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  • Mobile banking catching on with consumers

    Mobile banking catching on with consumers. How people keep an eye on their bank accounts and credit card debt is changing as rapidly as technology will allow.

    Many consumers have, in the past year or two, discovered the convenience offered to them by mobile banking, according to a new report from Seeking Alpha, a consumer news website. Much like the online banking and credit card debt management boom about five years ago, experts believe banking on smartphones is going to be the next big thing in the financial industry.

    The report said that the Mobile Marketing Association has projected roughly 30 million Americans will use their phones for mobile banking by 2015, compared to about 65 million who will use online banking. For mobile banking, that would mark an increase from about 1 million in 2008. Currently, only 1,000 of the 30,000 banking institutions nationwide offer such a service.

    Many consumers may prefer mobile banking because it offers the convenience of instantly transferring funds between accounts or paying off credit card debt while on the go. Some banks are even testing systems that would allow consumers to use their mobile phones to make a payment in lieu of using their a card to compile credit card debt.

  • Lower swipe fees could cost banks billions

    Lower swipe fees could cost banks billions. Part of the Credit Card Accountability, Responsibility and Disclosure Act mandated that credit card companies had to rein in the fees they charged merchants to process debit transactions. That change could cost lenders billions.

    According to a report from the San Francisco Chronicle, Visa and MasterCard – the two largest credit networks in the world – made about $20 billion on swipe fees last year, and all that money came from businesses, both large and small. By changing the rules governing these charges, merchants will save a considerable amount.

    "We’ll be delighted to see the fees go down," Rick Karp, the owner of a hardware store, told the paper. "Banks have been getting away with murder for some time now. About 3 cents of every dollar spent in our stores goes to banks for the use of the cards."

    However, Visa told the paper that it doesn’t believe these fees are outrageous. By paying that 3 cents on a dollar, they get guaranteed payment, potential for increased sales, faster checkout times, and increased security and convenience that they wouldn’t get if they stopped accepting credit and debit card transactions.

    The paper also said that these credit networks are warning consumers that they’ll end up paying the amount lost to the regulation of swipe fees in other ways, either by creating other charges or cutting back on rewards. In addition, the lowered cost for merchants doesn’t guarantee that the savings will be passed on to customers, they say.

    As of July 21, the Federal Reserve Bank had eight months to determine a rate for swipe fees that is "reasonable and proportional" to processing costs, the report said. Doing so takes the power to set these rates out of the hands of major banks. And while these changes only affect debit card transactions, others will allow merchants to decide how they deal with several other types of transactions as well.

    The provisions of the Credit CARD Act are designed to give consumers greater ability to handle their credit card debt and offer them more protection from lenders’ predatory practices. In addition to reining in fees, these rules also regulate what kinds of consumers have access to certain types of credit and how lenders can alter agreements.

  • Final credit card rules have taken effect

    Final credit card rules have taken effect. For several months, various portions of the Credit Card Accountability, Responsibility and Disclosure Act have been slowly going into effect. Sometimes the new rules set up restrictions for how consumers can handle their credit card debt, others prevented lenders from raising rates without notice.

    Now, the latest and final provision, which limits fees lenders can charge for various offenses, is in place. According to the Federal Reserve Bank, credit card issuers can now only apply "reasonable" penalty fees, and are prohibited from issuing some other fees as well. For example, late fees can now no longer exceed $25 unless a consumer makes another late payment within six billing periods. In that instance, the fee can be boosted to $35. Issuers can also increase them if they can justify that the costs it incurs in dealing with these late payments is higher than usual.

    The report also said that lenders cannot charge inactivity fees, and cannot charge more than one fee for a single infraction.

    Other changes the Credit CARD Act has enacted in recent months include regulating the availability of accounts for people under 21 years old.

  • Credit card rates reach nine-year high

    Credit card rates reach nine-year high. Many consumers may have had trouble paying off their credit card debt in recent months, and a new study has found that lenders are likely contributing to the problem with interest rates not seen since 2001.

    According to new statistics published by market research firm Synovate, interest rates on credit card debt have climbed considerably over the last year or so, from 13.1 percent in the second quarter of last year to 14.7 percent for the same period this year. That rate is the highest level observed by the company since 2001.

    A Wall Street Journal report on the figures said that they are especially troubling for consumers when compared to the prime rate – against which rates on credit card debt are set. The current difference of 11.45 percentage points is the largest in the last 22 years. On the other hand, differences in the rates for 10-year Treasury bonds and those on 20-year fixed mortgages are near historical averages.

    The Journal report said that the increases are driven by a number of factors, but the primary reason is almost certainly the passage of the Credit Card Accountability, Responsibility and Disclosure Act last year. One provision of that law dictated that lenders could not increase rates or fees on the cards they issue without at least 45 days’ notice to consumers.

    Further, the report said most lenders are dealing with delinquency and charge off rates that are higher than most historical averages, even despite recent drops. In the past, banks would boost rates immediately on any borrowers who fell behind on their payments. But even this is no longer possible unless a consumer makes late payments habitually.

    Those two factors have led to banks setting higher initial interest rates on credit card debt to help preemptively stem the potential revenue losses from more lenient delinquency policies mandated by the Credit CARD Act, the report said.

    "We can’t come up with penalty pricing or if we can, quite frankly, it’s too late to do much good," Stephanie Keire, head of consumer credit-card risk management at Wells Fargo & Co., told the paper.

    The final rules of the Credit CARD Act went into effect on August 22. Now the maximum a lender can levy against a consumer is $25 for a first offense and $35 for any further instances within the next six billing cycles.

  • Bank of America and Visa to test new smartphone payment plan

    Bank of America and Visa to test new smartphone payment plan. 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.

  • Delinquency drops a good sign for the economy

    Delinquency drops a good sign for the economy. 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 reportfrom 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.

  • Survey finds consumers are more satisfied with credit cards

    Survey finds consumers are more satisfied with credit cards. 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.

  • More credit card spending helps Target meet profit projections

    More credit card spending helps Target meet profit projections. Consumer spending declined in the second quarter of the year, but that didn’t stop a major retailer from seeing its profits increase significantly.

    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.

  • Credit card lenders step up marketing to small business

    Credit card lenders step up marketing to small business. 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 avoid lenders’ 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.

  • More Americans closed accounts after paying off credit card debt

    More Americans closed accounts after paying off credit card debt. 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.