LowCards Weekly Credit Card Update September 14
Hidden Good News on Credit Cards
In a sign that consumers are getting back on their feet, new data shows that credit card debts are shrinking. Dig deeper into the fine print and there’s better news: fewer credit card bills are going unpaid. Revolving debt, which mostly includes credit cards, hit $850.7 billion in July, down slightly from the prior month and falling at a 6.8 percent annual rate, according to new, seasonally adjusted data released by the Federal Reserve. Total outstanding credit card debt continues to drop from its peak of more than $1 trillion in 2008. Story by AnnaMaria Andriotis for SmartMoney.
Aggressive Start for Consumer Bureau
The new federal agency charged with enforcing consumer finance laws is emerging as an ambitious sheriff, taking on companies for deceptive fees and marketing and unmoved by protests that its tactics go too far. In the 14 months it has existed, the Consumer Financial Protection Bureau has launched dozens of enforcement probes and issued more than 100 subpoenas demanding data, testimony and marketing materials–sometimes amounting to millions of pages–from companies that include credit card lenders, for-profit colleges and mortgage servicers. The bureau’s actions have many banks, payday lenders and credit card companies racing to adjust. They’re tightening their record-keeping and budgeting for defense lawyers, according to attorneys and trade group executives who work with them. The companies themselves are reluctant to discuss the bureau because they don’t want to be seen as criticizing a regulator that is still choosing its battles. Story by Daniel Wagner for the Associated Press.
Beware College Students Carrying Credit Cards
Now here’s a dangerous combination: College students who don’t know much about personal finance and have a credit card. According to recently published research, the least knowledgeable students are about twice as likely as students with midlevel knowledge to carry a maxed-out credit card. They also are more likely to take cash advances and be delinquent in making credit card payments–behaviors associated with long-term financial problems. What’s more, students with midlevel knowledge are more likely to engage in risky behavior–use up all of their available credit, take cash advances and miss payments–than peers with the highest amount of knowledge, the study found. When many students arrive at college, the research says they are all of a sudden thrust into the position of having to manage student loans and lifestyle expenditures, and they may be unprepared for it. Story by Ruth Mantell for the Wall Street Journal.
Retail Trade Group Opposes Swipe Fee Settlement
The opposition continues to grow to the $7.25 billion settlement on credit card interchange fees that Visa, MasterCard and other banks agreed to pay. The National Retail Federation announced that it received approval from its board to go to court to attempt to block the settlement. The NRF, the largest retail trade organization, believes the proposed settlement will not prevent interchange fees from increasing. In addition, the Federation is concerned the settlement would forbid any future legal challenges. The nation’s two biggest retailers, Walmart and Target, have already been critical of the settlement. Story by Bill Hardekopf for LowCards.com.
Credit Raters’ Scores Punish Those Who Sell ‘Short’
With generous new guidelines from Fannie Mae and Freddie Mac likely to stimulate large numbers of short sales by underwater home-owners, what impacts can these sellers expect to see on their credit scores? It’s a crucial question, because short sales typically cause FICO credit scores to plummet, sometimes by 150 points or more. This, in turn, complicates sellers’ credit capabilities for years and makes additional borrowings–whether for auto loans, credit cards or new mortgages–tougher and more expensive. As a result, FICO credit scores– the major risk predictive tool used in the mortgage industry–have severely penalized borrowers who opt for short sales. In a recent blog post, FICO’s senior scientist said statistical reviews of short sellers by the company concluded that they “represent a high degree of risk” to lenders. More than 55 percent of short sellers in a sample of borrowers between 2007-09 went on to later default on other credit accounts after completing the sale transaction. This ranks them in “the same heavyweight (risk) class” as people who’ve been foreclosed upon, filed for bankruptcy, had a tax lien or collection account. Story by Kenneth Harney for the Boston Herald.
Debt Collectors Cashing in on Student Loans
Many borrowers are struggling to pay off their student loans, and the debt collection industry is cashing in. As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments–about 5.9 million people nationwide, up about a third in the last five years. In all, nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans–$76 billion–is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials. In an attempt to recover money on the defaulted loans, the Education Department paid more than $1.4 billion last fiscal year to collection agencies and other groups to hunt down defaulters. The government recoups about 80 cents for every dollar that goes into default–an astounding rate, considering most lenders are lucky to recover 20 cents on the dollar on defaulted credit cards. There is no statute of limitations on collecting federally guaranteed student loans, unlike credit cards and mortgages, and Congress has made it difficult for borrowers to wipe out the debt through bankruptcy. Only a small fraction of defaulters even tries. With an outstanding balance of more than $1 trillion, student loans have become a silver lining for the debt collection industry at a time when its once-thriving business of credit card collection has diminished and the unemployment rate has made collection a challenge. Story by Andrew Martin for the New York Times.
More People Shun the Bank
Middle-class Americans are spending less time in the bank lobbies their parents would recognize. Today, 8.2 percent of the nation’s households–nearly 12 million–are managing their finances without a bank, according to Census-based data from the Federal Deposit Insurance Corp. That is up from the 7.7 percent the bank regulator found in its 2009 report. Another 24 million households, defined by the government as “underbanked,” have a bank account but still dabble outside of the formal banking system by using payday loans, prepaid cards and other alternative means. The phenomenon shows how consumer behavior has changed in the five years since the onset of the global financial crisis. Previously, the federal government tried to lure millions of “unbanked” citizens–typically low-wage earners–into the financial main. Not having or using a bank account was an indicator of economic distress. All of this activity has traditional banks on notice. Some are adding fees while others are trying to deepen relationships with their customers, trying to become a one-stop-shop. Story by Gary Fields and Maya Jackson-Randall of the Wall Street Journal.
Lowest Cost Credit Card for Carrying a Balance
Do you have a balance on a credit card that’s just too big to pay off in one fell swoop? Or are you getting set to buy a big-ticket item that you know you’ll have to finance? Then there’s good news–as long as you’re a good credit risk. Five of our slate of six experts recommended the same card for people who already have a balance on a credit card that they won’t be repaying immediately: Chase Slate. What makes this card unique? It is currently offering free balance transfers – most other credit card companies charge balance transfer fees ranging from 3% to 5%–and no interest on transferred balances for 15 months. That means your cost of borrowing is zero for 15 months. Story by Kathy Kristof for CBS MoneyWatch.
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 14.34 percent, slightly less than the 14.36 percent last week. Six months ago, the average was 14.29 percent. One year
ago, the average was 14.14 percent.