LowCards.com Weekly Credit Card Update October 19
Credit Cards Charge Up Healthy Margins
Consumer confidence is up, and household debt is down. That’s good news for retailers. It’s also good for credit card processors Visa and MasterCard. Strong revenue is only part of the story. Leveraging profits from those sales is key. Visa posted a profit margin last year of 60.2 percent, meaning it generated just over 60 cents of profit for each buck in swipe fees and other income it brought in. That was up from 56.5 percent the year before. MasterCard posted a 52.4 percent margin last year, up from 49.8 percent the year before. Rival credit card company Discover also made the list, with a 41.1 percent margin, up sharply from the previous year’s 15.4 percent. Story by Kevin Harlin for Investor Business Daily.
Every Big Business is an Analytics Business
For a little over a decade, MasterCard has had a professional services division, MasterCard Advisors, that takes advantage of the company’s deep pool of data and experience in analyzing it. But earlier this year, it began a new push to sell much more specific information–nothing that could personally identify an individual customer, it stresses, but information on detailed customer segments and their spending patterns. After crunching though all the data it can get its hands on, MasterCard ends up with lumps of consumers grouped as an “audience.” That audience can be defined by factors like how likely the audience will be to spend at a particular category of store–or even a particular merchant–at specific times. It can be based on loyalty to a category of products or stores, or on a certain pattern, like people who shop on specific days of the week or times of day. Supermarket chains are a likely candidate to become data-miners, and most are already quite far down that path, using loyalty cards to help them track individual shopper patterns on a granular level. That kind of individual data, aggregated for millions of customers across the country, can give an amazing real-time view of what families are buying and eating at any given moment. Story by Tom Gara for the Wall Street Journal.
Should the IRS Report Unpaid Taxes to Credit Bureaus?
Would people be more likely to pay their taxes if they knew the IRS would report unpaid liabilities to credit bureaus, thereby damaging their credit scores? Congress is considering that. The Government Accountability Office released a report last month to lawmakers about the pros and cons of a significant shift in practice. Currently, the IRS isn’t allowed to report unpaid income taxes as part of an old law that protects taxpayers’ privacy. (The IRS, though, can put a lien on property, and that public information is collected by credit bureaus.) But Americans, including businesses, owed as much as $373.2 billion as of last year in unpaid federal taxes. Reporting deadbeats may be a way to make them pay up. Besides, the GAO notes, reporting taxes in arrears gives creditors a truer picture of consumers. On the other side of the argument, the GAO says that the National Taxpayer Advocated pointed out that some people might refuse to file returns–or might file incorrect returns–if they know that unpaid amounts will be reported on their credit files. Story by Eileen Ambrose for the Baltimore Sun.
CFPB Proposal Will Help Stay-at-Home Spouses Get Credit Cards
The Consumer Financial Protection Bureau is proposing a new rule to make it easier for stay-at-home spouses to obtain a credit card. The CFPB proposal allows the stay-at-home spouse or partner to rely on shared income when applying for a credit card account, rather than individual income. “When stay-at-home spouses or partners have the ability to make payments on a credit card, they should be able to obtain a card in their own name,” said CFPB Director Richard Cordray in a statement. “Today the CFPB is proposing common-sense changes that would facilitate credit access for spouses or partners who do not work outside the home.” Story by Bill Hardekopf for LowCards.com.
Citigroup CEO Pandit Steps Down
Add Vikram Pandit, CEO of Citigroup, as the latest casualty of the 2008-2009 financial crisis, a dark era for U.S. business best known for risky banking practices and home loans gone bad that nearly brought the now-third-largest U.S. bank to its knees. In an abrupt move just a day after the bank said its underlying profits in the third-quarter were strong and its outlook was improving, Pandit shocked and surprised both Wall Street and bank employees when he said he was stepping down as CEO and also relinquishing his seat on the board. The bank announced that 30-year Citi veteran Michael Corbat, who was serving as the chief executive of Citi’s Europe, Middle East and Africa division, was taking over the top spot. Pandit’s fall comes after a rocky five-year tenure in which he had to navigate the bank through the worst financial crisis since the Great Depression, a period in which Citi’s shares plunged 89%, its one-time annual dividend of $5.40 a share was cut to nearly zero, and its financial survival was made possible by a bailout from Uncle Sam. Story by Adam Shell and Matt Krantz for USA Today.
Credit Card Delinquencies Increase for Five Major Issuers
In September, delinquencies for five major credit card issuers increased from their near-historic lows. Bank of America, American Express, Chase, Discover and Capital One all showed slight increases from August to September in their delinquency rate. A delinquent account is any credit card account that is 30 or more days overdue. Delinquency rates reached highs during the financial crisis of 2008. But the rate has dropped significantly as consumers became more prudent about charging on their credit cards, and lenders tightened approval criteria for new credit card accounts and closed risky accounts. The increase in delinquency rates corresponds with the August and September increase in retail sales. Story by Bill Hardekopf for LowCards.com.
Younger Chinese Get a Feel for Debt
Consumption loans in China–including mortgages, advances on credit cards, and car and consumer loans–totaled 8.5 trillion yuan ($1.35 trillion) last year, up nearly 27% from 2010, according to data from Boston Consulting Group. Credit card lending rose 81% to 813 billion yuan, while consumer loans rose 17% to 232 billion yuan. Meanwhile, the number of credit cards issued in China rose 24% last year to 285 million, according to the China Banking Association Long a nation that preferred cash to credit cards, China is taking on an increasing amount of debt and opening its market to more lenders. Financial industry participants say younger people these days are more willing to spend and to take on debt. Some banks are preparing for more debtors, installing software to catch delinquencies and processes that will help them judge the quality of customers, said a spokeswoman for the Asia-Pacific division of financial risk-management firm Fair Isaac Corp. The balance of nonperforming personal loans in China jumped 18% in the first six months of 2012 from the six months earlier, partly because of defaults in personal consumer loans and on credit card balances, according to data from PricewaterhouseCoopers. Story by Laurie Burkitt for the Wall Street Journal.
Germans Warm to Credit Cards–Slowly
Germany’s central bank offered a ray of hope Wednesday to those hoping the euro-zone’s largest economy will drag the bloc out of crisis by flexing some serious plastic. According to a Bundesbank survey of payment behavior, Germans are gradually dropping their historical aversion to credit cards. The survey found that 7.4% of transactions in Germany were paid by credit card last year, double the level in 2008, before the debt crisis began. Still, the Bundesbank stopped short of predicting a wholesale change in attitudes. More than half of transactions continue to be paid in cash, and two-thirds of the survey’s 2000-plus respondents didn’t even own a credit card. Story by Tom Fairless for the Wall Street Journal.
Consumers Paying Down Debt Helps Boost U.S. Expansion
Three-plus years into a recovery from the worst financial crisis since the Great Depression, Americans finally are getting their finances back into shape, Federal Reserve figures show. Household debt as a share of disposable income sank to 113 percent in the second quarter from a record high of 134 percent in 2007 before the recession hit. Debt payments on that basis are the smallest in almost 18 years, while the delinquency rate for credit cards is the lowest since the end of 2008. “The household deleveraging process is largely over,” said Mark Zandi, chief economist at Moody’s Analytics. “Credit use should soon go from being a significant headwind to the economy to a tailwind.” Story by Rich Miller, Steve Matthews and Elizabeth Dexheimer for Bloomberg.
Panel Examines Libor Documents
Congressional investigators are looking into, among other things, what bankers and regulators knew about possible attempts to manipulate Libor and what they might have done to intervene. The subcommittee requested internal emails from employees of the New York Fed and other regulators related to Libor since August 2007. The Fed turned over 5,000 to 6,000 documents. Congressional staff began poring over thousands of pages of Federal Reserve Bank of New York documents regarding its monitoring of banks and a key interest rate, in a move likely to intensify scrutiny of regulators and financial companies involved in the matter. Story by Damian Paletta for the Wall Street Journal.
LowCards.com Weekly Credit Card Rate Report
Based on the 1000+ cards in the LowCards.com Complete Credit Card Index, the average advertised APR for credit cards is 14.28 percent, slightly below last week’s average of 14.29 percent. Six months ago, the average was 14.21 percent. One year ago, the average was 14.26 percent.
About Bill Hardekopf
Bill Hardekopf is the CEO of LowCards.com and covers the credit card industry from all perspectives. Bill has been involved with personal finance for over 15 years. He is a frequent contributor to Forbes, The Street and The Christian Science Monitor.