tavares of payments processing company First Data.
- JPMorgan, Wells Fargo Waive Fees for Customers Post-Irene
Bloomberg 29 Aug 2011
JPMorgan Chase will not charge people in New York, New Jersey, and Connecticut for late payments of credit cards, business and consumer loans, or overdraft-related fees from today through Sept. 4. The bank also will waive early withdrawal fees on certificates of deposit "to help customers with their cash flow" if needed, according to an e-mail JPMorgan Chase sent to customers. It will not charge consumers for using another bank's automated teller machine and will extend hours at branches in affected areas this week. Wells Fargo will waive fees for customers in the same states through Sept. 2 when they use another bank's ATM. Wells Fargo also will not charge early withdrawal fees on CDs. Bank of America will help customers facing financial hardship on a case-by-case basis, while Citigroup will work with customers depending on individual circumstances, offering different financial recovery assistance options. Capital One Financial is encouraging its customers affected by the hurricane to reach out in person at a branch, via phone, or online, if they are having issues with their credit card or banking needs.
- In New Form, Debit Rewards Still Available
Tampa Bay Online 28 Aug 2011
Several big banks in the past 12 months have terminated or scaled down their debit card rewards programs, blaming new regulation that soon will rein in the revenue they can wring from checking accounts. To compensate, a few banks have already begun partnering with retailers to offer revamped programs that reward customers for spending at particular stores. Under one program, for example, customers can receive a $5 rebate for using their debit cards to spend $25 or more at BestBuy.com. The move away from traditional rewards programs, where customers usually earn a predetermined cash-back rate on all purchases, is in response to the shifting business environment. Beginning in October, a regulation will limit the fees banks can collect from merchants whenever customers use debit cards. These fees brought in $19.7 billion in 2009, according to the Nilson Report, which follows the payments industry.
- Capital One Deal With ING Could Be Slowed by Federal Reserve
Politico 25 Aug 2011
The Federal Reserve has hinted it may slow down a deal allowing Capital One to acquire ING Direct's U.S. operation, which would create the fifth-largest U.S. bank. Opponents say a merger would create a risky "too-big-to-fail" megabank. The Fed's board of governors this week ended public comment on the proposed merger, typically the last step before it approves a major deal, despite objections from activists and a letter from Rep. Barney Frank (D-Mass.), the ranking member of the House Financial Services Committee. Frank and others wanted the board to remove the deal from fast-track approval so the impact on consumers, and allegations that Capital One has a poor track record in low-income and working-class communities, could be more thoroughly examined. In an unusual step, however, the board indicated it would allow more comment on the matter, potentially giving activists more time to present their case. A Federal Reserve spokeswoman said earlier this week that no decision on the merger was imminent.
- Debit Rewards Are Still Available—in New Form
Associated Press 24 Aug 2011
Debit card rewards are undergoing a transformation. Several major banks in the past year ended or scaled back their debit rewards programs. To compensate, a few banks are teaming up with retailers to offer revamped programs that reward customers for spending at specific stores. The migration away from traditional rewards programs is a response to the changing business environment. Starting in October, a regulation will cap the fees banks can collect from merchants whenever customers swipe their debit cards. Under the new reward programs, retailers pay the banks a fee or share a portion of the profits whenever customers act on an offer, which is expected to help banks offset the loss in revenue from swipe fees. Financial research firm Aite Group estimates that banks will reap $1.7 billion a year in revenue from these merchant-funded rewards by 2015. Aite found that about 30 percent of customers enrolled in merchant-funded programs end up redeeming at least one offer, a figure that could rise significantly once more retailers join the programs and the offers become more customized.