Category: Credit Cards

The Arizona state Senate recently voted to clarify the length of time in which defaulted credit card debt can be pursued by its original lender or a collection agency as six years, according to a report from the Yuma Sun. However, critics say that the original lenders often sell these outstanding debts to collections agencies within a far smaller time period than that.

"The institution ends writing them off and then selling the debt for pennies on the dollar to these out-of-state debt buyers," State Sen. Paula Aboud of Tucson told the newspaper. "Some years later this debt buyer jumps on them for a $2,000 debt that is now $8,000 to $10,000 because of the six-year extended period of time where the interest and fees has accumulated."

Collections agencies pursuing defaulted credit card debt were recently named the top consumer complaint by the Federal Trade Commission because many engage in harassing tactics.

Consumer spending led to an increase in the average amount of credit card debt in 33 states across the country between the third and fourth quarter of 2010, according to a new report from the credit monitoring bureau TransUnion. Similarly, the amount of new credit card accounts granted to consumers grew 19.1 percent between that period and the same quarter in 2009.

Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit, noted that this was the second time since the end of the recession that consumer credit card balances have increased, the report said. However, the rate was still 8.62 percent lower than it was at the end of 2009.

Many consumers may have reduced their credit card debt with more conscientious bill payments and controlled spending, but the vast majority of balance reduction was instead the result of greater charge offs by lenders.

The latest data from American Express shows that the lender saw instances of consumers falling 30 or more days behind in paying their credit card debt slip to just 2 percent in February, according to a report from Dow Jones Newswires. This was a slight decrease from the previous month's rate of 2.1 percent.

Meanwhile, the rate at which the lender had to charge off bad credit card debt as being uncollectable was 3.8 percent of all accounts, the same figure observed in January, the report said. The all-time high for this type of action came last April, when it was 10.1 percent.

Financial experts are often at odds to explain the drop in delinquent and defaulted credit card debt seen in the last year. Some say it's the result of more conscientious payment of bills, while others contend it's the result of the massive amount of charge offs in 2009.

Bank of America recently announced it would add a $59 annual fee to the accounts of about 5 percent of its credit card customers in an effort to increase revenue, according to a report from the Los Angeles Times. In all, the change, which goes into effect on April 11, will hit about 2 million accountholders who have significant credit card debt.

"I feel like an indentured servant," Sue Laman, a customer who has $30,000 in credit card debt with the bank, told the newspaper. "But what can I do? I can't refuse their annual fee. They know I have no choice except to pay."

The change is expected to generate about $118 million in new revenues for the lender, the report said. Currently, Bank of America controls the credit card debt for about 40 million consumers.

This change is likely in response to greater federal regulation that limits the amount of revenue a bank can generate through rate changes and fees for certain credit missteps.

Last fall, TCF National Bank, which is headquartered in South Dakota, filed a lawsuit against the federal government, alleging that regulations that limit the interchange fees whenever consumers use their credit card to make a purchase violate the constitution, according to a report from the upper Midwest news source the Minn Post. However, the U.S. Department of Justice recently asked a South Dakota federal court to throw out the case, causing TCF to file more paperwork.

The new documents say the Justice Department's request is not based on its belief that the regulations are indeed constitutional, the report said. TCF also says the laws are tantamount to price fixing, and limit the fees banks charge to merchants when consumers take on credit card debt to make a purchase.

Most banks say the added restrictions from the government will cost them billions of dollars a year.

Almost all of the top 25 cities in the country with the most credit card debt in December were located in the Southern U.S., according to a recent study from the credit reporting bureau Experian. Residents of San Antonio, Texas, led the nation with $5,177 in average credit card debt, and Jacksonville, Florida, also topped $5,000 and was listed second.

The only city in the top 10 that was not in the South was Seattle, Washington, which had an average of $4,877 in credit card debt, the report said. In all, Florida had the most cities in the top 25 with four: Jacksonville, Tallahassee, Miami and Orlando. Georgia and Texas had three each.

Many consumers increased their credit card spending in the final month of last year, leading to the first jump in the total amount of credit card debt held across the country in nearly two years.

Social Security taxes were cut in January, but the month only saw consumer spending increase 0.2 percent despite a 1 percent increase in incomes, according to a report from Bloomberg News, which cited data from the U.S. Department of Commerce. However, spending likely remained relatively unchanged because Americans put more of their money into paying down credit card debt balances instead.

"One or two percent in your paycheck is not going to change the way you live," Marshal Cohen, of the NPD Group in Port Washington, told the news agency. "It'll make living easier. What it will do is keep you spending the way you've been spending, so it will keep the status quo."

In all, consumers have concentrated on decreasing their credit card debt for the better part of the last two years. However, nationwide credit card debt balances increased only slightly in the final month of 2010 despite considerably more spending on these accounts during the holiday season.

While many consumers are getting a better handle on their credit card debt, some are still having so much financial trouble that they're missing payment on at least one of their major monthly bills, according to the latest statistics from the Consumer Reports Trouble Tracker Index. Overall, 9.7 percent of consumers reported that financial constraints caused them to let at least one important payment fall delinquent in the previous month.

This group of consumers often cited changes to their credit card agreements as one of the primary reasons they could not meet their obligations, the report said. In particular, alterations to interest rates paid on existing credit card debt, penalty rates and fees applied to accounts that had already become delinquent, as well as reduced credit limits contributed to their economic troubles.

However, consumers with lower household incomes – those earning less than $50,000 a year – were affected by these problems at a disproportionate rate, the report said. Of these consumers, 14.1 percent reported they had missed at least one major bill payment in the previous month. Exacerbating their problems is a considerably higher rate of unemployment, where 11.7 percent of this group lost their job during the month, compared to just 6.7 percent of all consumers.

In addition, many consumers faced financial problems related to medical problems, the report said. About 17 percent said that much of their money was siphoned off by medical bills and medication they could not afford, and 9.3 percent lost or saw shortfalls in the healthcare coverage.

These troubles came even as more consumers seemingly have a better handle on dealing with their credit card debt. All of the nation's major credit lenders have reported considerable improvements in both delinquency and charge off rates in recent months. However, some financial experts say this is also a function of many consumers who had previously defaulted can no longer qualify for new lines of credit of any kind, even as lenders once again loosen restrictions.

The rate at which consumers had trouble paying down their credit card debt declined by 0.9 percent in the fourth quarter of 2010, according to the latest statistics from the credit monitoring bureau TransUnion. This marked the fourthconsecutive quarter in which consumer credit risk declined, and left the company's Credit Risk Index 3.13 percent lower than it was at the end of 2009.

Overall, 49 states and Washington, D.C., saw declines in the rates at which they struggled with credit card debt, the report said. Wisconsin, the only state that saw an increase in its total risk, is still well below the national average. The states that had the highest risk were Nevada, Mississippi and Texas, while North Dakota and Minnesota had the lowest.

Meanwhile, consumer demand for new credit card accounts continued to fall as well, the report said. The number of inquiries made by consumers dipped 5.7 percent on a year-over-year basis, declining in 42 states and the District of Columbia. Alaska, Vermont and Wyoming had the highest increases in new inquiries, while Florida, Nevada and Virginia saw the steepest declines. However, the year-over-year drop observed in the fourth quarter of 2010 was considerably lower than those between the same periods in 2007 and 2008 (16.5 percent) and 2008 and 2009 (19.3 percent).

"The gradual decline in the Credit Risk Index, coupled with a 5.4 percent decrease in the demand for credit over the previous year, as reflected in TransUnion's Total Inquiry Index, suggests that consumers are relying more on existing credit or switching to cash or debit cards," said Chet Wiermanski, global chief scientist at TransUnion. "While more consumers will have stronger credit profiles making them attractive to credit marketers, the underlying demand for credit appears to still be soft."

Financial institutions are once again loosening restrictions on what type of people they will lend to, but many consumers have also been locked out of the borrowing system entirely thanks to a past history of delinquency and charged off debts that effectively crippled their credit ratings.

The amount of revolving credit – the type most commonly associated with consumer credit card debt – carried nationwide spiked in December, reversing a trend of continued declines that had lasted more than two years, according to the latest monthly statistics from the Federal Reserve Board. Overall, credit card debt climbed 3.5 percent to $800.5 billion, up from the $798.2 billion recorded in November.

However, even despite the increases, credit card debt still declined from the third quarter, when it finished at $806.1 billion, to the fourth, the report said. Similarly, it was down significantly from the figure observed at the end of 2009, when it was recorded at $865.8 billion.

The increase came as a bit of a surprise to some experts, as many polls found consumers pledging to use alternative forms of payment, including debit cards and cash, to purchase gifts during the holiday season, rather than taking on more credit card debt.