Credit Card Update November 19
DELINQUENCY RATES DROP IN OCTOBER ALTHOUGH
LOSSES FROM SOURING LOANS REMAIN STEEP
Monthly data released by several major credit-card issuers indicated that delinquencies, a closely followed gauge of future losses, declined to their lowest point so far this year. The loan write-offs come as seasonal factors that bolstered payments on card loans–such as tax-refund checks–are behind the card industry. Investors, looking beyond the signs of improving credit, are now keen to see issuers increase lending; the more that cardholders charge on their plastic, the more the companies earn by way of fees, so the amount customers spend is critical. Card-loan balances–and, as a result, revenue–have been falling as companies, stung by steep losses during the economic slump, scaled back on credit and toughened lending standards.
Story by Aparajita Saha-Bubna for the Wall Street Journal
NEW SURVEY REVEALS SOARING FEES FOR SOME STORE CREDIT CARDS
Signing up for a store credit card can seem like a good way to survive the holidays. But these cards often come with significant gotchas, as a stud released this week by Representative Anthony Weiner again proves. Surveying credit card offers from 35 major retailers in New York City, the inquiry found rates as high as 29 percent, or nearly double that of average credit cards. Radio Shack, Best Buy, Staples, Home Depot, and Sears were the five worst offenders. While Consumer Reports agrees with Rep. Weiner’s findings, and supports his legislation to increase point-of-purchase disclosure of interest rates, grace periods, and annual fees, we’ve found some store cards
that carry actual rewards. For example, Costco’s card charges 0 percent interest for six months and 15.24 percent interest thereafter.
Story by Daniel DeClerico for Consumer Reports
KARDASHIAN KARD A BAD IDEA
Last week, the Kardashian sisters launched a new credit card targeted at teens, one of the worst products to enter the financial market in a long time. The card is very expensive and using the Kardashians as financial role models to impressionable teenagers is already being questioned by financial experts around the country. The card is a prepaid MasterCard debit card with the Kardashian sisters’ picture on the plastic and is done in partnership with Mobile Resource Card. The cost of the card for the first year is $99.95 which includes a one-time card purchase of $9.95, 12 months of monthly fees at $7.95 per month, and preloaded deposit of $5.00. But the fees do not stop after the card is purchased. ATM withdrawals cost $1.50 in addition to ATM fees. Automatic bill pay using the card costs $2 per item. If you want to add money to the card, tack on an additional $1. It will cost you $6 to close the account. Have a question on the card? That will be $1.50 to speak
with a live operator.
NY TIMES EDITOR ON THE BEAUTY OF PEOPLE’S IGNORANCE
During a panel discussion at the Digital Hollywood New York conference,
Gerald Marzorati, the Times’ assistant managing editor for new media and strategic initiatives, explained why the paper’s print business is still
robust. “We have north of 800,000 subscribers paying north of $700 a year for home delivery,” Marzorati said. “Of course, they don’t seem to know that.” As evidence that Times subscribers don’t realize how much a subscription costs, he pointed to what happened when the paper raised its home-delivery price by 5 percent during the recession: Only 0.01 percent of subscribers canceled. “I think a lot of it has to do with the fact that they’re literally not understanding what they’re paying,” he said. “That’s the beauty of the credit card.” Stealthily hiking rates on the assumption that customers are too dim to catch on and/or too lazy to do anything about it is the kind of thing that gives banks, credit card companies and cell phone providers such a bad reputation.
Story by Jeff Bercovici for Forbes
FED PUBLISHES NEW INFORMATION ON CREDIT REPORTS AND CREDIT SCORES
In 2010, the Federal Reserve has introduced a number of new credit card rules and guides to help protect and educate consumers. The latest, a Consumer’s Guide to Credit Reports and Credit Scores, was published last week. This guide describes some basic information for consumers on credit scores, such as what a credit score is, where it can be used and why it is critical for consumers to protect their credit history. The guide is part of the final rules in the Fair Credit Reporting Act (FCRA) that go into effect on January 1, 2011. The FCRA will require lenders to inform consumers when negative information on credit reports causes a higher interest rate on a loan. This notification also applies if a consumer is denied insurance or employment because of information in the credit report.
GOOGLE CEO SEES PHONES REPLACING CREDIT CARDS
Google Chief Executive Eric Schmidt said Monday that the smart phone will eventually supplant the credit card–and showed off just the handset that could do it. During an interview at the Web 2.0 Summit in San Francisco, he took out what he called the “unannounced device I carry around with me” onstage and demonstrated its ability to use Near Field Communication. The wireless standard allows consumers to make a payment, or accomplish other tasks, by waving a device over an electronic reader. “This could replace your credit card,” he said. Schmidt added that even credit card companies believe the technology is more secure than traditional plastic. Apple, maker of the popular iPhone, is also believed to be working on so-called contactless payment technology for coming mobile devices. Meanwhile, a collection of big name telecommunications and credit card companies are testing various mobile-payment technologies, including AT&T Inc., Verizon Wireless, Visa Inc. and MasterCard Inc.
Story by James Temple at San Francisco Chronicle
A REVERSAL FOR BANKS AND CONSUMERS
There has been an interesting role reversal in the past month: the
long-beleaguered American consumer seems to be making a comeback, while formerly high-flying banks are once again struggling. It was a big surprise when the Commerce Department reported Monday that October retail sales rose 1.2 percent, well ahead of the 0.7 percent that many experts had forecast and solidifying a three-month trend that American consumers are ready to deploy cash again. Meanwhile, bank profits took a big hit in the most recent quarter. Morgan Stanley and Bank of America turned in losses, while JPMorgan Chase saw its revenue drop by about $3.5 billion, compared with a year before. The amazing thing about the rebound of the American consumer, if it is indeed under way, is that it happened with little help from the banking sector that was supposed to be the lifeblood of the recovery. Three years after the start of the financial crisis, the Federal Reserve’s regular survey of bank loan officers found that many banks still do not expect to return to their old levels of lending because they are worried about the risks.
Story by Heidi N. Moore for The New York Times