Category: Consumer Debt

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.