Credit Card Update May 13
MOODY’S: CREDIT CARD DEFAULTS HEADING TO A 20-YEAR LOW
Credit card defaults will reach a 20-year low by next year, Moody’s Investors Service said Monday, as card issuers remain choosier in their lending practices. While consumer research firms and an important Federal Reserve banker survey have found that banks are easing lending standards a bit, it remains tough for those with the lowest credit scores to get cards. The riskiest card customers, those individuals who had cards shut down because they couldn’t pay their bills, are unlikely to be able to get new cards in the near future. Because of the tighter lending standards, Moody’s predicts that the top six card issuers are likely to see their default rate drop next year to less than 4 percent of total balances on an annualized basis. Data from across the industry shows that those who still have credit cards have gotten far better about making on-time payments. In recent months, the six banks have reported multi-year lows on delinquent payments. That bodes well for charge-offs in the future.
Story by Eileen AJ Connelly for the Associated Press
CREDIT CARDS RETURN TO SCHOOL
The Federal Reserve in March moved to close some of the loopholes in the CARD Act. One group of borrowers, though, could still be vulnerable to aggressive tactics from lenders: college students. Under the new rules, issuers can no longer offer gifts to induce students to sign up for cards. But the gift prohibition can be circumvented. The law specifies only that card companies can’t offer “any tangible item as a gift.” That leaves the lenders free to offer intangible gifts like online coupons or bonuses credited to accounts. Citigroup, for example, last summer offered students a $50 statement credit on its four student credit cards. Some banks skirt the on-campus marketing restrictions by pitching checking accounts instead, in hopes of signing students up for cards later.
Story by Jessica Silver-Greenberg and Mary Pilon for the Wall Street Journal
TIPS ON PROTECTING YOUR ONLINE IDENTITY
If you aren’t concerned about someone stealing your online data, you should be. If you have internet access, you are a potential victim of having your personal information stolen. In the past few years, hackers have broken in and obtained the account information of millions of consumers. Two separate major hacking incidents occurred with Sony over the past three weeks. Hackers may have stolen personal information from approximately 25 million accounts from Sony Online Entertainment. In a separate attack on
the PlayStation Network and Qriocity, sensitive details could have been at risk for a reported 77 million customers. Personal information included name, address, email address, birthdate, PlayStation password and log in. In addition, the hackers may have stolen password security answers and credit card information. Sony is certainly not the only major corporation to be the
target of a massive heist. Last year, 130 million accounts were stolen from a payment processing company, Heartland Payment Systems. In 2007, 46 million accounts were stolen from TJ Maxx and Marshall’s. Even MasterCard had 40 million accounts compromised in 2005. Here are some steps and precautions you can take to protect yourself from online hackers…
DEBIT CARD FRAUD AT MICHAEL’S NOW INCLUDES 20 STATES
Michaels Stores says the debit card fraud stemming from tampered checkout terminals is far more pervasive than initially thought, encompassing not just Illinois but 19 other states. The scope of the crime has surprised security experts and exposed the vulnerabilities of debit cards, a method of payment that many shoppers have come to rely on for everyday purchases. Debit card fraud is worse for consumers than fraud involving credit cards because little stands between thieves and the money in bank accounts. In the case of Michaels’ stores, many customers had money stolen directly from their accounts via ATM withdrawals. The crafts-store chain identified 90 keypads in 80 stores that were compromised in Colorado, Delaware, Georgia, Iowa, Massachusetts, Maryland, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Utah, Virginia and Washington. Michaels has removed the suspicious swipe pads and over the next two weeks plans to replace about 7,200 similar PIN keypads from its stores. Until those pads are replaced with upgraded models, the company said customers must use cash, credit cards or signature-based debit cards.
Story by Gregory Karp for the Chicago Tribune
NEW STUDY FINDS CARD ACT HELPED REDUCE CREDIT CARD FEES
As the second anniversary of the CARD Act approaches, new research from the Pew Health Group finds these credit card regulations helped reduce late fees, nearly eliminate overlimit penalties and have resulted in minimal changes in annual fees.
MTA CARDS MAY SOON BE REPLACED BY
CONTACTLESS CREDIT CARDS FOR SUBWAY RIDERS
The MetroCard’s days are numbered, and its replacement may already be in your wallet. In a few years, subway riders could be able to open turnstiles with the tap of a credit card–or with a new pass they’re calling the MTA Card. Straphangers also will be able to establish travel accounts and transfer money via home computers or the nearest automatic bank machine. Those are some of the features the Metropolitan Transportation Authority envisions for the fare system that officials say will replace the MetroCard in three or four years–and could save the agency millions.
Story by Pete Donohue for the New York Daily News
PREPAID CARDS GIVE JOBLESS SECURE PAYMENTS BUT MANY FEES
A new study by the National Consumer Law Center reviews unemployment
compensation on prepaid cards and reports that the people who receive the
benefits are also paying fees that they can’t afford to pay. Forty states
now use a prepaid card for paying some or all unemployment compensation
(UC) recipients. If a recipient does not have a bank account, getting cash from a UC prepaid card will usually be cheaper than paying the fees to a check casher to cash a paper check. Prepaid cards are more secure and safer than carrying cash. They can also be used to make electronic purchases. Those are good improvements for UC payments, but prepaid cards aren’t perfect. The have many fees that hit unemployed workers at financially troubled time. According to the study, the typical unemployment compensation check is only $294 a week, barely a third of the average wage. This is a small amount with no room for fees.
HSBC FACES TOUGH SELL FOR U.S. CARDS UNIT
HSBC is considering selling its U.S. credit card arm, but it may not like the price potential buyers are willing to pay. Europe’s biggest bank said on Wednesday that it may sell the more than $30 billion unit, as part of a global bid to dispose of businesses that aren’t sufficiently profitable. But not many buyers remain for such large credit card portfolios since the financial crisis, and a regulatory crackdown has made it harder to turn a profit. Industry members said it would be difficult for HSBC to get the premium it wants for the value of the business on its books. Since 2007, both Citigroup and General Electric have tried–and failed–to sell similar large U.S. credit card portfolios. Barclays PLC and Capital One Financial Corp are the likeliest potential buyers for at least pieces of HSBC’s portfolio, according to several industry members.