Author: user

When consumers apply for a loan, the lender will often use their credit report to not only decide if they qualify, but also determine the interest rate they pay on their credit card debt. Now, if a person gets a less than favorable rate, the lender must tell them the aspects of their credit history that were used to derive it.

Beginning on January 1, lenders were required to tell consumers that so-called "risk-based pricing" was used to determine the interest rates they pay on their credit card debt if it was worse than what others received, according to a report in the Dallas Morning News. Previously, this was only required for those lenders who dealt with home loans.

As an alternative, lenders also have the option of providing an applicant with a free copy of their credit score and explaining some of the information on it to them. In addition, if there is an "adverse action" – a consumer getting a worse rate on their credit card debt – the report said.

Risk-based pricing is often used by lenders who deal with credit card debt to determine loan eligibility and rates.

A considerable amount of consumers still carry significant credit card debt, which may make efforts to reduce outstanding balances more difficult, according to a report from the Rochester Democrat and Chronicle. Currently, Americans carry more than 609 million credit cards, which averages out to more than three per consumer.

Further, credit card debt makes up 98 percent of all credit card debt held nationwide, the report said. Currently, that figure is hovering above more than $800 billion, debt that can carry an average interest rate of 14 percent.

Over the holidays, many consumers said they would lean more heavily on cash and other forms of payment to make their gift purchases, but a significant percentage still took on credit card debt to do so, the report said.

In addition, many industry experts believe that the most significant declines in credit card debt and default have been the result of millions of Americans being forced from the lending system entirely.

American Express is dropping the foreign transaction fee it charges whenever a consumer takes on credit card debt to make a purchase outside the U.S., the company recently announced. While that change is effective immediately, the lender will also roll out more in the next few months.

"We've been expanding those benefits to make sure that American Express is top of mind and top of wallet when they shop, travel and entertain – at home and abroad, said Ed Gilligan, vice chairman of American Express.

Other benefits include covering up to $200 a year in expenses related to airline travel when consumers take on credit card debt to book their flights, including baggage and flight change fees, in-flight meals and airport lounge passes.

American Express announced these changes just a week after Citi also eliminated foreign transaction charges for taking on credit card debt abroad.

In the third quarter of the year alone, lenders sent out 1.2 billion new credit card offers, according to a report from Mintel Comperemedia. That marked a significant increase over the 391 million issued in the same period last year. In addition, a large portion of these offers – 80 percent – were for cards that gave consumers points, miles or cash back for taking on credit card debt, up from 60 percent last year.

Lenders have also made a greater effort to appeal to consumers’ feelings about taking on credit card debt by increasing the amount of cash back rewards offers they send out to 41 percent, the study found. This was a jump from the 28 percent seen in the third quarter of 2009.

Many consumers have been wary of taking on additional credit card debt in recent months, and specifically rewards cards because they carry higher rates and fees than do traditional accounts.

The total amount of delinquent credit card debt slipped for the 13th month in a row, to 4.38 percent in November, down from 4.51 percent the month prior, according to the latest statistics from Moody's Investors Service. This wasthe lowest level observed since December 2007. In particular, early-stage delinquencies – those between 30 and 59 days behind, which are viewed as a forecaster for future charge offs – slipped to 1.14 percent, close to an all-time low.

Meanwhile, the rate of credit card debt that had to be stricken from lenders' books entirely dipped as well, to 8.58 percent in November from the previous month's 8.79 percent, the report said. That was the lowest rate observed since August 2009.

Consumers have had a better time paying their credit card bills in recent months. However, some analysts believe the continual drops in delinquent and defaulted credit card debt may be due to the fact that many consumers having already defaulted, they have effectively locked themselves out of the borrowing system altogether.

The U.S. Supreme Court listened to oral arguments earlier this month in the case of Chase Bank USA vs. McCoy, in which the plaintiff, James McCoy, is suing his lender over a retroactive rate hike. McCoy says he was not properly disclosed ahead of time, according to a report from the Maryland Daily Record. The bank says that the increase, which was a penalty for a late payment on his credit card debt, was clearly outlined in documentation it sent him.

At the time, Regulation Z stated that lenders must give at least 15 days notice prior to any rate increase on credit card debt, the report said. While the lender acknowledged that the disclosure was somewhat ambiguous – it only said it "may" increase rates after a late payment – it also says that this was in keeping with the industry standard at the time.

The credit card industry has gone through many regulatory changes mandated by the federal government over the last year, and if the Supreme Court rules in McCoy's favor, more could come.

Many believed that when the Federal Reserve Board introduced restrictions on how much credit networks could charge merchants for processing debit card transactions, those savings would be passed on to the consumer and lead to less credit card debt. But some financial experts say that the opposite is true.

The Fed's latest rules limit the amount credit networks can charge for processing debit card transactions to just 12 cents. But financial experts worry that the restrictions' lack of a mandate for passing those saving on to consumers will not lead to lower prices, according to a report from the Philadelphia Inquirer. In fact, they say that it could lead to more credit card debt as lenders introduce new fees and higher interest rates in an attempt to make up for lost profits.

"We think the unintended consequences of this legislation will be an environment that is actually bad for consumers, not good for them," analysts Thomas McCrohan and Len DeProspo told Janney Capital Markets clients, the newspaper said.

Many lenders have actually added rewards programs for credit card debt, but at the same time have reintroduced long-absent charges such as annual fees, and increased rates.

Citi recently announced that it will soon begin replacing a number of its credit card accounts that are popular with regular travelers to foreign countries with new ones that eliminate currency conversion transactions, according to a report from the New York Times. The company will also simultaneously shut down PremierPass, Diamond Preferred Rewards, Simplicity Rewards, Home Rebate and Driver’s Edge Options cards.

Meanwhile, the new cards, dubbed ThankYou, ThankYou Preferred, Premier and Prestige, will make up for the lost fees by also discontinuing the programs that allowed cardholders to earn rewards points for every dollar of credit card debt they took on. In addition, it will introduce higher rates and fees for new customers signing up for cards for the first time. Those whose accounts are transferred from the old types of cards will not have their interest rates affected.

Citi's decision to axe it's very popular Simplicity Rewards program is one of the more curious decisions the company made, the report said. However, it may indicate that the lender is wary of its ability to drive revenues and profits with the card's more generous rewards program.

In the past, Citi had differentiated between frequent travelers' everyday purchases and "flight purchases," which meant that they often racked up airplane miles far faster than they did regular rewards points, the report said. By mandating, that these cardholders have at least as many points for their normal purchases as they did when redeeming airline miles. As a result, they repeatedly locked consumers into a cycle where they had to spend more to be able to get free flights.

With these new cards, however, consumers will earn more points and Citi will introduce no other restrictions on how cardholders redeem them, the report noted.

In recent months, many consumers have shied away from using their rewards cards because they typically carry higher fees and interest rates. Instead, they have moved on to accounts with fewer perks, but which also carry lower rates and fees.

Just 49 percent of consumers recently said they had some extra money left over after paying their monthly bills in November, according to a survey from Discover Financial Services. While that number tied the 2010 high observed by the monthly poll, it was the 20th consecutive period in which fewer than half of consumers were able to save or spend any excess money.

The poll also found that 80 percent of those who did have money left over after paying their bills expected to have as much as or more than that amount in December, the report said. However, more consumers also think they will see an income shortfall in the month, though the company said this was likely because most are going to take on credit card debt or otherwise spend more during the holiday season.

Many consumers have made a greater effort to reduce their credit card debt, specifically by spending less on these accounts, in an attempt to lower their monthly bills.