Debtmerica Debt News

Delinquency drops a good sign for the economy

Friday, August 20, 2010 10:00 AM

Over the past several months, consumers made a more concerted effort to pay off their credit card debt with greater regularity, and now experts say that this trend is likely to continue.

According to a report from consumer economic news website The Street, the latest improvements in both delinquency - credit card balances that have gone unpaid for 30 days or more - and charge offs - accounts that have gone unpaid so long that lenders simply accept they will never be paid again - bodes well for the economy not only now, but in the future as well.

The report said that the average lender had an annualized charge off rate of 8.1 percent in July, and the number was only that high because of Bank of America's 11.39 percent rate. Most other lenders saw rates well under 8 percent, according to numbers provided by SNL Financial. The average rate for the same month last year was 9.69 percent.

Similarly, delinquency rates dropped to 4.64 percent for the first month of the year's third quarter, down from the 5.39 percent seen for the same period in 2009. The report said this is the lowest such level seen since SNL Financial started following these figures in January 2009.

According to experts quoted in the report, this trend is likely to continue. Richard Bove, an analyst at Rochdale Securities, said that lenders have seen improvements in both categories for a number of reasons, though how much can be directly attributed to them isn't clear. Consumers have made a greater effort to pay down their debt, perhaps thanks to the provisions of the Credit Card Accountability, Responsibility and Disclosure Act. However, lenders have also tried to shut out the riskiest borrowers from having access to lines of credit.

Mark Tepper, president of Strategic Wealth Management, told The Street that the loss and delinquency rates are "bound to continue" making improvements, because consumers are pouring more of their discretionary income into paying off their credit card debt. He also warned that this change in behavior would likely cost retailers and restaurants.

However, several retailers reported more profits despite lower total sales in the second quarter, largely because consumers spent more on their store-issued credit cards than they have in the past. Add a comment

Bank of America and Visa to test new smartphone payment plan

Friday, August 20, 2010 10:00 AM

Many consumers have expressed a desire to use their smartphone to make credit card payments instead of traditional card swiping, and now two financial giants are going to offer them that service.

Bank of America and Visa are going to begin trying out a new system that will allow users to simply tap their phones against a sensor to make a credit card payment. According to a Reuters report, this program will commence testing in the New York City area at the start of September and will run through the end of the year. Visa will also begin a similar trial with US Bancorp in October.

"We see this as a critical capability given the increasing acceptance and adoption of bank services on the phone," Laurie Readhead, Bank of America's head of electronic commerce, told Reuters.

The Visa program will work by implanting a small computer chip into the smartphones of select employees and customers, who will be able to make purchases by tapping their phones on a sensor at checkout.

It was recently rumored that AT&T and Verizon would team up to offer a similar program, but theirs will not be tested before either of Visa's. Add a comment

Survey finds consumers are more satisfied with credit cards

Thursday, August 19, 2010 09:00 AM

More Americans are satisfied with the relationship they share with their credit card lender for the first time in three years, after consumer sentiment toward these companies bottomed out last year.

Overall satisfaction with credit cards was up after hitting a three-year low in 2009, but more consumers said they were less loyal to just one lender, according to findings from the latest annual survey from J.D. Power and Associates. Satisfaction rose to an average of 714 on a scale of 1,000, up from 705 in 2009. However, customers who say they will "definitely not switch" their primary cards over the next year declined to just 22 percent. That rate was 25 percent last year and 30 percent in 2008. Consumers used terms like "financially stable" and "reliable" to describe issuers, but hardly ever said they were "customer driven."

The survey found that about 16 percent of consumers never received the disclosures that were federally mandated by the Credit Card Accountability, Responsibility and Disclosure Act, and only two-thirds of those that did said that reading the documents actually improved their understanding of how their accounts worked. Of that group, only 33 percent said they now "fully" understood them.

"Despite massive efforts by the credit card industry during the past year to educate customers about credit card terms as a part of the CARD Act, customers’ grasp of those terms continues to be elusive," said Michael Beird, director of banking services at J.D. Power and Associates.

The survey found that those who were most satisfied with their credit cards this year were consumers who keep money in their account from one month to the next. These so-called "revolvers" said they were happier despite 29 percent getting a rate increase in 2010, largely because they were more likely than others to report understanding their accounts better after reading their disclosures.

American Express ranked the highest in customer satisfaction for the fourth straight year, the report said. It boasted an average score of 769 out of 1,000, 12 points higher than Discover, its next-closest competitor.

Overall, many consumers may have said they were less loyal to one lender over another because of how high the average American's debt has climbed, making them more likely to look for better deals from other issuers. Add a comment

More credit card spending helps Target meet profit projections

Wednesday, August 18, 2010 10:00 AM

Consumer spending declined in the second quarter of the year, but that didn't stop a major retailer from seeing its profits increasesignificantly.

Target, the second-biggest discount retailer in the U.S., posted a 14 percent profit in the second quarter of the year to meet analyst estimates, according to a report from Bloomberg. While the company's net income rose to $679 million despite sales that were "softer than expected." The company said that the profits rose largely because more consumers used its store-branded credit cards when they did make purchases.

The company's credit card unit saw profits double to $149 million last quarter, and not just because of the amount of credit card debt consumers took on with their cards. Instead, it strengthened its lending standards and saw the expenses from bad debt fall by more than half.

Consumer spending dropped across the country in the second quarter of the year as consumers made a more concerted effort to pay off their credit card debt. Almost all of the country's largest lenders reported fewer delinquencies and charge offs. Add a comment

Credit card lenders step up marketing to small business

Wednesday, August 18, 2010 09:00 AM

The provisions of the new Credit Card Accountability, Responsibility and Disclosure Act offered a number of protections for consumers who were trying to cope with credit card debt, and were designed to help them avoidlenders' predatory practices. The same was not true of cards for small businesses.

Because of this "loophole," credit cards are now seriously ramping up efforts to market to small businesses as a way to drive profits, according to a new report from the consumer advice website Wallet Pop. While the Credit CARD Act limited how many offers lenders could send to consumers, it gave no such protection to small businesses.

As a result, those businesses are now being inundated with marketing materials, the report said. In the second quarter alone, lenders sent out 40.5 million offers for new credit cards, up from just 26 million in the first three months of the year. However, the report also notes that these new offers might be organic as well, because companies scaled back all offers while the economy was at its lowest points, but could be sending out more now that it has stabilized a bit.

The report also noted that lenders have made it easier for businesses to get cards. Now they will only ask for a federal tax I.D. number, so restrictions have been loosened to some extent. There is a reason for this, however. The Credit CARD Act doesn't apply to business cards only when it comes to offers - it doesn't apply to them at all.

Typically lenders will use the credit history of the business owner as the deciding factor in whether they get the card, the report said. That way, the owner can be held personally liable for the debts on those accounts.

As a result, credit card companies can still hike up the rates on those cards without any notice whatsoever, and apply huge penalties for even the slightest mistakes, as they did for consumers before the federal regulations were finalized. The report said they are doing so, too, because of the billions of dollars in profits they're losing from consumers, to whom they can no longer charge these penalties.

These realities have come under fire from advocate groups in the past, who argue that the protections for consumers should extend to small businesses as well. Add a comment

More Americans closed accounts after paying off credit card debt

Tuesday, August 17, 2010 11:00 AM

As Americans successfully paid off their credit card debt in greater numbers, it seems that they simply closed their accounts to keep themselves from accruing even more.

According to the latest quarterly report from the Federal Reserve Bank of New York, American consumers were able to reduce their total nationwide debt to $11.7 trillion in the second quarter, down $178 billion (1.5 percent) from the previous period. That was a decline of $812 billion (6.5 percent) from the peak, which was seen at the close of the third quarter in 2008. Consumer debt has fallen each of the seven quarters since then.

The report also noted that Americans closed 4 million credit card accounts in the last three months, as the total nationwide number of open balances dropped to 381 million from 385 million at the end of the previous quarter. That number was also down 23.2 percent from its peak in the second quarter of 2008.

Consumers seem to have gotten a better handle on their finances over the last few months as credit card and mortgage delinquencies dropped in July. Add a comment

New credit card can help manage credit card debt

Tuesday, August 17, 2010 09:00 AM

Over the past few years, many consumers across the country may have found that credit card debt can pile up in a hurry if they're not careful with their finances and don't pay attention to their spending. Fortunately for those consumers, there is a new credit card, which is offered jointly by MasterCard and Citi, which may be able to help them keep track of their finances.

The new inControl credit card allows for increased flexibility in credit card debt management. It not only allows consumers to establish personal monthly spending limits, it also alerts them when they approach those balance totals. This card will be available to consumers by the end of the year.

Those limits are able to be set up not just for the total account, but even for spending in particular categories. This way, consumers are able to ensure that they aren't spending more than they want to for specific items or services in a given month. Similarly, the alerts consumers can set up will allow them to know when they're approaching these monthly totals, and can be received via text message, email or both. In this way, they are able to stay on top of their finances in real time.

"Through the MasterCard inControl service, we are focused on leveraging the latest technology and consumer trends and our global network to provide card functionality that gives power to the people as they navigate today’s new financial realities," said Ed McLaughlin, the chief emerging payments officer for MasterCard Worldwide. "We are excited to be working with Citi to bring these cardholder alerts and controls to life, offering them better information and greater control over their spending activity."

A MasterCard study found that 49 percent of consumers surveyed felt the inControl card offered them the kind of budgeting tools that would help them to better manage their spending. It also found that 51 percent of consumers would feel safer and more secure in using this card over others.
Many consumers that may be concerned about how safe their credit card accounts are should be aware that the best way for them to protect themselves from a potential threat is to stay vigilant and constantly monitor their finances. Add a comment

Mississippi lets drivers renew license with credit card

Monday, August 16, 2010 11:00 AM

Many consumers may have been frustrated by a trip to the Department of Motor Vehicles in the past, but the state of Mississippi has a new way for them to avoid that hassle.

According to a report in the Pascagoula newspaper the Mississippi Press, every DMV in the state - as well as two county courthouses - now has at least one kiosk that allows consumers to renew their driver's license in minutes. All the consumer needs to do is swipe their credit card and old license, get their picture taken, and wait for the machine to print out the temporary license. The process takes about two minutes.

"I promised efficiency and convenience when I introduced the first kiosk in December," Stephen Simpson, commissioner of the state's Department of Public Safety, told the paper. He added that there will be kiosks in more public buildings in the near future.

By adding machines that allow consumers to make payments by taking on credit card debt, Mississippi not only makes the lives of its residents easier, but also generates new revenues. Add a comment

New York restaurateurs fight back against credit card swipe fees

Monday, August 16, 2010 09:00 AM

Over the next few weeks, more than 1.75 million homeowners in South Florida will get their property tax notices in the mail, and many could be disappointed by what they find inside.

According to a report in the Miami Herald, property values in the state have declined for the third straight year. This year alone, they fell an additional 13.4 percent from the already-down numbers seen last year. That drop signals a loss of $29 billion in values, just in Miami-Dade County.
"This is the biggest drop we have seen in value in Dade County in I'm not sure how long - definitely more than 35 years,'' Pedro Garcia, a local property appraiser, told the paper.

The drop in values has been largely attributed to the increasing numbers of both foreclosures and short sales, as homeowners sought relief from their underwater mortgages. However, many that have stayed in their homes will find that property taxes haven't fallen at the same rate as the value of their property.

The reason for this is that many counties have huge budget shortfalls which they are scrambling to make up, the report said. In most cases, counties added an extra $1,000 to property taxes to fill these gaps.

In many cases, consumers may feel that they have no option but to abandon their underwater homes, which will only lead to more foreclosures, and in doing so drive down property values even more. Add a comment

Consumers enroll in overdraft protection programs after reforms

Friday, August 13, 2010 03:00 PM

Despite many consumers logging onto various websites and complaining about the large fees they used to be hit with when they accidentally overdrew their checking accounts, experts say a surprising number have decided to enroll in similar programs.

According to a new report from Consumer Affairs, a "surprising number" of Americans either have opted in to the new overdraft protection plans, or will do so in the near future. One study on the subject found that 26 percent of consumers have already told their bank they would like to continue receiving this protection, and the same number said they will do so in the near future. This has come as a bit of a shock to many experts, who expected to see many consumers say good riddance to any additional bank fees they could be hit with.

However, the report said, there are some potentially good reasons for consumers to opt into these new programs after complaining so fervently about the old ones, which included fees as high as $40. For one thing, the new financial laws now regulate how much banks can charge if a consumer overdraws his or her checking account. But perhaps more importantly, many lenders have given consumers more options for dealing with overdrafts because they know it is now a voluntary program and they need to give their customers a good reason to enroll.

The report said that many banks are now offering a new way for consumers to handle a payment that makes their checking account sink into the red. For example, many will now allow consumers to attach their checking to a credit card account. This means that any purchases that would result in an overdraft can either be transferred in full or in part into their credit card account. Many banks also allow customers to link other accounts to checking, drawing funds - from savings, for example - as needed to cover purchases. Of course, these transactions will also cost consumers a fee, which can be either annual or on a per-transaction basis, but they will be less egregious than the old cost of an overdraft.

Federal law now requires all banks to ask consumers whether or not they want to enroll in these overdraft protection programs beginning on August 15. Institutions can no longer make participation compulsory. Add a comment

PayPal gaining ground on credit cards

Friday, August 13, 2010 09:00 AM

Though the number of consumers who take on credit card debt to make online purchases is still significant, another payment system is gaining popularity.

According to a new survey from market research firm Cardbeat, PayPal has grown in both market penetration - over three-quarters of respondents said they had an account - and popularity as a payment method. While 70 percent of respondents said they still use their credit card to make online purchases, a growing number - 39 percent - said they use PayPal as well.

The report said that consumers are also using the service more often, though they're spending the same amount per transaction. While the average purchase is still about $60, the same amount consumers reported when Cardbeat last conducted such a study in 2008, the number of transactions has nearly doubled from 10.8 two years ago to 21.2 now.

In the past, many consumers used PayPal primarily as a means of paying for their eBay purchases, but the system has grown over the last few years, and is now accepted by a large number of online shopping sites. Add a comment

Vending machines will take credit card payments via thumbprint

Thursday, August 12, 2010 09:00 AM

Consumers who use technology to take on credit card debt at their favorite vending machine can now do so without getting out their wallet.

According to a report from New York City television station WNYW, a company in Massachusetts has begun testing futuristic new "biometric vending machines," which allow consumers to tie their retinal scans or thumbprint to their credit card accounts. Consumers can then use these scanners to make payments for the bag of chips or candy bar from their office vending machine.

The report said that the company, Next Generation Vending and Food Service, has about 60 of these machines in the field across the Northeastern U.S. currently. Other machines they've tested recently include one with a 46-inch touchscreen display. The company is also connecting all its current machines to the internet so they can monitor them in real time, not only to see when they're running low on products, but also to see if the coinslot is jammed.

As technology advances, consumers will be able to make more secure payments through their credit accounts without actually using their physical credit card. Add a comment

New Jersey adds more restrictions for student credit cards

Wednesday, August 11, 2010 10:00 AM

Because many college students run the risk of piling up lots of credit card debt while they're away from home, one state has passed new laws that will help young adults avoid some of the pitfalls that come with a new card.

According to a report in the Bergen Record, the state of New Jersey recently added restrictions on how credit card companies can market their products to college students, and how they can pursue their debt. These restrictions are in addition to the provisions of the Credit Card Accountability, Responsibility and Disclosure Act that limit how lenders can deal with consumers under the age of 21.

The report said that the laws not only restrict the way credit card issuers can market their products on college campuses, but they also prohibit lenders from pursuing delinquent debt from a student's parent or guardian. In addition, lenders that do market on campuses must provide students with education about the responsibilities of opening an account.

In recent years, student credit card debt has grown into a serious problem. The average new college graduate has thousands of dollars in credit card debt. Add a comment

Minimum credit card payments coming soon to small businesses

Tuesday, August 10, 2010 11:00 AM

In the next few months, many consumers could find that their local businesses have imposed minimum purchase amounts when they choose to pay with their credit card.

According to a report from Cleveland television station WEWS, the latest credit card reform laws included a provision that will stop credit card lenders from preventing businesses setting minimum purchase amounts. In the past, issuers didn't allow these minimums so they could continue to make money from interchange fees, which could climb as high as 5 percent of the purchase price.

The report said that by establishing these minimums, businesses are able to offset the cost of these interchange fees. To make up for minimums, and to keep customers who prefer to take on credit card debt, businesses may also start offering discounts to customers who make their payments using cash or their debit cards.

If small businesses were not allowed to offset the cost of these interchange fees with minimums, or by raising prices, many say they would lose tens of thousands of dollars a year. Add a comment

Age is a factor in credit card decision making

Tuesday, August 10, 2010 09:00 AM

As consumers approach and then pass middle age, they are less likely to know how to deal with credit card debt, a study has found.

According to a new study from Boston College's Center for Retirement Research,consumers make the best decisions when it comes to paying off their credit card debt with a balance transfer from one card to another when they are between the ages of 35 and 44.

The study surveyed consumers in five age groups - 18 to 24, 25 to 34, 35 to 44, 45 to 64 and over 65 - and asked them how they would reduce credit card debt that they had just transferred from one credit card to another with a low introductory rate. About a third of all respondents immediately provided the best answer, which was to make new purchases on the old card while paying off the debt on the new card.

The age group with the most "immediate eureka moments" was that of the 35- to 44-year-olds, who responded correctly over 40 percent of the time. The next-best group was 25 to 34, who were barely under 40 percent. The group with the fewest immediate correct responses was "over 65," which came in just over 20 percent.

The report said that the corresponding data for those who had "no eureka" exhibited the opposite pattern, with the youngest and oldest age groups exhibiting higher percentages, and troughing with the 35- to 44-year-olds. This, the report said, indicates "that the greatest frequency of confusion occurs among younger and older adults." In all, a little more than a third of all respondents never arrived at the correct conclusion.

The study found that the remaining one-third of respondents come to the correct decision after one or more billing cycles, when they discover they are paying "surprisingly high" interest rates. After these consumers had their "eureka moment," they always changed strategies to the correct one rather than continue on making purchases with their new card.

Consumers should also be aware that credit card issuers often charge a fee for a balance transfer, meaning that consumers should do some number crunching before making such a transaction. Occasionally, the amount they pay for their fee outweighs any subsequent payments toward interest they would have made. Add a comment

Personal bankruptcies rise for the first time in months

Monday, August 09, 2010 02:00 PM

The number of Americans who were forced to file for bankruptcy protection rose in July for the first time in months, which kicked off the second half of the year on a down note.

According to the National BankruptcyResearch Center, there were 137,698 filings across the country in the July. That number is a nine percent increase from the total posted in June, as well as over the same month last year. Further, if the number of consumers who seek protection from their creditors continues on its current pace, the nationwide total of filings will top 1.6 million, a significant increase from the 1.4 million last year. At the time, that was the most bankruptcy petitions filed since the country revamped its laws in 2005, which made it more difficult for consumers to do away with their debt.

The Wall Street Journal's report on the figures said that one of the largest contributing factors to the increase in bankruptcies is that credit issuers have tightened restrictions on the type of consumers they will lend to, and as a result more consumers had trouble paying debts.

"They can no longer borrow to stave off the day of reckoning," Robert Lawless, a University of Illinois law professor, told the newspaper.

The report said that this renewed vigor with which consumers are filing for bankruptcy has cast serious doubt on whether the 2005 law changes have been effective, as filings are once again returning to the levels seen in the early and mid-2000s. However, it mentions that the number of filings could decline slightly in the next few years if consumers who are shut off from additional lines of credit can't amass more debt.

The report also noted that many states in the Southern U.S. have unusually high rates of filing. Ronald Mann, a Columbia University law professor, found that six of the 10 counties across the country with the highest bankruptcy rates are located in suburban Atlanta. Filings in Hawaii, California, Arizona and Utah have all climbed more than 30 percent over the rates seen a year ago.

The NRBC report also said that 75 percent of all bankruptcy filings in July were under Chapter 7, which allows for liquidation, rather than Chapter 13, which requires consumers to pay back a portion of their debt over a period of three to five years. Add a comment

Study shows number of new credit card accounts declined

Monday, August 09, 2010 09:00 AM

A new study has found that the national recession has changed the way consumers obtain and pay off their credit card debt considerably over the last three years.

According to a new report from the credit monitoring bureau Experian, the nationwide number of new credit card accounts that have been opened in the last three years declined 26 percent. In addition, the way consumers have used their lines of credit has also changed dramatically.

"This implies that many American consumers are relying less on cards and potentially trying to pay down debt," said Michele Raneri, Experian's senior director of analytics.

The study also looked at how consumers in the nation's 20 largest metropolitan areas used their credit, and found that New Yorkers carry the most cards - 3.77 on average - of anyone in the country. Pittsburgh residents, meanwhile, came in second, with 3.6 per person.

Many consumers may have found it easier to reduce their total debt as a result of the Credit Card Accountability, Responsibility and Disclosure Act, which was designed to help consumers manage their credit more wisely. Add a comment

Small businesses can now process credit card sales on mobile phones

Friday, August 06, 2010 09:00 AM

In the past, many small business employees and owners may have found it difficult to process credit card payments from remote locations, where they didn't have access to their accounts or equipment. However, that could all change thanks to a new mobile phone program.

Sage Payment Boss, a new program from business software company Sage North America, allows small businesses allow customers to take on credit card debt from anywhere they can connect to a 3G network with their cell phones. As long as the small business can connect to their merchant accounts, they can process and verify any payment by credit card, and even send out an electronic receipt when the transaction is completed.

The program can also be used in conjunction with Sage's Billing Boss, which also tracks and manages incoming cash flow in real time and monitors sales activity.

Several major cell phone carriers, such as Verizon and AT&T, are also about to implement a system that would allow consumers to use their cell phones to make credit card payments by simply waving them in front of a wireless sensor. Add a comment

More Pennsylvania residents opting to pay their taxes with a credit card

Thursday, August 05, 2010 09:00 AM

A small but growing number of Pennsylvania residents are opting to use credit cards to pay their taxes, despite the fact that they are charged extra to do so.

According to a report in the Pittsburgh Post-Gazette, more towns, cities and counties in the state are now allowing residents to take on credit card debt to pay their taxes online. And though this payment method comes with a fee of about 3 percent, it is quickly growing in popularity. These fees are being charged to offset the cost of having a third party process the transaction, since the state is not able to do so itself.

One local tax collector told the paper that his office has typically heard three reasons for consumers to pay by credit card despite the additional fee: a cash flow problem, the appeal of earning credit card rewards points or miles, or the convenience of being able to pay the bill online.

The Internal Revenue Service allows Americans to pay their federal taxes by credit card as well. Like Pennsylvania, the IRS charges a small percentage per transaction because it too has to go through a third party to process the payments. Add a comment

Wells Fargo says it will eliminate penalty interest rates

Wednesday, August 04, 2010 01:00 PM

In the past, consumers who were behind on paying off their credit card debt could have expected to be hit with a penalty interest rate that was much higher than their basic APR. However, those days may soon be forgotten.

According to a report from the Associated Press, Wells Fargo recently announced it would eliminate all penalty interest rates - which it traditionally held at 27 percent - for accounts that were more than 60 days delinquent after July 6. Any accounts that incurred penalty rates prior to that will still be required to pay theirs until that debt is eliminated.

The report said that Wells Fargo will still maintain late fees of $25 or the minimum payment due, whichever is less. That late fee can escalate to $35 if another late payment is made within six months of the first one.

A recent report from Mintel Comperemedia found that despite experts' predictions, many banks, like Wells Fargo, have not adopted practices that could have been harmful to consumers in the wake of the new credit card laws. Add a comment