Weekly Credit Card Update Aug. 20
CREDIT CARD ISSUERS NEW WORRY: PEOPLE PAYING THEIR BILLS
Since the height of the financial crisis, a big worry for lenders was that cardholders were falling behind on payments or defaulting on them altogether. As those trends stabilize, a new problem is emerging for card issuers, which profit by collecting interest on unpaid balances: U.S. borrowers, emerging from the recession, are paying off their credit-card debt more quickly. That could mean trouble for card issuers such as Capital One, Citi, Bank of America, American Express Co., Discover and Chase as they struggle with declining revenue stemming from lower card loan balances. Card users paid back 19.02% of their balances on average in June, up from 17.1% a year earlier, according to a Fitch Ratings index, which tracks about $231 billion of credit card loans. Card issuers have traditionally replaced lost interest revenue by increasing late-payment fees and raising interest rates for customers unable to pay their bills in full. But new rules that kicked in earlier this year have curbed interest rate increases and restricted the ability of these companies to charge fees, such as those hitting card users exceeding their credit limit or paying late. According to the Federal Reserve, borrowers reduced their revolving credit lines–mainly card balances–by about $4.5 billion in June, or at an annualized rate of 6.5%. Since the end of 2008, they have cut those balances by about $131.6 billion. Lower card loan balances took a bite out of income for issuers in the second quarter. At Capital One, revenue fell 9% in the second quarter from the first quarter to $3.9 billion as average loan balances declined 4.5%.
Story by Aparajita Saha-Bubna for the Wall Street Journal
BILL BARRING DEBIT CARD FEES GOES TO GOVERNOR
Charging people a fee for using their debit cards to pay for goods and services will soon be illegal, if Gov. Schwarzenegger signs a bill narrowly approved by the California state Assembly.
Story by Marisa Lagos at San Francisco Chronicle.
ADDITIONAL PROVISIONS OF THE CARD ACT TAKE PLACE SUNDAY
Some of the final provisions of the CARD Act go into effect next week and these could prove very beneficial for credit card consumers. Starting August 22, new rules may result in interest rate reductions as well as limitations on some fees and new rules for gift cards.
CREDIT CARD TRENDS OF THE TOP 20 METROPOLITAN AREAS
According to a new study by Experian, consumers are opening 26 percent fewer credit cards than they were three years ago. The study also reveals that out of the top metropolitan areas studied, the number of open bank cards were typically higher than retail credit cards, with the exception of four areas—Pittsburgh, Miami, Columbus and Atlanta – whose residents seem to favor their retail cards. Additionally, the results show that New Yorkers lead the way with the highest number of open cards, and Phoenix residents have the fewest. A closer look at New York reveals that while its residents have more open cards, the data shows they aren’t using those cards as much as some of the other cities, such as Atlanta, where the highest average monthly balance is $6,753 on revolving accounts. San Francisco and Houston have the lowest average monthly balance, with $5,323 and $5,328,
YOUR CARD HAS BEEN DECLINED, JUST AS YOU WANTED
Coming soon: credit and debit cards that cut you off when you disregard your own monthly budget. In the next couple of days, MasterCard is expected to announce that Citigroup will be the first company in the United States to issue MasterCards with special features intended to protect consumers not only from thieves but also from themselves. The service, called inControl and already in use by some Barclaycard holders in Britain, is a sort of financial chastity belt that offers the potential to prevent a variety of
budget sins and other money traps. Citi customers will have to wait a bit to use the new MasterCard service. And when introduction begins in a few months, it will include only alerts for credit card customers; letting people set their own spending limits will presumably come later. MasterCard says other banks will add inControl as well, though it won’t say which ones just yet. The inControl system, at its most basic level, is intended to let people do two things: be warned about charges on their cards and block the wrong kinds of transactions. I’m convinced, however, that the ability to cut yourself off from certain kinds of spending will become a standard card feature sooner rather than later.
Story by Ron Lieber for the New York Times
LOWCARDS.COM WEEKLY CREDIT CARD REPORT
Based on the 1000+ cards in the LowCards.com Complete Credit Card Index, the average advertised APR for credit cards slightly decreased this week to 13.70%. Last week, the average was 13.71%. Six months ago, the average was 13.54%. One year ago, the average was 12.11%.
PLASTIC IS NOW OFF THE MENU
Cash is king at local restaurants and bars struggling with a tight economy and small profit margins. To avoid paying credit-card fees and — shhh – maybe fudge income numbers for the tax collector — some merchants are treating credit cards as if they aren’t worth the recycled plastic they’re made of. In those places, cold cash is the only way to buy a hot meal. Some cash-only venues plant ATMs in a corner. Staffers point flustered customers in its direction, and the restaurant or bar profits from the transaction fees. A Williamsburg restaurant owner said, “It’s a trade-off between what you save and who you lose in terms of customers.”
Story by Selim Algar for the New York Post.
CONSUMERS CARD PAYMENTS UP AGAIN IN JULY
Consumers keep improving how they manage their credit card payments, with fewer customers in July defaulting or making late payments compared with the previous month, according to regulatory reports the lenders filed Monday. On-time payments have been rising the last several months for many major card issuers. The industry has written off a record amount of loans in the past year. For the first three months of this year, the industry charged off just short of 10 percent of balances. That compares with 3.8 percent in the second quarter of 2007, before the recession began.