Weekly Credit Card Update August 13
STUDENT LOAN DEBT SURPASSES CREDIT CARDS
Americans owe some $826.5 billion in revolving credit, according to June 2010 figures from the Federal Reserve. (Most of revolving credit is credit-card debt.) Student loans outstanding today – both federal and private – total some $829.785 billion, according to Mark Kantrowitz, publisher of FinAid.org and FastWeb.com. A consumer who juggles both credit-card and student-loan debt is likely to pay of the credit-card first, as that debt tends to carry a higher interest rate. In terms of volume, a person is likely to borrow more money to go to school today than, say, spend on necessities using a credit card during a patch of unemployment. It’s no surprise that many parents reeling from the downturn, would turn to borrowing to make up the difference. With the cost of education increasing rapidly and the duration of unemployment increasing, perhaps the surprise is that this turning point didn’t hit earlier. But student loan debt, in many ways, is different than credit-card debt. These loans typically can’t be discharged in bankruptcy. They have different repayment terms, some of which can catch some have heavy consequences for borrowers who miss payments and borrowers’ families.
Story by Mary Pilon for the Wall Street Journal
HOW CHARGE CARDS AFFECT CREDIT SCORES
The concern with charge cards used to be that they didn’t report credit limits. Unlike credit cards, charge cards typically don’t have preset spending limits. Without a reported credit limit, credit scoring formulas often used the highest reported balance as a proxy. If you charged about the same amount every month, it looked to the formulas as if you were using most or all of your available credit. But the most recent versions of the FICO, the credit scoring formula used by most lenders, now make allowances for charge cards. The amounts you charge on your gold card won’t be factored into the FICO’s credit use calculations, but having and using the card responsibly will still benefit your scores.
Story by Liz Pulliam Weston for the LA Times
FREE ONLINE ALERTS CAN HELP CREDIT CARD CUSTOMERS
Congress has passed many new rules and regulations to help credit card customers, but one of the best consumer protections is offered for free by credit card issuers. Online banking alerts provide instant updates on your account and can be sent by text or email. Online alerts can let you know your daily account balance, when your payment is due, and when the payment has been posted to your account.
IN SETTING DEBIT CARD FEES, FED NEEDS TO CONSIDER IMPACT ON CREDIT UNIONS
An amendment offered by Sen. Richard J. Durbin (D-Ill.) on debit interchange fees which was passed as part of this legislation, could hurt credit unions and the 92 million members who rely on them. Credit unions–not-for-profit, member-owned financial institutions–cannot raise capital from the markets and they have fewer avenues to offset losses from a cap on interchange fees.
By requiring the Federal Reserve to set a price for debit card acceptance, credit unions that issue debit cards will be forced into an impossible decision: either raise costs for members or stop issuing debit cards altogether. Furthermore, the law enables merchants to set a minimum transaction amount of up to $10 for the use of credit cards. Consumers would be at the register before they realize their cards will not be accepted because they have not spent a sufficient amount. This could have a particularly negative impact on low-income shoppers, who may be forced to spend more on card purchases than they had budgeted for just to meet any artificial minimums set by the merchant at checkout. Additionally, if credit unions continue to charge market-based interchange fees, merchants could covertly discriminate against credit union cards in favor of price-controlled large institution products. The debit card in your wallet from your credit union may now be viewed as second class by merchants and the American consumer.
Story by Fred R. Becker, Jr. for the Washington Post
U.S. CONSUMER CREDIT FALLS IN JUNE
Americans cut credit card use a 21st straight month in June as sluggish job growth and a slowing economy turned spenders into savers, putting more pressure on the recovery. Consumer credit outstanding decreased at a seasonally adjusted annual rate of 0.7%, down $1.3 billion to $2.42 trillion in June, a Federal Reserve report said. The report showed revolving credit dropped $4.5 billion, or 6.5%, to $826.48 billion. The last time credit card use rose was September 2008. Nonrevolving credit rose 2.4%; that category includes loans for cars, tuition and vacations, among other things. The national saving rate, meanwhile, rose to 6.4%, from 6.3% in May and 6.0% in April.
Story by Jeff Bater and Luca Di Leo for the Wall Street Journal.
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 increased this week to 13.71%. Last week, the average was 13.67%. Six months ago, the average was 13.46%. One year ago, the average was 12.11%.
PREPAID CREDIT CARDS TARGET GROWING MARKET: PEOPLE WITHOUT BANKS
For prepaid debit-card providers, the best customer is often the least credit-worthy. The niche industry, in which companies like Green Dot Corp. sell branded debit cards through retailers, has traditionally targeted teenagers learning money management. However, the financial crisis decimated credit ratings, forcing banks to cut ties with subprime clients and creating a new and growing customer base for card providers. J.P. Morgan Chase & Co., Bank of America Corp and Citigroup Inc. don’t sell prepaid debit cards directly to consumers, leaving Green Dot and similar small bank-backed providers to run a market that industry newsletter Nilson Report estimates will reach $200 billion in purchases by 2013.