Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- Consumers Change Credit Card Habits Over Disclosures
Debtmerica 27 Feb 2012
One tactic the Consumer Financial Protection Bureau is using to increase U.S. credit card users' awareness of interest fees seems to be working: a disclosure box on all statements explaining how long it will take to pay off a balance if the cardholder only remits only the minimum every month. According to a new study by the Harvard Business School, the disclosure boxes seem to spur people to pay off more than they are required. Those who tend to up their payments also tend to be the cardholders with the largest balances, lowest credit scores, and a history of repaying their debts more slowly.
- Number of New Credit Card Accounts Jumps 14 Percent in 2011 as Lenders Ease Standards
Associated Press 21 Feb 2012
Stingy with credit during the country's recession, banks have started to relax their standards and open the tap wider for riskier customers. TransUnion reports that the number of new credit cards issued to consumers rose 14 percent last year to about 42.3 million, with roughly 25 percent of those accounts going to individuals with blemishes in their credit profiles. TransUnion's Ezra Becker notes, however, that the increased lending to consumers with lower credit scores does not suggest a return to pre-recession trends. "In some sense, subprime today is stronger than subprime yesterday," he says, explaining that irresponsible lenders of the past have had their debt written off as uncollectible and are unlikely to qualify for new cards for years to come. Consumers who had some financial setbacks that were reflected in a few late payments, meanwhile, are getting a new chance to open accounts. Banks also are more receptive to this population because of lower credit card delinquency rates, which signal that card users are making timely card payments a priority over on-time mortgage payments.
- One in Four Americans Has More Credit Card Debt Than Savings as House Dems Cap Rates
Deseret News 21 Feb 2012
A new Bankrate.com survey reveals that 25 percent of Americans have higher credit card balances than emergency savings; just 54 percent of borrowers have more emergency funds than credit card debt; and 16 percent have neither. "Emergency savings remains a problem area for many Americans, which leaves them only one unplanned expense away from having high-cost debt," warns Bankrate.com analyst Greg McBride, who emphasizes that "Americans need to find ways to sock away more cash for a rainy day." The findings also reflect greater pessimism in terms of financial security. About 27 percent of poll participants expressed a lower level of financial security compared to a year ago, with 24 percent saying they are more confident about their financial situation. The level of comfort with savings increased for 14 percent of respondents but declined for 38 percent of Americans. As emergency funds deteriorate, meanwhile, consumer debt goes up. The Bankrate.com research comes as Capitol Hill legislators are working to place a limit on U.S. credit card rates. A contingent of 12 House Democrats last week introduced HR 4084, which would limit interest to 16 percent.
- Consumer Credit Card Debt Taking a Tumble
Debtmerica 21 Feb 2012
Credit card owners who live in the metropolitan areas with the highest levels of outstanding credit card debt have been making significant payments on their balances in the last year. According to the credit monitoring bureau Equifax, of the 100 U.S. metropolitan areas that had the most credit card debt as a percentage of annual income as of December 2010, nearly six in 10 have experienced double-digit decreases in the amount of money owed at the close of 2011. The areas where those declines were most noticeable were in states hit hardest by the economic downturn, including California, Florida, Louisiana, and Washington. The reductions in credit card debt suggest "that consumers from these hardest hit areas have been especially cautious in their spending and diligent in paying down their credit card debt," said Trey Loughran, president of the personal solutions business at Equifax. The bureau's findings show that individuals' overall debt from mortgages, vehicle loans, credit card balances, and other expenses has decreased by nearly 11 percent from the record high seen in October 2008. While Americans have been making noble efforts to rein in spending since the recession, some statistics reveal that in recent months credit card borrowing has inched up slowly, though some analysts believe this is due largely to a spending uptick during the holiday season.
- It's Finally Done: Fed Approves Capital One-ING Direct
Wall Street Journal 14 Feb 2012
The Federal Reserve on Feb. 14 granted its long-awaited approval for Capital One's purchase of online banking giant ING Direct. Capital One had announced the deal -- which brings it millions in deposit revenue and helps the company finalize a separate deal to purchase HSBC's U.S. credit card business -- last summer. The merger, which makes Capital One one of the largest banks in the nation, drew criticism from numerous community groups concerned about the bank's unsavory history of harming minorities through its credit card lending practices. Others argued Capital One did not give minorities enough access to mortgages, especially those borrowers with subprime credit scores. Under the new agreement, it vowed to donate billions of dollars to communities over the next decade. With the Fed's approval, the deal is expected to be finalized in a matter of days; but some critics have said they will continue to fight the move. One group, the National Community Reinvestment Coalition, which stood against the ING deal and is still opposed to the HSBC buyout, said the Fed's move to okay the deal "without any meaningful conditions" demonstrates that regulators still have not updated their guidelines since the crisis.
- Why Credit Card Rates Remain So High
Smart Money 07 Feb 2012
Interest rates are down on nearly every major consumer product, from bank accounts to mortgages, with one notable exception: credit cards, which remain in the double digits. Credit card holders paid an average of 12.78 percent in interest during the fourth quarter of 2011, according to Federal Reserve data, down from 13.08 percent during the third quarter and 13.67 percent one year earlier. The latest findings reaffirm that, despite the slight dip, credit cards are still one of the priciest forms of financing when compared with the average interest rates on new-car loans and 30-year mortgages, which are about 5 percent and about 4.2 percent, respectively. Banks say they will continue to charge steep interest rates on credit cards because they are riskier than other kinds of loans such as auto financing and mortgages, which are tied to collateral. One factor that impacts credit card rates is that -- unlike other loan types -- credit cards are not necessarily paid down regularly, one analyst says. Rather, they are fluid targets that permit debt to accrue or dwindle at the user's discretion. A borrower's credit score also affects the rate he or she pays, with borrowers having the best scores -- usually above 720 -- getting the most favorable rates.
- Credit Card Rates Rise for Rewards Cards
Fox Business 05 Feb 2012
While the U.S. bank prime rate held steady at 3.25 percent in the second half of January, the rate on consumer rewards credit cards rose, shifting overall credit card rates up as well. Consumer credit card rates fell by an average of 0.13 percent for the year ended Jan. 31, 2012. However, consumer rewards and non-rewards rates went in opposite directions during that time frame. Consumer non-rewards cards rates fell 0.60 percent, while consumer rewards cards rates rose 0.08 percent. Student credit cards saw the biggest increase, climbing 0.83 percent. As a result of changes in rate tiers in the consumer non-rewards category, the spread between average offers for strong and weak credit customers grew. The spread between rates for those with good credit and those for the overall market widened, rising one basis point to 4.08 percent.
- What Will It Take to Save the Unbanked?
Forbes 30 Jan 2012
Among the one in four U.S. households that are unbanked, many remain disconnected from traditional financial institutions because they cannot access them; but even more make a conscious decision to be unbanked. Among those consumers, 37 percent say they do not have enough money to need an account; 18 percent say they did not write enough checks to justify an account; roughly 13 percent say the minimum balance is too steep; and an additional 13 percent see no need to have an account. There are repercussions to choosing this financial lifestyle, however. According to one estimate, a household with net income of $20,000 may spend as much as $1,200 annually on alternative financial service provider fees such as for money orders for expenses and to cash payroll checks. Unbanked households have fewer savings and more retirement risk as well as restricted access to credit-building products such as credit cards and loans. Moreover, without a bank account, families cannot build and safeguard their wealth in an FDIC-insured place. Low-income unbanked populations with no place to save tend to live paycheck-to-paycheck in what becomes a vicious and routine cycle. The best alternatives for these consumers are a no-fee checking account -- typically found at credit unions, community banks, and online banks -- and a secured card. Individuals should look for accounts with no monthly maintenance fee, no debit card fees, and no minimum balance.
- Credit Card Debt Drops 11 Percent
CNNMoney 17 Jan 2012
Consumers reduced credit card debt by 11 percent in 2011, with average debt loads falling in each of the 50 states. The average credit card balance last year was $6,576 -- a decline from $7,404 in 2010, according to a report from credit tracking and financial education Web site CreditKarma.com, based on data from more than 300,000 of its users. The highest average was documented in Alaska, with average credit card debt of $7,937, followed by New Hampshire and Connecticut; and it averages were lowest in Wisconsin, at $5,062, followed by Mississippi and Alabama. Despite a consecutive two-year drop in outstanding credit card balances, CreditKarma CEO Ken Lin predicts that debt will surge again as the economy picks up and banks relax their credit criteria.
- Expect More Credit Card Offers From Credit Unions
Debtmerica 17 Jan 2012
Many consumers are finding more -- and more generous -- credit card offers from a number of major lenders in recent years, but other financial institutions are likely to expand their campaigns as well. Federal credit unions, in particular, are viewed as the next big players when it comes to offering credit cards to customers who have had difficulty with their accounts in the past, according to a new report from Business Insider. That is because CUs are ramping up their marketing efforts, especially to those with limited or impaired borrowing histories. These accounts may be helpful to those with poor credit ratings because federal law limits the interest rate that can be charged on all kinds of loans -- including credit cards -- by these institutions at a low 18 percent, the report stated. That is notably lower than the interest rate most low-credit borrowers can expect from lenders, which is usually in the range of 25 percent.
- Court Rules for Arbitration in Credit Card Case
Bloomberg 10 Jan 2012
The U.S. Supreme Court has ruled for Synovus Financial and CompuCredit Holdings, agreeing that credit card claims by consumers under the Credit Repair Organizations Act must be handled in arbitration -- not in court. The decision, which overturned a ruling by a U.S. appellate court in San Francisco that said the language in the 1996 law was intended to bar arbitration of claims, favors businesses by keeping customer claims from being lodged as a class action. Three customers of CompuCredit and Synovus sued the firms in federal court over the marketing and issuance of a low-rate Aspire Visa card to borrowers with poor credit. The plaintiffs claimed they were promised $300 in available credit but were charged $257 in fees during the first year the account was open. The fees, they argued, were illegal; and they also accused the companies of failing to make required disclosures. While the customers sought to represent a national class of card holders nationwide, CompuCredit and Synovus cited a binding arbitration clause in the card contract that the customers signed in order to receive the card. "Had Congress meant to prohibit these very common provisions," Justice Antonin Scalia wrote in the decision, "it would have done so" in a more direct fashion.
- Credit Makes Holiday Comeback
Washington Post (12/28/11) P. A11 Mui, Ylan Q. 28 Dec 2011
Following several years of shoestring holiday budgets, consumers in 2011 dusted off their credit cards for Christmas shopping. Credit card purchases jumped more than 7 percent in November and spiked again in early December, according to First Data, which tracks consumer payments. On the one hand, the rise of credit can be a benefit to retailers and the overall economy; however, spending growth driven by credit card debt could come at a cost. Research from Consumer Reports confirms that 14 million Americans are still paying off credit card debt generated during the 2010 holiday season. And the card comparison site CreditDonkey estimates that a shopper who puts $700 on a card with a 13 percent interest rate will need four years to resolve the debt if he or she pays only the minimum balance each month. While recent legislation has sought to educate spenders by compelling issuers to disclose how long it would take to pay off a balance while making only the minimum payment, a new study out of Boston College shows that knowing that information is not making a difference in how much borrowers pay. "There's a misunderstanding that the minimum payment is sort of an adequate payment," according to lead researcher Linda Court, a marketing professor at the school. "If you pay the minimum every month, the cost to you is going to be enormous."
- What's New for Credit Cards in 2012
Fox Business 21 Dec 2011
John Ulzheimer of smartcredit.com predicts that going into 2012, lenders and issuers still will be strict with underwriting, but less so. "A consumer with a FICO 600 score will get decent credit card offers," he says. Ulzheimer analyzed recent findings from FICO, which reveal that credit scores have been rising for more consumers. "People have been making changes in how they manage credit, which is what has caused the large movement in scores," he explains. "They've been paying down credit card debt and loans, and maybe they got something negative off their credit report." Meanwhile, Dennis Moroney of the Boston-based industry consulting firm Tower Group notes that banks have been more generous with their credit offerings. "The issuers have been modestly going into lower-band credit scores, to people with a lower income." Credit cards that offer rewards are still the most popular type of card. "Seventy-eight percent of offers are rewards now, whereas it was down in the 50s in 2009," said Moroney. "Banks want to develop a relationship with customers and have them use more products, especially a checking account."
- Sen. Menendez Targets Prepaid Debit Card Fees, Aims to Ramp Up Consumer Protections
Newark Star-Ledger 20 Dec 2011
Sen. Robert Menendez (D-N.J.) has announced plans to reintroduce legislation that would crack down on the business of prepaid card issuers, which have continues to dodge strict regulation. The bill would -- among other directives -- prohibit fees such as charges to check account balances, call customer service, and terminate accounts. It also would force card issuers to present clear, upfront disclosure about all of a card's fees that consumers can view before purchasing a card. Issuers additionally would need to package cards with a wallet-sized summary of fees, such as charges for activating the card and quarterly service.
- Credit Card Delinquency Rates to Fall Further Next Year: TransUnion
American Banker 09 Dec 2011
According to TransUnion, U.S. credit card delinquency is expected to fall further next year as consumers continue to pay down what they owe and abstain from racking up new debt. The credit bureau said the average card delinquency rate on accounts 90 days or more past due will drop approximately five more basis points from the current 0.74 percent level down to 0.69 percent of all credit card accounts by the fourth quarter of 2012. Additionally, TransUnion said consumers will continue to pay down their outstanding balances. Data shows that the average credit card debt per borrower during the third quarter came in at $4,762, down $1,000 from a year earlier. However, the agency noted a decline in borrowing from wealthy individuals as well. "Our data show there is a large group of more-affluent consumers who never went delinquent and have healthy credit lines available to them who are voluntarily choosing to pay down balances and not carry credit card debt," said Steve Chaouki, group vice president in TransUnion's financial services business unit.
- Consumers Still Pay Credit Card Bills First, Even as Economy Lifts
American Banker 07 Dec 2011
U.S. consumers traditionally have made payments first on their mortgages -- typically their biggest asset -- but the housing market slump that sparked in 2008, combined with job losses, since then have led borrowers to pay on credit cards before home loans. Steve Chaouki of TransUnion explains that credit cards are viewed as liquidity in tough times; and the residential property market is still in a chokehold as home values sink further. A new TransUnion report finds that consumers three years later still are prioritizing credit card payments over mortgage payments despite some improvement in the economy. Chaouki says the trend may reverse itself "when there is some real home equity to protect, or when credit becomes so freely available that it won't be seen as a rare commodity to preserve," but he believes it will be quite a while before consumer credit lines are so accessible that consumers become comfortable with putting credit cards lower in payment priority.
- Consumer Bureau Introduces 2-Page Credit Card Agreement
Plain Dealer 07 Dec 2011
The Consumer Financial Protection Bureau on Dec. 7 introduces its new credit card agreement, which is easier to understand. The abbreviated form decreases the lengthy credit card disclosures from 5,000 words to about 1,000 in a two-page document. The agency is unveiling its "Know Before You Owe" campaign in Ohio, just one day before the Senate is scheduled to vote on whether to confirm Richard Cordray as the bureau's first official director. Forty-four of 46 GOP senators have pledged to block confirmation of the director unless the bureau's structure and funding are dramatically scaled back. "Every day we go without a consumer watchdog in place is another day when a student, or a senior citizen, or member of our Armed Forces could be tricked into a loan they can't afford," warned President Barack Obama. He has promised to veto any measure that would delay, defund, or dismantle the new rules set up by the Dodd-Frank financial overhaul. A recent report by the bureau found that there is widespread confusion over credit card terms.
- Credit Card Use Is on the Rise
CNNMoney 05 Dec 2011
After hunkering down on spending over the past couple of years, First Data reports that consumers are returning to credit card use. Purchases made with credit cards rose 8.2 percent in the first quarter of 2011, 9 percent in the second quarter, and 10.6 percent in the third quarter, according to the company. That compares with gains in debit card use of 9.6 percent, 8.3 percent, and 5.9 percent for the same quarters. Credit card mailings, meanwhile, have surged 85 percent since the beginning of 2010 to 1.3 billion credit card offers in the third quarter of 2011, according to analysis conducted by research firm Mintel Compermedia. Besides increasing solicitations, banks have been winning back more customers by sweetening credit card terms. While debit rewards programs have been disappearing, credit card issuers are offering more generous rewards. Mintel notes that 80 percent of credit card offers this year have included rewards points, miles, or cash rebates -- up from 60 percent two years. Other perks include no foreign transaction fees or balance transfer fees. While the incentives are enticing, LowCards.com CEO Bill Hardekopf says consumers must tread lightly. "If you switch to credit cards for payments, pay off your balance in its entirety each month," he advises. "Otherwise, the interest payments could become overwhelming and are sure to be greater than any new debit card fee."
- 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.