Credit and Prepaid Card News
The latest news on the credit card and prepaid card industry from the Center for Responsible Lending.
- 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.
- More Using Credit to Pay for Basics
Bloomberg 22 Jul 2011
U.S. consumers are using their credit cards to pay for more basic items as wage increases are not keeping pace with rising food and gasoline prices. According to First Data's SpendTrend report, the dollar volume of purchases increased 10.7 percent in June from the same time in 2010, while the number of transactions went up by 6.8 percent. First Data's senior vice president, Silvio Tavares, says that is largely due to a reduction in wage increases coupled with higher prices. Additionally, Tavares says the rising costs are leaving consumers with less cash to spend on optional items, which in turn, is slowing the pace of the recovery. The report found that the volume of gas purchases on credit cards soared 39 percent in June from a year ago, and food costs have increased 5 percent after going down 7 percent in 2010.
- Credit-Report Firms to Face More Scrutiny
MarketWatch 21 Jul 2011
The companies that amalgamate consumer credit reports and scores -- the firms that bear the brunt of borrowers' ire because they play such a large role in financial decisions -- fall under different oversight as of July 21. The newly formed Consumer Financial Protection Bureau is assuming from bank regulators a swath of consumer-product regulatory functions, including some control over mortgage and other credit products. Included under the bureau's purview are the big three consumer credit-reporting companies: Equifax Inc., Experian PLC, and TransUnion. These firms compile data that banks and lenders use to determine borrowers' creditworthiness for major purchases, such as a home or car. Still, the full extent of the consumer bureau’s oversight of these companies is murky, as is whether the new watchdog agency will help to cut what consumer advocates say are significantly high credit-report error rates and the failure of credit-reporting firms to settle consumer disputes in a timely fashion.
- Stores Can Now Offer Deals With Certain Credit Cards
Reuters 20 Jul 2011
U.S. District Court Judge Nicholas Garaufis on July 20 approved a settlement between the Justice Department and MasterCard and Visa that requires the card processing networks to allow retailers to offer discounts or rebates to customers for using a particular kind of card. American Express has refused to settle with the government, vowing to wage a multiyear fight on the grounds that the deal would promote steering customers from one payment network to another without enhancing competition. A MasterCard spokesman said in a statement that the terms of the settlement "are consistent with company practice to allow merchants to offer a discount for cash and other forms of payment, including competing card brands."
- Report Highlights Consumer Confusion About Credit Scores
CreditCards.com 19 Jul 2011
In a report released on July 19, the Consumer Financial Protection Bureau (CFPB) noted the difficulty consumers often experience in trying to decipher the wide variety of credit scores offered to them by lenders, credit bureaus, and other providers. The confusing landscape often means consumers and lenders see different numbers. When the CFPB launches on July 21, free credit scores will begin to be provided to consumers who are denied loans or given less-than-ideal terms. "Consumers will then begin to see and receive many more credit scores than they had been exposed to previously," according to the CFPB. The agency plans to "obtain a substantial database" of consumer reporting information in order to determine whether consumers and creditors are actually seeing different credit scores and to what extent consumers are being hurt. The CFPB accounts for some key factors in the confusion surrounding credit scores: lenders may use a different scoring model than the one used and purchased by the consumer; the consumer and lender may obtain different scores from different credit bureaus; and the data in a consumer's underlying credit report may change significantly between when the credit score is purchased and when the lender obtains the score. Some consumers lack even a basic understanding of credit scores; but even for those who understand what the score does, there can be confusion resulting in costly mistakes. Despite this confusion, consumers are increasingly willing to pay for their credit score, according to the CFPB. Consumer advocates say borrowers need to be more careful, making wise decisions about when and how to purchase their score.
- Little-Known Firms Tracking Data Used in Credit Scores
Washington Post 16 Jul 2011
"Fourth bureau" companies that deal in personal data once deemed unreliable, such as consumers' purchases, now carry particular weight for people who live on the margins of the banking system. These firms sell collected information to lenders, landlords, and even healthcare providers; and most people do not realize files on them exist until something goes wrong. Federal regulations do not always require the companies to disclose when they have shared a consumer's financial history or with whom they have shared it, and there is no way to opt out. No standards exist for what type of data should be included or how it should be used, and there is no standard in place for checking accuracy. For most consumers, credit scores are based on records of loans they have taken in the past and how well they have paid them off; and government regulators, financial firms, and consumer advocates have launched extensive education campaigns in recent years to make sure consumers know what goes into their credit scores provided by the major national credit bureaus. Still, consumers outside the mainstream financial system have received little attention from this effort. These consumers are often students, immigrants, or low-income customers who do not qualify for traditional loans and instead rely on a shoddy system of payday lenders, check-cashers, and prepaid cards -- none of which are recognized by the three major credit bureaus. Enter the fourth bureau companies, which track down financial and other personal information ignored by the credit bureaus. Consumers cannot dispute the results of the credit score provided by these companies. In contrast, the three large credit bureaus avail themselves to consumers for questions and concerns via the Internet and a toll-free phone number. Complicating matters even more, there is no registry of fourth bureau companies, and the businesses that submit data to the companies have to provide only vague disclosures, if any at all.
- Credit Cards: Should You Ever Pay an Annual Fee?
San Francisco Chronicle 14 Jul 2011
Most of the time, it does not make sense for a consumer to pay an annual fee on a credit card. However, there are some cards that offer benefits that offset the fee; and these can be worthwhile. A card that offers a signup bonus that outweighs the annual fee is one such example. Another card that may be worth the annual fee is one on which a consumer can earn enough cash back on regular purchases to far outweigh the fee. Cards that offer travel perks worth more than the annual fee, like rewards at hotels, are also worth it. Finally, if the only card a consumer can get approved for carries an annual fee, it is worth making the investment in a card for the purpose of improving that individual's credit score. Still, consumers should be on their guard when signing up for these cards; and they should not expect to see the benefits of a card unless they also plan to be extremely responsible with it.
- For the Creditworthy, Worthwhile Credit Card Bonus Deals Abound
Daily Finance 13 Jul 2011
Credit card companies are going out of the way to attract big spenders who pay on time, particularly those who kept their credit profiles squeaky clean during the Great Recession and its aftermath. According to CardHub.com, there are more credit cards offering higher initial rewards bonuses -- for people with credit scores above 700. The Web site examined more than 800 credit card offers and found 338 cards with initial rewards bonuses. Card Hub CEO Odysseas Papadimitriou adds that consumers need not worry about long-term consequences from seeking these deals, unless they plan to apply for a loan, take out a mortgage, or otherwise actually need the best credit score possible within six months of their application for the card. "The hit you take as a result of opening a new card will not be permanent and will truthfully be irrelevant unless you need your credit score," he says. "On the other hand, the benefit of a lucrative rewards credit card offer is plain to see."
- Consumer Debt Rises For Eighth Straight Month
ConsumerAffairs.com 10 Jul 2011
The Federal Reserve reports that consumer credit grew in May for the eighth month in a row, primarily as a result of credit card use. According to the data, credit rose by $5.08 billion after a revised $5.67 billion gain in April. Economists say that many consumers are using their credit cards to purchase necessities such as gas, groceries, and other day-to-day needs. Revolving debt, which includes credit cards, rose by $3.37 in May after shrinking $877 million in April, marking the first gain this year and the biggest jump since June 2008. Non-revolving debt also was higher, climbing $1.71 billion in May after jumping $6.54 billion the previous month. To keep credit card debt under control, the Center for Responsible Lending recommends that consumers always pay more than the minimum amount due on the monthly bill. CRL says that doing so can save a consumer as much as $2 for every extra $1 they pay.
- The Secret's Out on Behavior Scoring
ABC - KFSN Fresno 24 May 2011
A consumer's behavior score is one that most credit agencies choose not to discuss very often, but it can affect everything from the interest rate a consumer pays to loan approval. According to John Ulzheimer of smartcredit.com, "It is an empirical fact that where you use your credit card does in fact tell a story on what type of risk you pose to the credit card issuer." He adds, "Using your credit card in places like pawn shops, title lending, using them in places like marriage counselors, massage parlors, tire retreading shops, discount stores, that could indicate that you are in fact a higher credit risk." Josh Frank of the Center for Responsible Lending says that even when consumers cut back on spending and behave in a more responsible way, such activity can be counted against them, because it can be perceived as an indication of financial distress. The Federal Reserve in 2010 found that 35 million card holders in a single month were reviewed using behavior scoring, but only a very small percentage of them saw their credit score suffer. At the same time, some say that behavior scores and bankruptcy scores, which forecast the chance that someone will file for bankruptcy, adversely impact minority and low-income consumers. "It can focus on groups indirectly in a way that's arguably illegal," Frank says.
- Financial World's Dirty Little Secret: Behavior Scores
ABC7 News 03 May 2011
By keeping a so-called behavior score, credit card companies are able to judge consumers based on where they shop, what they buy, and how they use their credit cards. Depending on the observed patterns, a consumer's behavior score can be negatively affected. According to John Ulzheimer of SmartCredit.com, almost every large credit card issuer in the country uses behavior scores -- which are separate from credit scores and typically not available for the consumer to see. Behavior scores are used by credit card issuers to determine a consumer's interest rate, credit limit, and even whether they get to keep their credit card. "Using your credit card in places like pawn shops, title lending, using them in places like marriage counselors, massage parlors, tire retreading shops, discount stores, that could indicate that you are in fact a higher credit risk," Ulzheimer explained. The Federal Reserve in 2010 found that 35 million card holders in a single month were reviewed using behavior scoring, though only a very small percentage of those card holders were actually adversely affected by their score. Credit card issuers also use bankruptcy scores to measure a consumer's creditworthiness.
- US Credit Card Groups Target the Wealthy
Financial Times 27 Mar 2011
Credit card issuers are offering a number of perks to draw well-to-do customers as they seek to mitigate exposure to increasingly debt-saddled subprime borrowers. "In the 20 years we've been tracking this, we've never come across such good offers," according to Anuj Shahani, an analyst for the market research firm Synovate, who stresses that the offers are extended almost exclusively to wealthy consumers. The trend marks a change of tide from pre-bubble initiatives to attract lower-income borrowers, a group once perceived as attractive because credit card companies could hike their rates on a whim and charge other fees that made lending to such a high-risk group profitable. Today's offers come as the wealthy are deleveraging and the poor are accruing more debt. The average prime borrower carries about $3,124 in credit card debt a month, down from nearly $3,500 less than two years ago. The average subprime borrower, on the other hand, carries $2,464 a month in credit card debt, up $100 over the same period, according to Synovate. "The subprime households are still caught in a debt cycle, while the prime borrowers are paying down their debt," explains Shahani.