Credit Card Update Jan. 21
BANKS LOOSEN PURSE STRINGS
Chase said credit card balances rose for the first time in two years. Consumers were more willing to pull out their plastic. Credit card usage was up 10% year-over-year. The bank issued 3.4 million new credit cards in the fourth quarter, up 4% from the same period a year earlier. In October, the latest month for which figures are available, banks issued 3.3 million new credit cards, up 21% from October 2009, according to Equifax. And while many borrowers continue to pay down debt, credit card balances have also begun to rebound. Bank of America CEO Brian Moynihan told analysts last month that industrywide, credit card holders who carry balances “have actually started to borrow just a little bit more: not a lot, but 3% or 5%.” Barclays Capital estimates that loans will grow by 2% this year at American Express and 5% at Discover and Capital One.
Story by Ruth Simon for the Wall Street Journal
CREDIT CARD DELINQUENCIES END 2010 AT YEAR’S LOW
With delinquency rates for most U.S. issuers of credit cards dropping to their lowest point in 2010, the challenge for these companies is to increase lending amid stricter rules on card fees. Monthly data for December released by issuers including Capital One, American Express, Discover, Bank of America and Chase, indicate that the worst of the credit problems is behind them, although losses from souring loans remain steep. Now, the lenders need to increase the size of their loan books. Credit card issuing banks are also facing an erosion in profits and revenue stemming from new rules curbing income on credit and debit cards.
Story by Aparajita Saha-Bubna for The Wall Street Journal
U.S. TREASURY TESTS DEBIT CARDS FOR TAX REFUNDS
The Treasury Department is now testing the distribution of debit cards
instead of paper checks for tax refunds to low income individuals. This
week, 600,000 low income individuals will receive letters inviting them to have their tax refund deposited to the MyAccountCard Visa Prepaid Debit Card. For the government, they are less costly to mail than checks. For the recipient, they provide a safer, faster and more convenient way to distribute money than checks. The government has already switched to debit cards in other areas with federal benefits like Social Security. The Treasury says that more than 1.7 million workers receive their wages on payroll cards and many of these do not have bank accounts.
CHASE TO REFUND $2 MILLION TO SOME ACTIVE DUTY SERVICE MEMBERS
JP Morgan Chase & Co. will refund $2 million to 4,000 active members of the military after the bank charged illegally high interest rates, and improperly foreclosed on 14 of their homes. The lender violated the Service Members Civil Relief Act, which forbids companies from charging active-duty service members more than 6 percent on all loans, including mortgages or credit cards, and it offers foreclosure protection. The bank is reviewing all of its mortgages to all of its military customers.
Story by Eric Wolff for the North County Times
FEES ON RELOADABLE PREPAID CARDS COST CONSUMERS
Reloadable prepaid debit cards represent one of the fastest-growing segments of the financial services industry. The total amount of branded prepaid cards is expected to exceed $440 billion by 2017, quadruple the estimated value in 2009, according to independent research commissioned by MasterCard. Nearly one-third of consumers own some kind of prepaid card, according to a 2009 survey by the Federal Reserve Bank of Boston. Consumer groups and some lawmakers contend that prepaid cards lack some of the protections offered by
traditional bank and credit union accounts, and often include an assortment of fees that can rapidly erode a card holder’s balance. The concerns have led to calls for greater regulation of prepaid cards.
Story by Sandra Block for USA Today
REWARDS JUNKIES MAY TURN TO U.S. BANKS FOR REWARDS PERKS AFTER CAP
Visa and MasterCard, the world’s biggest payment networks, set rates charged to merchants when consumers use debit and pass that money onto the banks that issue the cards. For larger banks, a cap of a flat 12 cents instead of the average 1 percent of the purchase amount means about $12 billion in lost revenue, and a possible end or restructuring of debit rewards. Smaller banks will be exempt from a cap on debit “swipe” fees or interchange that takes effect in July. The limit will apply to banks and credit unions with $10 billion or more in total assets. The third largest debit card issuer as of 2009, Chase, will stop issuing debit rewards cards on February 8. “The change in regulation is reducing interchange so much that we’ll lose money on most debit-card transactions,” said spokesman Tom Kelly. Visa told clients January 6 it would support a two-tier debit interchange system, which would set different rates for banks that are exempt from the legislation and those that aren’t.
Story by Elizabeth Ody and Alexis Leondis for Bloomberg
YOUR MOBILE PHONE IS BECOMING YOUR WALLET
For years, tech companies have demoed flashy prototypes of systems that let customers use their mobile phones in place of cash or credit cards. This year, those systems are heading out of the labs and into the real world. At Starbucks stores throughout the U.S., the cashier can now scan your phone to deduct payment for your latté from the balance on your pre-loaded Starbucks card. Splitting the dinner bill with a friend? Download Bump, and you can beam over the cash from your PayPal account. Quick-moving startups are charging in. Last week, investors poured $27.5 million into Square, a venture launched in 2009 by Twitter cofounder Jack Dorsey. Square lets mobile merchants accept credit card payments on their phones.
Story by Lory Stegall for CNNMoney.com