Debtmerica Debt News

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

Debit card use is closely tied to consumers' credit scores

Wednesday, August 04, 2010 10:00 AM

A new study has found that the number of times a consumer uses their debit card to make a purchase every month, and how much they spend on them, is closely related to their credit score.

According to a study from MasterCard, which also cited third-party findings from Lightspeed Research, the lower a consumer's credit score, the more likely they are to use their debit card more frequently every month in lieu of taking on credit card debt.

The study said that consumers whose credit score is considered "subprime" - or below 650 - are far more likely to use their debit card to make purchases. These borrowers use their debit card to make an average of 28 purchases per month, and spend $860. This use makes up 73 percent of all their spending on cards.

Consumers whose credit card companies consider them simply "prime" - those with scores between 650 and 720 - use their debit cards less often, the study found. They make just 20 purchases per month on average, and spend $618.

The study also found that consumers with the best credit scores - those above 720, which are considered "superprime" - use their debit cards with even less frequency. These borrowers make an average of 11 purchases a month on debit, and spend just $324 on them. Standing in stark contrast to their subprime counterparts, these borrowers use credit to make 72 percent of all their card purchases.

Despite the wide-ranging disparity in debit card usage per month, however, the study found that the total number of debit transactions has increased considerably, and across the board, over time. Between the fourth quarter of 2008 and the same period a year later, the amount of debit purchases subprime borrowers made per month has increased 10 percent. That number rose 17 percent for prime consumers, and 12 percent for superprime. However, MasterCard found that these increases did not affect credit card usage for the most part, but rather that the rise in debit card spending cut into cash and check payments instead.

In recent years, as the economy worsened and credit card delinquencies rose, lenders made it more difficult for consumers with lower scores to obtain a line of credit, in some cases shutting them out completely. This trend may be one reason for their low usage among subprime borrowers. Add a comment

Which is better: charge cards or credit cards?

Tuesday, August 03, 2010 10:00 AM

While they look the same, and many cards bear the logos of major lenders, there is a huge difference between credit cards and charge cards.

Despite their cosmetic similarities, a charge card works in an entirely different way from their credit counterparts. According to a report on the consumer advice website Mint Life, they don't have a monthly limit, and consumers can spend as much as they want on them until the card's issuer cuts them off. Instead, these cards carry what is referred to as a "shadow limit," meaning that the company assesses on a case-by-case basis what a consumer's upper boundary for spending is.

The other major difference between the two is that balances on charge cards must be paid off in full every month, allowing consumers to remain debt free, the report said. While this might be a pain for consumers, it is actually beneficial to them in the long-term because it both keeps spending down and never accumulates interest. As a result of this, however, these cards typically come with annual fees.

Credit cards, on the other hand, do have credit limits, the report said, and common ones for low-end cards typically range from a few hundred to a few thousand dollars. These cards don't have to be paid off in full every month, but do carry annual interest rates on any debt that is still unpaid on the account's balance. This type of card, unlike charge cards, typically don't carry annual fees as a consequence, since consumers are giving the lender plenty of revenues in the form of interest payments.

Because of these characteristics, both cards have their own benefits and drawbacks, the report said. Because charge cards basically guarantee that a consumer can't find themselves deeply in debt as a consequence of using them - since it has to be paid off every month - they're a good way for a consumer to establish a solid credit history. However, with no credit limit, the part of their score that's governed by how much they can borrow is basically non-existent. Credit cards obviously offer that aspect, but also come with the looming threat of the consumer incurring lots of debt.

Consumers may find that they benefit from having both types of card, which will allow them greater flexibility in finding a payment method that works for them. Add a comment

MasterCard's profits make huge leap as consumers increase per-purchase spending

Tuesday, August 03, 2010 09:00 AM

An increase in consumer spending - not by volume but rather in the value of the things they bought - helped MasterCard post large profits in the second quarter.

The company, which processes a large percentage of all credit card transactions in the U.S., said that profits rose 31 percent between April and June of this year thanks to decreased operating expenses and an increase in consumer spending on a per-purchase basis. In addition, American consumers spent more overseas in the three-month period.

"We are pleased with our performance in the second quarter," said MasterCard president and chief executive officer, Ajay Banga. "Solid GDV growth, particularly in markets outside the U.S., continued momentum in worldwide cross-border volumes, and thoughtful expense management all contributed to good financial results this quarter."

The company's numbers showed what could be a renewed consumer confidence, because while the company's profits climbed considerably, the number of total transactions it processed was essentially flat, increasing just 0.1 percent. This is an indicator that while consumers aren't making more purchases, they are buying more expensive items. Add a comment

FHA announces it will introduce minimum credit score for mortgages it insures

Monday, August 02, 2010 10:00 AM

Because it has been hemorrhaging money for months, the Federal Housing Authority announced it will begin to institute a minimum credit score for the homes it insures.

According to a report in the Wasington Post, the FHA will no longer insure mortgages for consumers who have faced credit problems and have a rating of less than 500 because it has seen the cash reserves it keeps to pay for "unexpected losses" evaporate to dangerously low levels in recent months.

The report said that in the past year and a half, the number of FHA-insured loans made up about 30 percent of all new single-family home purchase mortgages, an increase from just 3 percent in 2006. Similarly, about 20 percent of new refinances are also insured by the Authority. However, as the number of loans it insures rose, so too did its default rate, which cost it a significant amount of its reserve money.

The Post said that if the agency runs out of money, taxpayers will have to foot the bill for all the home loans that go bad. By instituting the minimum credit score of 500 for all borrowers, it is trying to insulate itself against the risk of running out of money while still maintaining its key role: keeping the housing market afloat.

According to the Post, not only will the FHA introduce a minimum, but it will also require all borrowers with a credit rating under 580 to have a higher down payment on their home than those that don't. Currently, borrowers only have to put down 3.5 percent of the home's total cost, but those with a score below 580 will have to pay 10 percent. This protection should help the Authority considerably, as the percentage of borrowers that are "seriously delinquent" was three times higher for those below that mark than those above it in January, the last month data was available.

However, many mortgage lenders have already been tightening restrictions, the report said. This is one reason that just 1 percent of current FHA-insured borrowers have scores below 580.

These new restrictions could be one reason that home sales have been so slow in recent months despite record lows in mortgage rates more or less across the board. Add a comment

Credit card companies still finding loopholes in laws

Monday, August 02, 2010 10:00 AM

Credit card issuers have lost out on millions in profits as a result of the laws put in place by the Credit Card Accountability, Responsibility and Disclosure Act, which prohibited practices deemed excessive and harmful to consumers.

According to a report in the Dallas Morning News, however, those companies have made up some of those lost profits by exploiting loopholes in the Credit CARD Act. They are complying with requirements like the necessity of 45 days' notice before changes to a credit card agreement, any payment made above the minimum be put toward the credit card debt with the highest interest rate, or those eliminating fees for going over a card's credit limit. But at the same time, they've found new ways to drive revenues.

The report said that the Pew Safe Credit Cards Project has found that companies are still engaging in what it calls questionable practices, including sharp, unannounced rises in penalty interest rates.

"For the first time, we have seen credit card disclosures warning consumers that interest rates could go up as a penalty for certain actions, but not stating how high those rates could go," Nick Bourke, director of the project, told the paper.

Pew found that surcharge fees for cash advances also rose sharply between July 2009 and March of this year, the report said. The average increase for these charges rose by one-third, from 3 percent per transaction to 4 percent.

Consumers should be aware that any new card they sign up for now may come with an attractive introductory interest rate, which then increases significantly when that initial period ends. This practice may seem harmful as well, but because it was spelled out in the credit card's initial agreement, it is perfectly legal under the new laws. Add a comment