Credit Card Update October 7
SURVEY FINDS CREDIT CARD ISSUES IMPROVING IN WAKE
OF CREDIT CARD REFORM BUT SOME PERILS REMAIN
With the protections of the Credit Card Act of 2009 in full effect, a nationally representative survey shows a slightly lower level of dissatisfaction among Americans with their credit cards than last year. However, credit cards remain one of the lowest-rated services Consumer Reports has ever analyzed; only 45 percent of respondents said they were completely or very satisfied with their cards. The survey, conducted in July by the Consumer Reports National Research Center also shows that consumers are carrying less credit card debt, with median balances of $3,793—$1,100 lower than in 2009. In addition some 23 percent of respondents said they were motivated to pay off their credit cards faster by the Minimum Payment Warning on their bills mandated by the Credit Card Act of 2009. The warning shows cardholders how long it would take to retire their debt and the total amount of interest they must pay if they made only the minimum payment each month.
A PERSONAL LOAN: BETTER THAN A CREDIT CARD?
American Banker reports that the old-fashioned unsecured personal loan may be making a come-back. Among the banks promoting personal loans now: Wells Fargo, Discover Financial, Citi and Capital One. Wells Fargo says that it will lend from $3,000 to $100,000 for a term as long as five years. From Citi, you can borrow from $300 to $7,500. The banks keep the rates top secret until you apply, because they vary according to your credit score. Unlike a credit card, a personal loan isn’t flexible. You wouldn’t use one to charge a book at Barnes & Noble, a shirt or a pizza. But if you need a big clump of money for a large, unexpected expense–say, both of your cars need new timing belts at once, an uncovered medical bill (for that face lift) or consolidation of other debts with higher interest rates, a personal loan with a no-nasty surprises fixed payment can make a pretty sensible choice.
Story by Marlys Harris for Moneywatch
LIVING WITHOUT A BANK: FEES AND CONFUSION GALORE
Living for a month without a bank, the nickel-and-diming never stopped. The fees were constant: $28 to cash a paycheck. $1.50 for a money order. A dollar or more every time I swiped the prepaid cash card I bought at the drug store. In all, I racked up $93 in fees in a month-long experiment of living without a bank and making a go of it on the economic fringe. That works out to $1,100 a year just to spend my own money. It may be hard to fathom why anyone would live this way, but a federal study last year found that about one in four U.S. households skirts banks and relies on services such as check-cashing and payday loans. Many of these households bring in less than $30,000 a year. Some do it because they believe they don’t have enough money to open a bank account or were burned by fees in the past. But it’s not always a matter of choice: Many can’t open an account because of a history of bad checks or damaged credit. There are other reasons too. Language barriers intimidate some would-be customers, or they simply feel banks aren’t welcoming. For others, literally handling their own money offers a sense of control at a time of financial anxiety. Federal and local governments want to bring this group into the traditional banking world. The fear is that the chronic use of high-fee services keeps the country’s poorest from moving up.
Story by Candice Choi for the Associated Press
HOW JUSTICE DEPARTMENT’S RULING
ON CREDIT CARDS AFFECTS CONSUMERS
On Monday, the Justice Department sued Visa, MasterCard, and American Express for anticompetitive practices. At the same time, it reached a proposed settlement with Visa and MasterCard. The ruling aims to end anticompetitive practices and allow customers to save money, but it is likely to also have unintended consequences for consumers. This verdict will create change for the credit card issuers, merchants, and consumers. It will be interesting to see how this is implemented and how consumers respond. For the first time, merchants will be able to direct customers to the cheapest payment. How aggressively will they promote this? The payment choice is still up to the customer. Will they embrace the discounts or continue to use the same cards to accumulate their rewards? It is unclear how this will trickle down to consumers. Notices and additional choices can add confusion to checking-out, making lines and waiting even worse at the cash register. Shoppers using cash to take advantage of discounts will also take more time as they count out their payment. Shoppers also spend less when they pay with cash.
HOW TO STOP ROGUE AUTOMATIC PAYMENTS
Automatic payments runs like a well-oiled machine, until you’ve canceled your gym membership or another service–and the biller won’t stop deducting money, long after you’ve asked it to stop. The Fed’s rules are clear: once a financial institution has been notified that the customer’s authorization is no longer valid, it must block all future payments for the particular debit transmitted by the designated payee-originator. You can always contest a debit after the fact, too. You have 60 days to notify the bank from the time you receive a statement containing the error. The bank has 10 days to give you a credit, though it has a total of 45 days to resolve the issue.
Story by Tara Siegel Bernard for the New York Times
CONSUMER LOAN DELINQUENCIES DROP IN SEVEN CATEGORIES
In a positive sign for the economy, the number of consumers who were delinquent on their loans fell in seven of 11 loan categories in the second quarter of 2010, according to the American Bankers Association. The ABA reported that bank card delinquencies, which are credit cards provided by a bank, fell to 3.62% of all accounts in the second quarter of 2009, which remains below the 15-year average of 3.93%.
Story by Robert Orol for Marketwatch
CONSUMER CZAR NEEDS TO GET TOUGH WITH BANKS
The first major tussle Elizabeth Warren will have with banks is working out some of the nuts and bolts of the Credit Card Accountability, Responsibility and Disclosure Act, which was signed into law last year and has been adopted in stages. Among other things, the law limits how and when card issuers can hike interest rates, and requires at least 45 days’ notice before changes can be made. It also mandates clear disclosure of terms and conditions. But that’s where the battle lines are being drawn. What consumers might view as clear disclosure might not be the same as what banks feel is necessary. Should everything be up front in boldface print, or are a few asterisks and footnotes permissible? Banks obviously want to maintain the status quo as much as possible. Warren, her attempts at détente notwithstanding, needs to make clear that the status quo isn’t good enough.