LowCards Weekly Credit Card Update January 6

January 6, 2012, Written By Lynn Oldshue

As the nation’s banks and financial firms emerge from the wreckage of the financial crisis, they are working out how best to lend to people with tarnished credit. Overall, credit card issuers sent 418 million pitches to U.S. subprime borrowers in the first nine months of 2011, double the year-earlier volume of 207 million, according to research firm Synovate. Despite the surge, direct-mail solicitations remain far below pre-crisis levels. Many lenders still are way too leery about subprime borrowers to loosen the lending spigot, especially on unsecured loans such as credit cards. Other lenders, hungry for growth, say borrowers with dinged-up credit deserve an opportunity to rebuild their reputation. Credit cards can be a particularly good place to start because lenders offer borrowers small amounts of credit, at least at first.

Story by Jessica Silver-Greenberg for the Wall Street Journal

Your propensity to wait (or not) is also reflected in your credit score, according to a study from researchers at Columbia and Stanford published online in Psychological Science. Patient people tend to have higher credit scores than those who just can’t wait. “Individuals who are more willing to delay gratification have significantly higher FICO scores,” the report concluded. Participants were given a series of questions meant to gauge their willingness to delay a reward. For instance, they were asked if they would rather have $70 now, or $80 in a month. Participants who were the most willing to wait for the bigger payout had FICO scores that were roughly 30 points higher than those who were least willing to delay, the study found. The correlation held, regardless of income and other factors. Those who were the least willing to delay fell below the subprime credit score cutoff of 620, below which people generally pay much higher borrowing costs.

Study by Ann Carrns for the New York Times

As banks look for ways to get revenue from free services like bill pay, they risk becoming a target of public outcry, as Verizon Wireless has in recent days over a short-lived plan to assess a $2 fee for certain bill payments. Consumers circulated petitions and organized boycotts over Verizon’s fee, which would have applied only to one-time credit and debit card payments made online or by phone (the fee would not have been assessed to consumers who sign up for an automatic recurring payment). Most banks have long abandoned charging for online bill pay, but some have experimented with bringing fees back for specific uses, such as for last-minute payments. The justification for such fees from banks and bill-pay providers is that the price of an expedited payment is more palatable than the late fee and finance charges that would be assessed for missing a due date entirely. Expedited bill-pay fees can be justified, experts say, but consumers may demand that other types of payments remain free, even when such services are costly to banks.

Story in Bank Technology News

The start of a new year is typically when consumers take a close look at their finances and make resolutions on saving money and cutting expenses. Changing credit cards can save substantial money on interest payments, or earn some extra cash with attractive rewards. But credit cards are not one-size-fits-all, and shopping for the best credit card to fit your specific needs is a must. The credit card offer you receive today is determined by your credit score and how you have handled finances in the past. Here are some of the top credit cards on the market today.

No one was more surprised than Thomas Carpenito with the credit card invitation that landed in his mailbox earlier this year. The 27-year-old had about $10,000 in old debts and a credit rating 200 points below “good.” Far from a mistake, the offer was part of a controversial and growing partnership between debt collectors and banks that profits both. To get the new credit card, Mr. Carpenito agreed to repay $400 on a seven-year-old debt that had expired under New York’s statute of limitations. CompuCredit, a leader in the business, collected about $15 million in newly resurrected debts and fees by issuing credit cards to people with banged-up credit in the first nine months of 2011, according to a securities filing. It also has drawn scrutiny by federal authorities for allegedly deceptive practices. Many banks, hungry for new revenue streams, are eager partners. They receive fees and higher-than-average interest rates by granting debt collectors access to their license with MasterCard. The debt companies typically
agree to cover losses to banks if borrowers stop paying. Collectors aren’t afraid of the risks in issuing new credit cards because they instantly turn a profit on virtually worthless debts–purchased for pennies on the dollar–when people agree to start making payments on them. The credit card agreements essentially create assets out of thin air.

Story by Jessica Silver-Greenberg for the Wall Street Journal

Banks will continue to experiment with fee increases in the New Year, according to our own analysis and industry experts, as they attempt to make up billions in lost revenue due to the bad economy and new regulations. Here is some of what you can expect for 2012.

Story by Maggie Shader for Consumer Reports

With President Obama’s recess appointment of a new chief to run the consumer bureau, the agency can flex new powers regulating financial products from non-banks–including student loan providers, debt collectors, payday lenders, and mortgage originators and servicers. Obama on Wednesday made a recess appointment of former Ohio attorney general Richard Cordray to be the first director of the Consumer Financial Protection Bureau. That move has ignited controversy. Republicans, who had tried to block a recess appointment for months, are calling it an unprecedented overstepping of executive powers. In the meantime, under Cordray’s leadership, the bureau will start tackling industries that have been unregulated for years.

Story by Jennifer Liberto for CNN Money

Based on the 1000+ cards in the LowCards.com Complete Credit Card Index, the average advertised APR for credit cards is 14.01 percent, slightly higher than the 14.00% last week. Six months ago, the average was 13.95 percent. One year ago, the average was 13.80 percent.

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The information contained within this article was accurate as of January 6, 2012. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.

About Lynn Oldshue

Lynn Oldshue has written personal finance stories for LowCards.com for twelve years. She majored in public relations at Mississippi State University.
View all posts by Lynn Oldshue