Bleak Holiday for Credit Card Issuers?

New holiday spending surveys are providing data that shows consumers plan to cut their holiday spending and reduce their usage of credit cards. Credit card delinquency rates are up again, showing consumers are still under financial stress. Many cardholders are still reeling from large APR increases they have received this year and they can no longer afford to charge their way through the holidays.

According to the National Retail Federation's 2009 Holiday Consumer Intentions and Actions Survey, U.S. consumers plan to spend an average of $682.74 on holiday-related shopping, a 3.2% drop from last year's $705.01. About 71% of consumers plan to use cash, check or debit cards as their primary payment method when buying holiday gifts. Only 28.3% of shoppers will use credit this year compared to 31.5% a year ago, a 10% decrease.

"Paying with cash is the best way to add a safety brake during holiday shopping. Studies show that consumers typically spend 12-18% less when we use cash for payment. Counting out and handing over cash is a sobering reminder of how much items really cost. It makes you pause and consider if the purchase is really worth your labor," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

According to a recent USAA survey, more than half (55%) of respondents are planning to avoid charging their holiday purchases and 85% plan to use cash for some of their holiday purchases. Among the shoppers who plan to use their credit cards, 74% plan to pay off their balance immediately so that they do not pay interest. 20% say they will pay off the balance in a few months while 7% say they will only pay the minimum balance.

However, many consumers have not prepared a plan for holiday spending. 19% are not sure how they will pay for their holiday purchases. 22 % who plan to use cash haven't saved any money in advance. (USAA survey)

"Now is the time to budget and plan for your holiday shopping so you don't get caught up in the moment and spend more than you can afford," says Hardekopf. "Credit cards rates are now too high to just charge something and assume you will be able to pay it.

"If you charge $1,000 on a credit card with an interest rate of 15% and just pay $25 of your balance each month, it will take you until May of 2014 to pay off this Christmas, and you will pay an additional $370 in interest. If your APR was recently increased and you carry a balance, leave that card at home so you won't charge anything more on it."

Millions of Americans are still paying off the holiday purchases they made last year. 6% of adults--or about 13.5 million Americans--were still carrying debt from last year's holiday season. In households with children under 12 years old, 10 % were still carrying debt. (Consumer Reports Holiday Shopping Poll, October 2009).

Fed Survey Confirms Credit Card Issuers Raising Rates and Cutting Limits

A Federal Reserve survey released yesterday showed that a substantial number of credit card issuers have cut credit limits, increased interest rates, and raised the minimum credit scores required for a credit card during the past three months.

The quarterly survey among loan officers also found 75% of banks that make credit card loans do not expect to be compliant with the provisions of the legislation until February 2010, the month these reforms go into effect.

The Fed's quarterly survey was conducted in October and included loan officers at 57 U.S. banks and 23 U.S. branches of foreign banks.

In this survey, the Federal Reserve asked the loan officers about the impact of the CARD Act. Here are some of the findings:

* Interest Rates--54% of banks have already increased or are planning to increase the credit card APR on their good (prime) customers. 74% of banks have already or will increase APRs on those with poor credit (subprime).

* Credit Limits--just over half of the banks have cut or will cut the credit limits of their credit card customers.

* Approval Rates--it is tougher to be approved for a credit card. 47% of the loan officers said they have or will raise the credit score requirements for prime customers qualifying for a credit card. That number jumps to 53% for subprime customers.

* Annual Fees--almost 40% of the banks had increased or will increase the annual fees on credit cards.

"This report confirms what credit card consumers have been experiencing all year: significant increases in their APR and substantial cuts in their credit limits," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "Issuers are trying to take these rate increases before the CARD Act provisions go into effect in February of 2010."

Tips for Buying and Using Gift Cards

We are entering the holiday gift card season. While new studies show gift cards are the most popular presents to give and receive, the hidden costs may outweigh the convenience of the gift. It is important for consumers to give and use these cards correctly.

"Gift cards are easy to give, but they are also easy to forget. If the card has a monthly fee or expiration date, these can become costly little pieces of plastic," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "Even though gift cards take the hassle out of holiday shopping, you want to use them wisely. It is important to know the terms of the card you are buying."

Holiday gift cards are a big business. According to the National Retailers Federation (NRF), sales of gift cards reached almost $25 billion in 2008. A new NRF study shows that 55.2% of adults are hoping to receive a gift card this year.

However, many households still have unused gift cards from the last holiday season. According to a new Consumer Reports survey, 25% of adults that received a gift card in 2008 have yet to redeem at least one of the cards.

"This is the time to check your wallets, purses and drawers for gift cards that you received last year and use them immediately. Some cards may start charging a monthly fee after twelve months which drains away the value of the card," says Hardekopf. "You can even use them to start your holiday shopping."

Here are some consumer tips for buying gift cards:

* Buy a card only from a merchant you trust.

* Make sure the store is in a good financial position.

* Ask about the fees and expiration dates of the card. Read the card's
fine print.


Here are tips for using gift cards:

* If you receive a gift card, use it as soon as possible. Don't put it aside
and out of sight. Use it before you lose it or forget about it.

* Check the terms and conditions of the card you receive. Look for
an expiration date or any use fees.

* Gift cards from major credit card networks can be used at any retailer
that accepts their credit and debit cards.

* If the gift card is from a credit card network, write down the card number. If it is lost or stolen, the card can be cancelled and a replacement issued. The replacement fees range from $5.95 to $12. Most store cards can't be replaced if they are lost or stolen. They are treated as cash.

* Keep the card, even after the balance is depleted, until you are sure you won't be returning any of the items that you purchased with it. The retailer may require the card with the return.

* If there is a problem with the card, contact the store or financial institution that issued the card. If that doesn't resolve the issue, contact the Federal Trade Commission at 877-FTC-HELP.


There are important differences between store cards and general purpose cards. Store gift cards are limited to that retailer or family of stores and many have no fees or expiration date. Not all store cards can be used online.

General purpose cards are from Visa, MasterCard, and American Express. They can be used any place these cards are accepted. The purchase fee ranges between $2 and $7. Many cards charge a monthly maintenance fee that is typically $2 or $2.50 and starts after six or twelve months.

The CARD Act does provide gift card protections, but these provisions don't go into effect until August 2010. It prohibits gift cards from expiring before five years from the date of purchase or when money was loaded onto the card. It also prohibits fees for the first twelve months.

What happens to unused gift cards? They can eventually revert back to the retailers as income. Some states can even claim unused gift cards as abandoned property.

If you have unused gift cards that you won't use, you can donate the card to GiftCardGiver.com; that site will distribute the card to non-profit agencies
that can use the card to help others.

New Credit Card Study Shows Harmful Credit Card Practices Continue

A new study confirmed what cardholders and Congress already know: credit card issuers are in no hurry to implement the regulations of the CARD Act. Instead, some of the most harmful practices are even more widespread.

Today, the Pew Charitable Trust released "Still Waiting: 'Unfair or Deceptive' Credit Card Practices Continue as Americans Wait for New Reforms to Take Effect". The study examined almost 400 credit cards advertised by banks and credit unions offered in July 2009 and December 2008.

The study found that 100% of the credit cards continue practices that will be outlawed by the CARD Act. The lowest advertised interest rates have increased by more than 20% in the past year. None of the 12 largest banks currently issue cards that would meet the requirements of the CARD Act.

"It seems that a credit card issuer could gain a distinct competitive advantage by the early implementation of the provisions of the CARD Act. But that is not being done. It seems that issuers are turning their back on the public outcry for reform and instead want to raise rates as much as possible before these interest rate provisions go into effect in February 2010," said Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

The Pew study found that cardholders have not benefited from the historically low interest rates, even though the Federal Funds rate is almost 0%. The lowest advertised rates increased by more than 20% from December 2008 to July 2009 while the highest advertised rates increased 13% during that time period. Discover had the biggest jump in the lowest advertised rates, going from 9.99% to 12.99%. Bank of America had the largest increase in the highest advertised rates, increasing from 14.99% to 18.24%.

The report is also one of the first credit card comparisons between banks and credit unions. It confirms that credit unions offer lower rates and lower penalties than banks. The findings from the Pew study:

* Advertised rates were 20% lower at credit unions. These rates ranged from 9.9% to 13.75% annually at credit unions, compared to 12.29% to 17.99% annually for banks.

* Penalty charges at credit unions are less frequent and less severe than at banks. Credit union penalty interest rates averaged 17.99% compared to 28.99% at banks. In addition, these penalty interest rates at credit unions were less likely to last indefinitely; one-third would terminate after three to twelve months of on-time payments. They could last indefinitely at banks, even after on-time payments.

"If you are a member of a credit union and are looking for a new credit card, be sure to look at those offered by your credit union. Compare those cards to others on the market and you could be pleasantly surprised," said Hardekopf.

Dodd Proposes a Freeze on Credit Card Rates

Today, Senate Banking Committee Chairman Chris Dodd introduced new legislation that would immediately freeze credit card rates on existing balances through February of 2010. Dodd felt this bill would prevent issuers from further interest rate hikes that have taken place since the Credit CARD Act was signed into law in May of this year.

"No sooner had it been signed into law, credit-card companies were looking for ways to get around the protections this Congress and the American people demanded," said the Democratic Senator. "This bill would end those abuses and further protect customers today."

Since the beginning of the year, LowCards.com has recorded almost 60 changes made by nine different credit card issuers, many of which are APR increases. In the last two weeks, Bank of America added an annual fee to some cards and Citi has raised the APR to 29.99% for many cardholders as well as cancelled the accounts of customers holding some of their co-branded cards.

The changes in terms and card closures are hot issues for consumers. Congress is reacting by trying to move up the effective date of some provisions of the CARD Act from February 22 to December 1. Last week, the House Financial Services Committee approved this but analysts predict that this will not pass in the Senate.

"The actions of the credit card issuers should not be a surprise to anyone, especially Congress. When the CARD Act was being discussed, the issuers said they would have to raise rates and make changes to make up for lost revenue. They warned Congress that these changes would affect a broad spectrum of customers. That is exactly what they have done. They have raised rates, increased fees, added annual fees, moved fixed rate cards to variable rates, and cut rewards," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

"The banks and issuers are not philanthropic organizations. They are for-profit companies that have already lost billions of dollars and have struggled for over a year to rebound from the financial crisis. The high delinquency and default rates in September show that credit card issuers are still facing difficult times and this will probably continue into 2010. Issuers will still have to find ways to increase revenue and reduce risk. If Congress put a freeze on interest rates, you can bet that issuers would find other ways to make up for this lost revenue."

This new legislation would also require credit card companies to review all rate increases on credit card holders since the beginning of this year to see if they were justified.