Weekly Credit Card Update, Aug. 26, 2010
$9 DOLLARS HERE, 20 CENTS THERE,
AND A CREDIT CARD LAWSUIT
If the allegations in a civil case filed in a federal court in Chicago hold up, you can even haul off $10 million if you stick to $9 here or 20 cents there. The suit, filed in March by the Federal Trade Commission, contends that over at least four years, scammers placed more than $10 million in bogus charges on consumers’ credit and debit cards. Then, the suit says, they moved the money to bank accounts in Lithuania, Estonia, Latvia, Bulgaria, Cyprus and Kyrgyzstan. The scammers evaded detection by keeping each charge under $10 and stealing from each cardholder only once, spreading the theft across more than a million cardholders, the suit says. The identity of defendants has not been discovered. The scheme depended upon the scammers persuading banks that they had a legitimate business so that they could secure merchant accounts through which the credit card charges were routed, the suit says; false storefronts were set up on the Web, pretending to sell electronics or office supplies, in case a bank investigated. In the government’s narrative of events, the scammers in the Illinois case shrewdly understood how little information was provided to cardholders on their statements. A one-time mystery charge of $9 would be met with a shrug, about a million times. Micro fraud, macro returns.
Story by Randall Stross for the New York Times
CREDIT CARD RATES CLIMB
Interest rates continue to tumble for the U.S. Treasury, companies and home buyers alike. But for a large portion of 381 million U.S. credit-card accounts, borrowing rates have been moving only one way: up. And average rates are likely to climb further in the near future. In the second quarter, the average interest rate on existing cards reached 14.7%, up from 13.1% a year earlier, according to research firm Synovate. That was the highest level since 2001. Now bank executives say they need to be smarter when setting the initial interest rates on credit cards. In many cases, that means starting off with a higher rate. “We can’t come up with penalty pricing or if we can, quite frankly, it’s too late to do much good,” says Stephanie Keire, head of consumer credit-card risk management at Wells Fargo & Co. Besides raising, rates, increasingly stingy lenders are revamping some of their underwriting techniques. A credit-card applicant might be considered too risky if he used much of his existing credit in recent months. That could increase the chances that the borrower might be denied a new card or charged a higher rate. Lenders are quicker to reduce credit lines at the first signs of financial stress, including late payments on other bills, a pay cut and unemployment. Several large U.S. banks have begun parsing employment and income data for changes that could affect the riskiness of existing customers, says John Cullerton, vice president at Equifax Inc. In an effort to better manage risk, card issuers are handing out less credit, too. The credit limit on new bank cards averaged $3,923 in May, the latest month for which data are available, according to Equifax. That is down 11% from an average of $4,422 a year earlier.
Story by Ruth Simon for the Wall Street Journal
CREDIT CARD MAIL SOLICITATIONS INCREASE 83%
Look no further than your own mailbox to see that the rebound in the credit card industry is underway. According to a recent study by Synovate Mail Monitor, households in the United States received 640.3 million credit card offers during the second quarter of 2010. This was an 83% increase over the 349.1 million offers mailed during the same quarter in 2009. Several issuers showed very significant increases in volume during the April-June period: Chase quadrupled their mailings and Citi nearly tripled their solicitations. This increase in mailings follows a 29% jump during the first quarter of the year (481.3 million offers versus 372.4 million). For the first six months of 2010, there have been 1.12 billion credit card offers sent through the mail. During the entire year of 2009, there were 1.39 billion offers.
CREDIT CARD DEBT DROPS TO LOWEST LEVEL IN 8 YEARS
The amount consumers owed on their credit cards in this year’s second quarter dropped to the lowest level in more than eight years as cardholders continued to pay off balances in the uncertain economy. The average combined debt for bank-issued credit cards – like those with a MasterCard or Visa logo – fell to $4,951 in the three months ended June 30, down more than 13 percent from $5,719 in the same period a year ago, according to TransUnion. The credit reporting agency said it was the first three-month period during which card debt fell below $5,000 since the first quarter of 2002. More borrowers also made payments on time. The rate of cardholders past due by 90 days or more fell to 0.92 percent in the second quarter, from 1.17 percent last year. That’s the first time the delinquency rate has been below 1 percent since the second quarter of 2007, before the recession, said Ezra Becker, director of consulting and strategy in TransUnion’s financial services unit. In a twist, Becker said the foreclosure crisis could be helping to improve the timeliness of credit card payments and lower balances. When people don’t make mortgage payments, he suggested, they have a short-term cash boost. Besides paying down debt, consumers are getting fewer new cards. Nationwide, the number of new accounts opened dropped almost 6.5 percent from last year.
Story by Eileen EJ Connelly for the AP
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 increased this week to 13.71%. Last week, the average was 13.70%. Six months ago, the average was 13.62%. One year ago, the average was 12.12%.
U.S. BANKS LOBBY FED ON DEBIT CARD FEE LIMITS
The U.S. Federal Reserve has begun taking the first steps to crack down on debit-card transaction fees, with the battle between merchants and banks moving from the legislative to the regulatory arena. Banks are now trying to salvage what they can during the rulemaking process by trying to convince the Fed that some processing fees, like fraud prevention costs, should be broadly defined. The National Retail Federation estimates debit card fees, which are about 1 percent to 2 percent of each transaction, total $20 billion annually. In September, The Fed will send out a survey to card issuers and card networks to collect the information that will be used in writing the regulations. It is aiming for a formal proposal later in the fall, and a final regulation in place by the law’s mandated April deadline. The Fed is required to establish standards to determine whether the fees being charged by card issuers are “reasonable and proportional” to what it costs them to process the transaction. Among the top concerns for banking groups is how fraud prevention costs will be factored into fee limits and what type of impact the rules may have on smaller institutions.
Story by Dave Clark for Reuters
DISCOVER SPONSORING ORANGE BOWL
Discover Financial Services, a distant fourth in the credit-card industry, is raising its profile as the new title sponsor of one of college football’s most prestigious bowl games – the Orange Bowl, of course. The Riverwoods-based company, which has orange in its corporate logo, replaces longtime sponsor FedEx, which ended its 21-year run. As part of the four-year, five-game deal, Discover will be title sponsor for the 2011-2014 Orange Bowl games and the 2013 Bowl Championship Series.
Story by Becky Yerak for the Chicago Tribune