Author: user

A large number of consumers who had previously been locked out of the lending system entirely because they allowed their credit card debt to become so delinquent that it was written off are now receiving preapproved offers for new accounts, according to a report from Dow Jones Newswires. Major lenders like Capital One, Bank of America and Wells Fargo are now mailing first-time defaulters offers for new accounts in hopes of revitalizing their sagging profit margins.

Similarly, Discover is looking into whether this is a good idea by conducting research into how the current creditworthiness of these past defaulters, the report said. In recent months, the company has made an effort to increase the number of employees whose job it is to evaluate credit card applications. By the end of 2011, it hopes to have 400. As recently as two years ago, it had just eight.

"The universe of people that are potential candidates for credit isn't as big as it was before the recession," Jim Panzarino, chief credit risk officer at Discover Financial Services, told the news agency. "So what do you do? We intend to deploy strategies to address that."

Many consumers did not default because they chose to do so, but rather because they faced serious financial difficulties which rendered them unable to pay down their credit card debt altogether, the report said. By differentiating between strategic defaulters – who walked away from loans because their home value slipped to the point that they owed more on it than it was worth – and those who simply faced hardships such as prolonged unemployment, the company believes it may find some reliable borrowers.

One out of every four credit card offers is now directed at consumers whose credit score would categorize them as subprime, the report said. In general lenders have increased the offers they send out about three-fold in the last year.

However, the large amount of consumers who have defaulted on their credit card debt and were no longer able to get a line of credit also saved lenders tens of millions of dollars on their losses. Rates of both delinquency and charge offs have declined steeply in recent months.

Next year, Travelex will soon begin selling prepaid cards with an embedded microchip to store all their payment data, according to a report from the Associated Press. With this new payment option, consumers can load money onto the account, which will be converted to any desired foreign currency at an exchange rate between 3.75 percent and 11.75 percent. By doing so, consumers can also avoid taking on credit card debt when traveling.

When a consumer tries to take on credit card debt in Europe with their current cards, they will typically receive an undesirable exchange rate on their American currency, as well as a foreign transaction fee of about 3 percent, the report said. However, most businesses overseas cannot handle American credit card debt because of a discrepancy in technology.

American cards still use magnetic strip system to validate transactions that result in credit card debt, while European lenders upgraded to the more sophisticated "chip-and-pin" system years ago.

Debit cards may not add to a consumer's credit card debt, but they carry fewer protections from fraud than do the other options, according to a report from Reuters. While the payment option has grown far more popular, some consumer advocates believe they also greatly increase not only the chances for fraud, but the amount that can be lost to such a crime.

"We are very clear on that matter. We do not recommend that people use debit cards," Beth Givens, director of the Privacy Rights Clearinghouse, told the news agency. "We think they can be dangerous."

For example, while many banks claim their debit cards have the same zero liability protections that credit card debt does, there are legal limits to how much they can provide, the report said. Further, it typically takes far longer to detect fraud with debit than credit.

Research has found that the average amount stolen from debit accounts totaled $3,677 last year, and wasn't discovered for an average of 35 days, the report said. It took far less time to spot bogus credit card debt, and issues related to this type of fraud were typically cleared up more quickly.

In addition, disputing mistakes on your debit card is often more difficult than it is for erroneous credit card debt, Reuters noted. This is because a credit card company will withhold payment from a merchant until a dispute is resolved, but with a debit card, they already have the money, making it tricky to retrieve in some cases, because the burden of proof is on the consumer.

Debit cards are also likely to be hit with higher fees and charges in the near future, the report said. The Federal Reserve Board will soon convene to discuss limits on what payment processing networks can charge businesses for every transaction involving debit. Banks are expected to make up for the lost profits by adding a number of service fees to these accounts.

In addition to turning to debit cards, consumers have also avoided adding to their credit card debt by using cash and prepaid cards more often.

In its latest regulatory filing, Bank of America said that the rate of credit card debt it had to strike from its ledgers due to their extreme lateness fell to 9.92 percent in November. That was a decline from 10.15 percent in October, and a recent peak of 13.53 percent in December of last year. Typically, these write offs occur when an account goes 180 days without being paid.

Similarly, credit card debt that was 30 days or more behind fell in November as well. Bank of America said its delinquency rate dipped to 5.47 percent, the lowest observed this year, and down from 5.6 percent in October.

Many consumers have had a better time handling their finances as the economy has continued to recover, but another portion of the population may have been locked out of the credit system entirely due to previously defaulted credit card debt.

Patrice Perry, who claims she received harassing phone calls from Capital One for months over a mistaken entry on her credit card debt, is suing the lender, according to a report from the Philadelphia Daily News. The company initiallyclaimed that Perry owed it $4,807 in May 2009, and subsequent bills, which arrived infrequently, saw that total fluctuate wildly. She never paid the first bill out of principle, and was confused when the next one arrived two months later showing a lower total.

It wasn't until the bill said Perry, a hotel clerk, had $286,651,237 in credit card debt with the company that she decided to take legal action, the report said. The accompanying letter asked that the payment be sent in a provided envelope and said the lender would sue her if she did not pay.

"It's not your typical scenario, where you'd expect if they were pursing debt with interest it would only go up," Craig Kimmel, Perry's attorney, told the newspaper. "It went down and up and down and up. The only thing I can associate with that is that they were trying to confuse my client."

The suit is seeking the same $286 million figure in damages, the report said. In particular, Kimmel points out that because the bill was so excessively large, it would have to have been approved by actual humans, rather than being automatically processed by a computer. A Capital One spokeswoman said that it was very likely the bill was sent as a result of human error, and that the company is working to correct the problem. However, the lawsuit alleges that Capital One engaged in "terroristic debt-collection methods" over the course of the ordeal.

A report on the case from the Consumerist said that Perry initially disputed the charges and asked that the lender deal directly with her lawyer, but that it continued to contact her and her family members about the erroneous debt. In addition, Capital One attempted to bring Perry to court, but no one from the company, nor anyone representing it, ever showed up for the scheduled hearing.

Visa Mobile, a new smartphone application available for free on both the iPhone and Android smartphones, will allow users to get discounts when making a transaction that results in credit card debt at a wide variety of major national chains, including JC Penney, Zale's and Hertz, according to a report from the company. All users need to do to participate is download the app and enter their name, address and credit card number.

With that information, the app will then send them a number of deals available both online and at real-world stores based not only on their purchase history when taking on credit card debt, but also their current location, the report said. Using the phones' built-in GPS system, the program finds nearby participating retailers and displays both their location and the deal available in the Google Maps app.

Visa likely launched the program to compete with discount startups such as Groupon and others, which have grown in popularity recently, which also offer smartphone apps.

The online payment method PayPal will once again increase in popularity this year, according to the consumer advocate site Wallet Pop. This transaction management site allows consumers to link a secure account to either a credit or debit card to make simple payments without having to enter their account numbers on any merchant websites. By linking a PayPal account to a debit card, a consumer can make online purchases without taking on credit card debt.

However, another popular method is gaining prominence as well, and it allows even those consumers without a bank account to make purchases online, the report said. The payment system, called eBillme, is affiliated with over 800 different merchant sites, including large retailers like Kmart, Sears and Crutchfield, and also allows customers to buy gift cards to Amazon.com, JCPenney and Home Depot, among others.

The program works by allowing consumers to use cash to make online purchases, the report said. Instead of racking up credit card debt to make an online payment, a customer is sent a paper bill in the mail, which they can pay with cash or check. Like credit or debit transactions, eBillme affords consumers protections against fraud, and will also reimburse them if they find the same product for less online.

Some participating companies will even offer consumers who buy gift cards using eBillme to get a discount on future purchases, the report said. Typically, this amount is for between 5 and 10 percent, and can be spent on other purchases or, if the consumer chooses, can be sent as a check once the amount reaches $50.

Many polls have found that consumers are eager to avoid taking on credit card debt this holiday season because they worry about the effect it would have on their finances. Instead, they will turn to their debit cards, cash or even prepaid gift cards to make their gift purchases. Already this year, studies have found that spending has increased significantly as consumers feel they are in a better financial position than they were last year.

Agencies specializing in credit card debt collection found tremendous success suing consumers over defaulted accounts, winning about 90 or 95 percent of their court cases, in the early 2000s, and that has allowed them to more aggressively pursue these balances. However, because these companies have filed so many cases in recent years, it has forced them to cut corners in an effort to expedite the process, according to a report from New Jersey Newsroom.

Often, the paperwork in these cases is inaccurate, or does not adequately prove that the defendant has any defaulted credit card debt that it controls, the report said. In addition, it's become increasingly likely that these companies are not properly reviewing the documentation.

These agencies often buy defaulted credit card debt from lenders for a small percentage of their total value, and pursue these accounts aggressively to maximize their profits.

For the first time in about three years, the nation's credit card lenders have resumed sending preapproved offers to most consumers, including those whose credit rating is so bad that they were denied for a similar account just a few months ago, according to a report from the New York Times. However, banks are now hedging their bets by beefing up terms of these agreements, such as introducing higher interest rates on credit card debt and bringing back annual fees.

Lenders may be wary of consumers because, according to one financial consultancy firm, they wrote off $189 billion on defaulted credit card debt since the beginning of the fiscal meltdown in 2007, the report said. That accounts for nearly 10 percent of all money lost in the crisis.

In recent months, consumers who were flushed from the credit system have likely been unable to reestablish their rating. This may be partly because they have been unable to qualify for a new account that allows them to take on credit card debt.

The rate at which the nation's largest credit card lenders had to strike accounts so delinquent they can no longer be considered collectable dropped once again, Fitch Ratings revealed, according to Dow Jones Newswires. Charge offs dropped 0.02 percentage points between September and October, to9.2 percent. That figure marked a 19-month low, and was 9 percent lower than the rate observed in October last year. And had it not been for a change in Citi's charge off policy, the rate would have slipped even lower, to 8.93 percent.

However, it was still considerably higher than Fitch's observed historical average for charge offs, which is just 5.93 percent, the report said.

Meanwhile, other forms of delinquency declined across the board as well, the report said. Late-stage delinquencies – those accounts 60 days or more behind, which are viewed as indicators of future charge offs – fell for the 10th month in a row, to a 25-month low of 3.43 percent. Accounts that had been 30 days or more behind dropped 0.01 percentage points between September and October to 4.51 percent.

In addition, Fitch found that consumers paid 0.42 percentage points less than they had in September, falling to 19.23 percent. However, that was still 4 percent higher than it was in October 2009, the report said.

Fitch managing director Michael Dean noted that continued improvements in rates of default and delinquency could continue in the coming months, and that this trend will persist even as the national rate of unemployment remains at or near 10 percent.

In recent months, industry experts have noticed that rates of delinquency and default have decoupled from moving alongside the national unemployment figures, which used to be the norm. However, some believe that this is because those without a job have seen their credit worsen to the point that they are no longer able to qualify for a credit card, effectively locking them out of the lending system entirely.