Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- 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.
- Know What You're Getting Into With Pre-Paid Debit and Credit Cards
Austin American-Statesman 21 Aug 2011
Prepaid debit and credit card firms located in Central, Coastal, and Southwest Texas and the Permian Basin have been the subject of more than 320 complaints to the Better Business Bureau since January, according to Erin Dufner, senior vice president of communications for the Central Texas BBB. "There has definitely been an increase," she said, adding that the bureau has received more than 6,000 inquiries on the complaints. Problems occur with these cards, Dufner explained, when consumers use the prepaid cards as if they were regular credit and debit cards and encounter charges they are not accustomed to. Although prepaid cards do not usually have application and activation fees, they are host to a number of other charges generally not associated with traditional debit and credit card accounts -- such as fees for receiving print statements in the mail, for stripping the card of all its funds at once, and fees for spending more than the amount on the card.
- Colleges and High Schools Offer Some Counseling for Credit Card Using Students
Republican & Herald (PA) 21 Aug 2011
After reading the statistics on credit card use among college students -- 84 percent had at least one credit card in 2009, up from 76 percent in 2004, according to student loan giant Sallie Mae -- Kathy Loy thought she should do something to educate high school students on the risks. Loy, a business education teacher in Mahanoy Area, Pa., pushed the school's administration to offer a personal finance class and require that each junior at Mahanoy Area High School take the course. Loy said Mahanoy Area leapt at the opportunity early on, about five or six years ago, to offer the class that is now a nationwide initiative to promote financial literacy training in high school. Loy spends six to eight weeks talking about credit. "We talk about good versus bad credit. We look online to discuss which is the best credit card. We discuss the fees involved and analyze statements," she said. Learning credit card management could be beneficial for students, given that Sallie Mae's data indicates they own 4.6 credit cards on average, with half of college students having four or more card accounts. The research also produced the highest average credit card balance among students of any other study, at $3,173. And while the Credit Card Accountability, Responsibility and Disclosure Act of 2009 blocks issuers from promoting cards on campus, 38 percent of students polled by Sallie Mae said they chose their first credit card from a mail offer and 19 percent got a referral from a parent.
- Debt Contraction Means Fewer Bankruptcy Filings, Chargeoffs
American Banker 19 Aug 2011
Falling credit card chargeoffs have coincided with slowing bankruptcies despite a weak jobs environment. However, the favorable bankruptcy trend may itself simply be part of the broader phenomenon of the burn-off of bad loans that has allowed loss rates to improve. Chargeoffs of marginal accounts and tighter underwriting have isolated weaker borrowers, and less consumer credit means less debt to discharge in bankruptcy. Consumer credit has just begun to post year-over-year growth again, and the slack may be buying struggling households extra time, helping to sustain the decline in bankruptcy filings.
- Americans Are Happier with Their Credit Cards, Thanks to CARD Act
American Banker 18 Aug 2011
The latest annual survey by J.D. Power and Associates on credit card satisfaction finds that credit card customers are the happiest they have been since the financial crisis, thanks in part to a government crackdown on the card industry. The 2009 Credit Card Accountability, Responsibility, and Disclosure Act made it more difficult for lenders to charge some fees and to raise interest rates, and also required issuers to simplify their disclosures to customers. "The transparency created by the legislation helped," says Michael Beird, director of banking services at J.D. Power and Associates. "We see it in fees and rates … and the [new] layout and design of people's statements were generally well-received," he adds. Overall credit card satisfaction rose to 731 on J.D. Power's 1,000-point scale in 2011, from 714 in 2010.
- Watch for Credit Card Fees While Traveling Overseas
WRAL.com 17 Aug 2011
Consumer Reports Money Adviser urges Americans traveling abroad to plan ahead so as not to incur unnecessary fees or get the short end of the exchange rate. When enjoying the sights, eating out, and purchasing souvenirs on a European jaunt, money goes a lot further when spenders are aware of certain pitfalls. "You can get blindsided by the foreign transaction fee that many credit-card companies charge on purchases overseas. It can add up to as much as 3 percent of everything you put on the card," warned Greg Daugherty of Consumer Reports. Sometimes, one does not even have to leave the country to get hit with the fee. "For the life of me, I couldn't think of anything we had purchased internationally that would have created this fee," said Sheila Beal, who never traveled overseas but was charged $259 because the U.S.-based cruise company she used banks in a foreign country. When she purchased her ticket online, the fee kicked in. "It's padding the credit card company's pocket," she complained. A number of cards do not assess foreign transaction fees, including Capital One, the HSBC's Premier World Master Card, the American Express Platinum Card, and the Chase Sapphire Preferred card.
- Credit Card Late Payments Hit 17-Year Low in 2Q
Associated Press 16 Aug 2011
Credit card holders are so focused on bringing down their balances that they have driven the rate of late payments down to its lowest level in 17 years. The national credit card delinquency rate, or rate of payments past due by 90 or more days, dropped to 0.60 percent in the second quarter, down from 0.92 percent one year ago. That is the lowest rate since 1994, according to credit reporting company TransUnion. Delinquencies were expected to go down, but the improvement in that April-to-June period was faster than anticipated. And the better payment habits came despite increased use of credit cards, based on quarterly data reported by banks that issue Visa and Mastercard-branded cards and data from American Express Co. and Discover Financial Corp. TransUnion also noted higher card use, reflected in a slight uptick in the amount of debt card users maintained during the quarter. The average combined total debt for all major credit cards increased by $20 from the first quarter of 2011, to $4,699 per borrower. Nevertheless, that amount is down more than 5 percent from the $4,951 average between April and June 2010, and is 16 percent lower than the peak average debt of $5,575 in the first quarter of 2009.
- Consumers Warily Embracing Credit Cards Again, Fed Reports Show
CreditCards.com 16 Aug 2011
Consumer credit card use is rising again, according to two new Federal Reserve reports. The Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit estimates that the number of credit card account holders climbed by 10 million to 389 million in the second quarter, while aggregate credit limits rose by $60 billion. Meanwhile, the Fed's quarterly senior loan officer survey indicates that banks made it easier for borrowers to obtain new credit, and shows a bump in consumer demand for credit. "It's a combination of banks easing their standards and consumer willingness to use their cards again after being reticent to take on any consumer loans," says Wedbush Securities' Gil Luria. Another Fed report on consumer credit shows credit card balances rose by more than $5 billion in June on the heels of a May increase, representing the first consecutive gains in balances in three years. The higher demand for credit cards could be partially explained by the maturation of the Generation Y group of young adults, with some in that age range settling down, getting married, and purchasing homes, analysts say.
- Colleges Offer Fee-Free Debit Cards as Alternative to Traditional Debit, Credit Card
NewsNet5 15 Aug 2011
John Carroll University in Cleveland, Ohio, offers students a spending card that lets them avoid fees for over-spending. Carroll Cash is "like a debit card, but controlled," explains Sherri Crahen, dean of students at the school. John Carroll parents and students put as much money on the card as they want. It can be used on- and off-campus at select businesses, and there are no overdraft fees. These fee-free cards are offered on campuses across the country as an alternative to credit. Some college students do not understand how credit cards work. Student Ellen Bach relays how one mistake cost her $60 in bank fees. "Many colleges are no longer allowing credit card companies onto campus to solicit their students because of the problems we've seen with credit card debt," Crahen notes. Soliciting credit cards to students on campus is, in fact, illegal; and even those who enroll for a card at an off-campus location must have a co-signer if they are under the age of 21.
- Don't Forget About the Under-Banked Consumer
The Hill 10 Aug 2011
Drew Edwards, CEO and founder of Chexar Networks, Inc., says in this blog posting that banks historically have been unwilling to change their product offerings to meet the legitimate needs of the underbanked -- a massive consumer group -- by adding services such as check cashing, money transfers, walk-up bill payments, and prepaid Visa/MasterCard debit cards. Now, banks are growing more and more focused on redefining their product set to meet the needs of these consumers by offering them the services they are purchasing today at the corner check casher or store. This change in mentality has been driven by recent legislative changes in Washington that will significantly lower the fee income these banks generate from deposit accounts, debit cards, and credit cards. Forced to re-examine their fee income models, banks have spent the past year performing internal analysis that has helped them to realize that as much as 25 percent of their current deposit account holders are actually going outside the bank to procure these services.
- How to File a Complaint About a Credit Card Issuer
Fox Business 02 Aug 2011
As of July 21, 2011, the Consumer Financial Protection Bureau (CFPB) is the go-to source for credit card holders to resolve complaints they may have with a credit card issuer. The agency's new Web-based Consumer Response Center allows credit card holders to file grievances online or via a toll-free number. Consumers are able to sound off about a myriad of problems, including billing, advertising, fees, interest rates, rewards, and collection problems. Consumers are advised to first contact the issuer to allow the company to resolve the dispute. If that attempt is unsuccessful, they can return to the CFPB with a pre-assigned tracking number that will then prompt the agency to investigate the complaint to determine if any consumer protection laws were violated and if enforcement action is needed. This is the first time that only one agency will be tasked with handling consumer complaints about credit cards, though the CFPB's system is still in test mode.
- How Credit Cards Are Wooing Back the Consumer
Fox Business 02 Aug 2011
Credit card companies have been working overtime to get back in favor with their customers using promotions involving bonus airline miles, 5 percent cash back, and gift cards. With credit card use and debt at historic lows, according to Javelin Strategy and Research, card issuers are doing everything they can imagine to win consumers back -- which means more rewards, greater flexibility, and a greater pool of available cards. The catch is that an impressive FICO score is a must to get the best rewards credit cards, and many of the exceptional deals that include great perks demand an "Excellent" credit score. Consumers looking for top-shelf credit cards should also watch out for high interest rates, blackout dates on travel, and the possibility that card issuers reserve the right to modify or cancel their rewards programs. Though they are vying aggressively for consumer attention, credit card companies are not always working for the consumer's best interest.
- Fed: Financial Firms Reaped $193 Million From Unemployment Benefits
Credit.com 28 Jul 2011
According to a new Federal Reserve report, the 20 million prepaid cards used by individual state and federal government programs collected $193 million in fees charged to low-income people in 2010. The report found that recipients of federal subsidies on average paid $9.69 a year to access their benefits via the cards. Prepaid cards charge an average of 30 cents for purchases and 47 cents to withdraw money. A separate report from the National Consumer Law Center found that in Alabama, Connecticut, Rhode Island, Tennessee, and Iowa, recipients of state benefits are forced to pay balance inquiry fees between 40 cents and 50 cents. "States need to reduce fees in order to protect unemployed Americans who are struggling to survive and need every dollar," the NCLC concluded. "The movement toward prepaid cards is a positive one for consumers in many ways, but improvements are still needed."
- College Affinity Cards Losing Steam, Fed Data Suggest
American Banker 27 Jul 2011
According to Federal Reserve Board data, college and university alumni-affiliated credit cards are beginning to flag as consumer interest in affinity-based college card programs fizzles out. Bank of America Corp., the leader in such cards, is steadily letting smaller and poorer-performing college-affiliated card-issuing agreements lapse as they expire, causing the industry's total number of active college affinity credit card accounts to slowly decline. Still, healthy college affinity card programs, like the one at Pennsylvania State University, continue to command issuers' attention. BofA last year paid $4.3 million to retain its card agreement with Penn State alumni -- who have 70,000 open accounts, the largest among college affinity card programs. The number of total open card accounts affiliated with colleges and alumni associations at the end of last year declined 15 percent, to 1.7 million from 2 million at the end of 2009; while new accounts opened within the past year declined 16.7 percent, to 46,400 from 55,700. Issuers paid $73 million to college and university organizations to retain affinity card agreements in 2010, down 13.1 percent from $84 million paid the previous year, according to Fed data. Meanwhile, the total number of issuers with college-affiliated card agreements increased to 21 from 18, as several credit unions entered the market and card-issuing entities shifted within larger card issuers' subsidiaries.
- TransUnion: Consumers Paying Down Credit Cards
Chicago Tribune 27 Jul 2011
According to a new study from TransUnion, consumers spent $72 billion more paying down their credit cards than making purchases in 2009 and 2010. "Our analysis shows that consumers have made a concerted effort to pay down their credit cards during these uncertain economic times," said TransUnion executive Ezra Becker. In the five years prior to the study, by contrast, consumers were found to make only about $2.1 billion more in purchases than payments. From the first quarter of 2009 to the first quarter of 2010, average credit card debt decreased more than $600, from $5,776 to $5,165. But in the first quarter of this year, average credit debt hit a 10-year low of just $4,679. TransUnion said the vast majority of consumers saw a drop in credit card debt across the credit-score spectrum. It was noted that more and more consumers are using debit cards as opposed to credit cards on the majority of their purchases, a trend that is likely to continue.
- Every Credit Score Is Not Created the Same
USA Today 26 Jul 2011
A report from the Consumer Financial Protection Bureau warns that the credit scores lenders use to make decisions about loans are not the same scores marketed to consumers, and therefore consumers can get a distorted view of their credit standing. The discrepancy is not a problem for consumers with stellar credit, says John Ulzheimer, president of consumer education for SmartCredit.com. "If you've got fantastic credit, you're going to have a fantastic score regardless of what score is being used," he says. Similarly, if a score is abysmal, there is not going to be much difference between the score you buy and the one lenders see. However, most consumers fall between those two extremes, Ulzheimer notes, and the differences between the scores could cost them money or even be the difference between getting a loan and not. Starting this month, new consumer protection rules will require lenders to provide the credit score used to make a decision about a loan.