Weekly Credit Card Update July 15
TOP CREDIT APPLICANTS REJECTED, SUIT SAYS
Doing a good job of handling your credit can be a bad thing. That’s
the claim being made by outdoors retailer Gander Mountain, which has
sued World Financial Network National Bank in Columbus after the bank
announced plans to deny credit cards to customers who have high credit scores. The reason: the bank doesn’t make much money on financially prudent customers. It’s the less-careful customer who generates late fees and higher interest rates. Gander Mountain said in the lawsuit that World Financial announced a month ago that it would begin automatically denying co-branded credit cards to Gander Mountain customers with a credit score of 800 or higher–a quarter of the customers.
To cut its losses on account holders with high credit scores, World
Financial asked Gander Mountain to agree to remove the $37 bounty on
new accounts for those with high credit scores. Alternatively, World
Financial asked that it be allowed to deny those customers a co-branded account and allow them to instead open a less desirable,
private-label account, according to the lawsuit. Gander Mountain
Story by Mark Williams for the Columbus Dispatch.
BANKS SHED SUBPRIME BUSINESS
Big banks such as Wells Fargo are ending the practice of having
separate outlets that provide higher-cost credit to riskier borrowers,
the latest sign of the demise of subprime lending, one of the key
causes of the financial crisis. San Francisco-based Wells this week
said it would close 638 Wells Fargo Financial offices and stop
making some subprime mortgages. HSBC made a similar move
last year, and Citigroup is looking to sell its consumer finance
unit that makes higher-rate loans. Bank of America shed its
subprime lending business nearly a decade ago.
Story by Rick Rothacker for the Charlotte Observer.
CREDIT CARD CHANGES IN THE FIRST HALF OF 2010
2009 was a difficult year for many credit card customers. Many
consumers wondered what would happen after the CARD Act and
other regulations went into effect in 2010. Would these regulations
really help consumers? Here is a look at the many changes that
occurred in the credit card industry during the first six months
of the year.
MORE AMERICAN’S CREDIT SCORES SINK TO NEW LOWS
The credit scores of millions of more Americans are sinking to new lows.
Figures provided by FICO Inc. show that 25.5 percent of consumers,
nearly 43.4 million people, now have a credit score of 599 or below,
marking them as poor risks for lenders. It’s unlikely they will be
able to get credit cards, auto loans or mortgages under the tighter
lending standards banks now use. FICO’s latest analysis is based
on consumer credit reports as of April. Its findings represent an
increase of about 2.4 million people in the lowest credit score
categories in the past two years. On the positive side, the number
of consumers who have a score of 800 or above has increased
in recent years. At least in part, this reflects that more individuals
have cut spending and paid down debt in response to the recession.
Their ranks now stand at 17.9 percent, which is notably above the
historical average of 13 percent, though down from 18.7 percent
in April 2008 before the market meltdown.
Story by Eileen AJ Connelly for the AP.
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 this week decreased
to 13.62%, down from 13.64% last week. Six months ago, the average was
13.24%. One year ago, the average was 12.12%.
FINANCIAL REFORM BILL LIMPS TOWARDS VOTE
It was supposed to be the one major piece of legislation this year
that Republicans and Democrats could see eye to eye on, and vote aye
on together in broad numbers. Instead, the sweeping overhaul of the
nation’s financial regulatory system, a response to the economic
crisis of 2008, will barely squeak through the Senate. In the end,
even lawmakers known for working across the aisle said they
were perplexed–and discouraged–that the financial regulation
bill ultimately did not generate wider bipartisan support.
Story by David Herszenhorn for the New York Times.
AUTOMATED DEBT COLLECTION LAWSUITS ENGULF COURTS
As millions of Americans have fallen behind on paying their bills,
debt collection law firms have been clogging courtrooms with lawsuits
seeking repayment. Some state legislators and judges have tried to
crack down on collection lawsuits, and this week, the Federal Trade
Commission weighed in, saying the system for resolving disputes over
consumer debts was broken and in need of “significant reforms.”
The litigation boom has been propelled by fundamental changes in
the way debts are collected, particularly for credit cards. In recent years, credit card companies have increasingly sold off debt they have considered uncollectible to debt buyers, usually for 5 cents or less on the dollar. The debt buyers, in turn, may try to collect the debt themselves using traditional practices, like sending letters or making phone calls to a consumer to try to arrange a payment plan. Increasingly, they are choosing to sue instead.
Story by Andrew Martin for the New York Times.
BID TO CURB AUSTRALIAN CONSUMER’S DEBT
Credit card companies would be required to assess the amount of credit
customers were able to repay and be banned from enforcing debts beyond that amount, under a crackdown the federal government is considering. With Australians owing $47.1 billion on credit cards–three times the amount a decade ago–the government is considering measures to better protect consumers from runaway debt. Among the credit card changes under consideration are: requiring credit providers to allow consumers to nominate the amount of credit sought; and prohibiting the card issuer from providing more credit than the consumer can repay in a reasonable period, making the debt unenforceable beyond that amount.