Two new studies give a clearer explanation of the effects of the credit card crisis: banks are tightening credit card lending standards at a time when more households are depending on credit cards to get them through the month.

The Office of the Comptroller of Currency recently released its 2009 Survey of Underwriting Practices which shows that 68% of lenders tightened credit card underwriting standards, almost double from the 2008 survey (35%).

A Demos survey released this week shows that more than one-third of low and middle-income households used credit cards to cover basic living expenses (including rent, mortgage payments, groceries and utilities) on average in five of the last twelve months.

These statistics again show how difficult the credit situation is for both issuers and credit cardholders. Credit card issuers look at the present and future and see increased risk of defaults and more loan losses, so they tighten their credit standards and raise their rates. This hurts the low and middle-income households who are using their credit cards just to make it through the month.

According to the Demos study, one in four of these indebted households are paying more than 20% in interest rates on their credit cards. This makes a bad financial situations much worse. Many households are using credit cards not only for emergencies, but to fill the gap left because their wages or retirement benefits aren’t enough. They can’t afford their bills, and high credit card interest rates certainly aren’t helping.

The Demos study, “The Plastic Safety Net,” examined credit card debt among low and middle-income households (defined as income between 50% and 120% of the local median income). Some of the findings include:

* For almost half of these households, out-of-pocket medical expenses contributed to a family’s credit card debt, with an average of $2,194 related to out-of-pocket medical expenses.

* Consumers in these households paid an average interest rate of 14.8% on their credit card. Almost 1 in 4 of these indebted households paid more than 20% interest on their card.

* Three out of four low and middle- income households use credit cards as a safety net to help pay for car repairs, house repairs, college expenses, or starting or running a business.

* In these low and middle-income households, cardholders 65 and older had an average credit card debt of $10,235 in 2008, up 26% from $8,138 in 2005.

Indebted households don’t have much reason to hope for relief, even with The Credit CARD Act and consumer regulations that go into effect next year. According to the Survey of Underwriting Practices, examiners expect credit risk to continue to increase over the next 12 months at 87% of the banks, particularly in home equity and credit card portfolios.

Increased risk and uncertain economic conditions are some of the primary reasons that issuers increase rates and fees, especially for anyone they consider to have less than excellent credit. So, low and middle-income households can expect issuers to continue pricing for this. Households shouldn’t look for government regulations to provide real assistance with debt problems. A better option is working with a reputable credit counselor to help create a plan to get out of debt. The National Foundation for Credit Counseling is a good place to start.

The LowCards.com Weekly Credit Card Rate Report July 30, 2009

The LowCards.com Weekly Credit Card Rate report is based on
our Complete Credit Card Index which tracks the advertised rates
of 1060 credit cards in the United States.

Our index showed that the Annual Percentage Rates for credit cards
was 12.11% which was slightly lower than last week.

Here are the averages from the LowCards.com Complete Credit
Card Index for the previous ten weeks:

July 30 12.11%
July 23 12.14
July 16 12.12
July 9 12.10
July 2 12.10
June 25 12.09
June 18 12.04
June 11 12.04
June 4 11.63
May 28 11.63
May 21 11.64
May 14 11.65
May 7 11.65
Apr. 30 11.61
Apr. 23 11.60
Apr. 16 11.55

The average cash advance rate for this week was 20.57%
which was slightly lower than last week.

The credit cards with the lowest interest rates in the nation this week are:

1. 3.25% Fifth Third Bank Platinum Prime MasterCard
2. 4.24% American Quarter Horse Association Business Credit Card
3. 5.24% Farm Bureau Bank Platinum MasterCard

The LowCards.com credit card rate report is compiled weekly
using data from 1060 credit cards which are tracked on the
LowCards.com website. The Complete Credit Card index is
available here:
http://www.lowcards.com/CreditCardIndex.aspx

Rates may occasionally change due to the number of cards
being tracked.

About LowCards.com: LowCards.com ( http://www.lowcards.com )
simplifies the confusion of shopping for credit cards. It is
a free, independent website that helps consumers easily
compare credit cards in a variety of categories such as
lowest rates, rewards, rebates, balance transfers and lowest
introductory rates. It also gives an unbiased ranking and
review for each card.

The LowCards.com Complete Credit Card Index
( http://www.lowcards.com/CreditCardIndex.aspx ) is the most
objective and comprehensive resource on the Internet which
allows consumers to compare rates for all 1060 credit cards
offered in this country. Created by Hampton & Associates,
the company has been analyzing the credit card industry
and supplying objective websites on various consumer
expenses for eight years.

Two new studies give a clearer explanation of the effects of the credit card crisis: banks are tightening credit card lending standards at a time when more households are depending on credit cards to get them through the month.

The Office of the Comptroller of Currency recently released its 2009 Survey of Underwriting Practices, which shows that 68% of lenders tightened credit card underwriting standards, almost double from the 2008 survey (35%).

A Demos survey released this week shows that more than one-third of low- and middle-income households used credit cards to cover basic living expenses (including rent, mortgage payments, groceries and utilities) on average in five of the last 12 months.

These statistics again show how difficult the credit situation is for both issuers and credit cardholders. Credit card issuers look at the present and future and see increased risk of defaults and more loan losses, so they tighten their credit standards and raise their rates. This hurts the low- and middle-income households who are using their credit cards just to make it through the month.

According to the Demos study, 1 in 4 of these indebted households are paying more than 20% in interest rates on their credit cards. This makes a bad financial situation much worse. Many households are using credit cards not only for emergencies, but to fill the gap left because their wages or retirement benefits aren’t enough. They can’t afford their bills, and high credit card interest rates certainly aren’t helping.

The Demos study, “The Plastic Safety Net,” examined credit card debt among low- and middle-income households (defined as income between 50% and 120% of the local median income). Some of the findings include:

* For almost half of these households, out-of-pocket medical expenses contributed to a family’s credit card debt, with an average of $2,194 related to out-of-pocket medical expenses.

* Consumers in these households paid an average interest rate of 14.8% on their credit card. Almost 1 in 4 of these indebted households paid more than 20% interest on their card.

* 3 out of 4 low- and middle-income households use credit cards as a safety net to help pay for car repairs, house repairs, college expenses, or starting or running a business.

* In these low- and middle-income households, cardholders 65 and older had an average credit card debt of $10,235 in 2008, up 26% from $8,138 in 2005.

Indebted households don’t have much reason to hope for relief, even with the Credit CARD Act and consumer regulations that go into effect next year. According to the Survey of Underwriting Practices, examiners expect credit risk to continue to increase over the next 12 months at 87% of the banks, particularly in home equity and credit card portfolios.

Increased risk and uncertain economic conditions are some of the primary reasons that issuers increase rates and fees, especially for anyone they consider to have less than excellent credit. So, low- and middle-income households can expect issuers to continue pricing for this. Households shouldn’t look for government regulations to provide real assistance with debt problems. A better option is working with a reputable credit counselor to help create a plan to get out of debt. The National Foundation for Credit Counseling is a good place to start.

The LowCards.com Weekly Credit Card Rate Report July 23, 2009

The LowCards.com Weekly Credit Card Rate report is based on
our Complete Credit Card Index which tracks the advertised rates
of 1060 credit cards in the United States.

Our index showed that the Annual Percentage Rates for credit cards
was 12.14% which was slightly higher than last week.

Here are the averages from the LowCards.com Complete Credit
Card Index for the previous ten weeks:

July 23 12.14%
July 16 12.12
July 9 12.10
July 2 12.10
June 25 12.09
June 18 12.04
June 11 12.04
June 4 11.63
May 28 11.63
May 21 11.64
May 14 11.65
May 7 11.65
Apr. 30 11.61
Apr. 23 11.60
Apr. 16 11.55
Apr. 9 11.55

The average cash advance rate for this week was 20.58%
which was slightly higher than last week.

The credit cards with the lowest interest rates in the nation this week are:

1. 3.25% Fifth Third Bank Platinum Prime MasterCard
2. 4.24% American Quarter Horse Association Business Credit Card
3. 5.24% Farm Bureau Bank Platinum MasterCard

The LowCards.com credit card rate report is compiled weekly
using data from 1060 credit cards which are tracked on the
LowCards.com website. The Complete Credit Card index is
available here:
http://www.lowcards.com/CreditCardIndex.aspx

Rates may occasionally change due to the number of cards
being tracked.

About LowCards.com: LowCards.com ( http://www.lowcards.com )
simplifies the confusion of shopping for credit cards. It is
a free, independent website that helps consumers easily
compare credit cards in a variety of categories such as
lowest rates, rewards, rebates, balance transfers and lowest
introductory rates. It also gives an unbiased ranking and
review for each card.

The LowCards.com Complete Credit Card Index
( http://www.lowcards.com/CreditCardIndex.aspx ) is the most
objective and comprehensive resource on the Internet which
allows consumers to compare rates for all 1060 credit cards
offered in this country. Created by Hampton & Associates,
the company has been analyzing the credit card industry
and supplying objective websites on various consumer
expenses for eight years.

A look at the default statistics released last week by credit card issuers helps explain why consumers are seeing interest rate hikes and decreases in their credit limits.

Bank of America, the largest bank in the country, reported that its default rate jumped to 13.8% in June from 12.5% in May. Defaults, or charge-offs, are the debts that a lender believes it will never collect.

Experts explain that the biggest bank in America does not expect to collect on almost 14% of its credit card loans, which is a tremendous loss and helps explain why Bank of America is raising rates, increasing balance transfer fees, and switching from fixed to variable rates on a number of their credit cards.

Default rates and charge-offs are still weighing down the credit card industry, costing banks billions of dollars. The default rate is expected to grow as the unemployment rate increases.

Experts go on to explain that both the credit card industry and cardholders have been hurt by the actions of others, comparable to a couple going through a divorce. In this case, cardholders are hurt by the interest rate and fee increases, and the changes made by issuers who are losing billions of dollars in unpaid credit card loans. Financial experts suggest that it may be impossible to expect a reconciliation in the near future where both parties are happy with each other.

Last week, banks and issuers released their monthly reports that included default rates. For some issuers, default rates remained about the same. While this could be seen as a sign of stabilization, it could also be a short pause as households used tax refunds to pay down credit card balances. Default rates from other major credit card issuers are listed below:

* Capital One’s rate rose to 9.73% in June from 9.41% in May.

* JP Morgan Chase defaults declined to 8.04% in June from 8.36% in May.

* Discover’s rate fell to 8.75% from 8.91%.

* American Express defaults fell slightly from 10.0% in May to 9.9% in June.

* Citigroup defaults remained unchanged at 10.5%

Since the unemployment rate is expected to increase, some observers fear that industry’s default rate could climb above 12% by the first quarter of 2010.

A look at the default statistics released last week by credit card issuers helps explain why consumers are seeing interest rate hikes and decreases in their credit limits.

Bank of America, the largest bank in the country, reported its default rate jumped to 13.8% in June from 12.5% in May. Defaults, or charge-offs, are the debts that a lender believes it will never collect.

“The biggest bank in America does not expect to collect on almost 14% of its credit card loans. That is a tremendous loss and it helps explains why Bank of America is raising rates, increasing balance transfer fees, and switching from fixed to variable rates on a number of their credit cards. They can’t continue to lose money on loans without increasing revenue in a number of ways,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Default rates and charge-offs are still weighing down the credit card industry, costing banks billions of dollars. The default rate is expected to grow as the unemployment rate increases.

“Following the credit card industry and cardholders has almost been like watching a couple during a divorce. Both sides have been hurt by the actions of the other. Cardholders are hurt and angry by the interest rate and fee increases, and the changes made by credit card issuers. On the other side, issuers are losing billions of dollars in unpaid credit card loans that they have to charge-off. Issuers have to make changes to be profitable,” says Hardekopf. “Add in upcoming regulations and increasing unemployment and it may be impossible to expect a reconciliation in the
near future where both parties are happy with each other.”

Last week, banks and issuers released their monthly reports that included default rates. For some issuers, default rates remained about the same. While this could be seen as a sign of stabilization, it could also be a short pause as households used tax refunds to pay down credit card balances. Here are the default rates from other major credit card issuers:

* Capital One’s rate rose to 9.73% in June from 9.41% in May.

* JP Morgan Chase defaults declined to 8.04% in June from 8.36% in May.

* Discover’s rate fell to 8.75% from 8.91%.

* American Express defaults fell slightly from 10.0% in May to 9.9% in June.

* Citigroup defaults remained unchanged at 10.5%

Since the unemployment rate is expected to increase, some observers fear that industry’s default rate could climb above 12% by the first quarter of 2010.

The LowCards.com Weekly Credit Card Rate Report July 16, 2009

The LowCards.com Weekly Credit Card Rate report is based on
our Complete Credit Card Index which tracks the advertised rates
of 1060 credit cards in the United States.

Our index showed that the Annual Percentage Rates for credit cards
was 12.12% which was slightly higher than last week.

Here are the averages from the LowCards.com Complete Credit
Card Index for the previous ten weeks:

July16 12.12%
July 9 12.10%
July 2 12.10
June 25 12.09
June 18 12.04
June 11 12.04
June 4 11.63
May 28 11.63
May 21 11.64
May 14 11.65
May 7 11.65
Apr. 30 11.61
Apr. 23 11.60
Apr. 16 11.55
Apr. 9 11.55
Apr. 2 11.57

The average cash advance rate for this week was 20.56%
which was slightly higher than last week.

The credit cards with the lowest interest rates in the nation this week are:

1. 3.25% Fifth Third Bank Platinum Prime MasterCard
2. 4.24% American Quarter Horse Association Business Credit Card
3. 5.24% Farm Bureau Bank Platinum MasterCard

The LowCards.com credit card rate report is compiled weekly
using data from 1060 credit cards which are tracked on the
LowCards.com website. The Complete Credit Card index is
available here:
http://www.lowcards.com/CreditCardIndex.aspx

Rates may occasionally change due to the number of cards
being tracked.

About LowCards.com: LowCards.com ( http://www.lowcards.com )
simplifies the confusion of shopping for credit cards. It is
a free, independent website that helps consumers easily
compare credit cards in a variety of categories such as
lowest rates, rewards, rebates, balance transfers and lowest
introductory rates. It also gives an unbiased ranking and
review for each card.

The LowCards.com Complete Credit Card Index
( http://www.lowcards.com/CreditCardIndex.aspx ) is the most
objective and comprehensive resource on the Internet which
allows consumers to compare rates for all 1060 credit cards
offered in this country. Created by Hampton & Associates,
the company has been analyzing the credit card industry
and supplying objective websites on various consumer
expenses for eight years.

Read the rest of this entry »

The majority of provisions in the Credit Card Accountability, Responsibility and Disclosure Act (the Credit CARD Act) take effect in February 2010. But a few key provisions go into effect on August 20, 2009.

One helpful provision that starts next month requires credit card issuers to give 45 days notice before any rate hike. This may be small comfort to the many cardholders who have experienced interest rate hikes over the past year as issuers seem to be raising rates before the Credit CARD Act begins.

Currently, credit card issuers are required to give only a 15-day notice of a rate increase. The 45-day period will give approximately two cycles’ worth of time for consumers to shop around and change cards if they desire. In February, the tougher provisions of the CARD Act will ban punitive practices like retroactive rate hikes on existing balances. For many cardholders, this may be too late.

“Issuers realized that change was coming and they have raised rates, cut limits and changed practices quickly and frequently in advance of the regulations going into effect, just as they said they would do,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

One of the harshest changes was recently announced by JP Morgan Chase, increasing the minimum payment percentage from 2% to 5% for some cardholders, which more than doubles their monthly payment. If the balance is $8,000, the minimum payment at 2% is $160. It jumps to $400 at 5%. While a higher minimum payment forces cardholders to pay off their debt faster and thus saves them money in the long run, this increase could make the minimum payment unaffordable for some cardholders. Hence, it could damage the credit scores for some consumers.

“Evidently forcing segments of cardholders to pay off more of their balance is an effective change for Chase. Earlier this year, they increased the minimum payment to 5% for those who carried a large balance for over two years but made little impact in what they paid off,” says Hardekopf. “If this is effective and reduces risk for one issuer, expect other issuers to follow.”

With almost six weeks to go before the first CARD Act regulations begin, here is a list of changes made or announced by issuers since June:

* IberiaBank has received attention for having one of the lowest rates available. However, the bank raised its low rate from 6.25% to 8.25%, effective June 26.

* Bank of America increased the balance transfer fee from 3% to 4% on June 1.

* Chase increased the balance transfer fee as well as the cash advance fee to 5% effective in August. Both fees are the highest in the industry.

* Simmons Visa Platinum is moving from a fixed rate to a variable rate. The current APR will remain at 7.25%, but it will now be variable. In addition, the Simmons Visa Platinum Rewards is moving from an 8.95% fixed rate to a 9.25% variable rate. Both changes take effect on July 10.

* Both Bank of America and Chase announced that they will be moving a number of their cards from fixed rates to variable rates.

* At the beginning of June, Chase restructured its rewards program. It launched a new program called Ultimate Rewards, where cardholders earn one point per $1 spent, with no earnings cap or expiration date. This will replace versions of its Freedom card, some of which have offered more generous cash-back rewards and bonus opportunities. The Freedom cardholders who want to keep a fixed 3% bonus for spending in grocery, gas and fast-food categories, will pay a $30 annual fee for the card.

One other provision of the CARD Act that takes effect on August 20: issuers must mail or deliver periodic statements 21 days or more before the payment due date in order to charge a late fee.

The majority of provisions in the Credit Card Accountability, Responsibility and Disclosure Act, or the “Credit CARD Act,” take effect in February 2010. But a few key provisions go into effect on August 20, 2009.

One helpful provision that starts next month requires credit card issuers to give 45 days notice before any rate hike. This may be a small comfort to the many cardholders who have experienced interest rate hikes over the past year, as issuers seem to be raising rates before the Credit CARD Act begins.

Currently, credit card issuers are required to give only a 15-day notice of a rate increase. The 45-day period will give approximately two cycles’ worth of time for consumers to shop around and change cards if they desire. In February, the tougher provisions of the CARD Act will ban punitive practices like retroactive rate hikes on existing balances. For many cardholders, this regulation may be coming too late.

Experts advise that because issuers realized the change was coming, they raised their rates, cut limits and changed practices quickly and frequently in advance of the regulations going into effect.

One of the harshest changes was recently announced by JP Morgan Chase, increasing the minimum payment percentage from 2% to 5% for some cardholders, which more than doubles their monthly payment. If the balance is $8,000, the minimum payment at 2% is $160. It jumps to $400 at 5%. While higher minimum payments force cardholders to pay off their debt faster and thus saves them money in the long run, this increase could make the minimum payment unaffordable for some cardholders. Hence, it could damage the credit scores for some consumers.

For example, earlier this year Chase increased the minimum payment to 5% for those who carried a large balance for over 2 years but made little impact in payments. Financial experts suggest that if Chase finds this successful and effective in reducing risk, other issuers will follow suit.

With almost 6 weeks to go before the first CARD Act regulations begin, here is a list of changes made or announced by issuers since June:

* IberiaBank has received attention for having one of the lowest rates available. However, the bank raised its low rate from 6.25% to 8.25%, effective June 26.

* Bank of America increased the balance transfer fee from 3% to 4% on June 1.

* Chase increased the balance transfer fee as well as the cash advance fee to 5% effective in August. Both fees are the highest in the industry.

* Simmons Visa Platinum is moving from a fixed rate to a variable rate. The current APR will remain at 7.25%, but it will now be variable. In addition, the Simmons Visa Platinum Rewards is moving from an 8.95% fixed rate to a 9.25% variable rate. Both changes take effect on July 10.

* Both Bank of America and Chase announced that they will be moving a number of their cards from fixed rates to variable rates.

* At the beginning of June, Chase restructured its rewards program. It launched a new program called Ultimate Rewards, in which cardholders earn one point per $1 spent, with no earnings cap or expiration date. This will replace versions of its Freedom card, some of which have offered more generous cash-back rewards and bonus opportunities. The Freedom cardholders who want to keep a fixed 3% bonus for spending in grocery, gas and fast-food categories, will pay a $30 annual fee for the card.

One other provision of the CARD Act that takes effect on August 20 is that issuers must mail or deliver periodic statements 21 days or more before the payment due date in order to charge a late fee.

Consumers hit again as some banks raise credit rates, fees