Category: Credit Cards

Experts say that while consumers have scaled back spending and reduced credit card debt, that trend won’t continue forever.

Households have successfully reduced their credit card debt and spending, and at the same time increased the rate at which they’ve built up their savings. That could mean they will be freer to spend that money in the future, according to a new report from Bloomberg. While debt payments have increased in recent months, the amount of disposable income people are putting toward doing so fell in the first quarter and is now near the average observed by the Federal Reserve Board over the last 30 years. That drop is expected to continue at least until the end of the year.

However, other experts are not so optimistic, because economic growth is likely to slow slightly in 2011 and spending is not likely to increase too significantly until the unemployment rate drops below 9 percent, the report said. But those that aren’t spending are putting more into paying their credit card debt and, when lending conditions eventually loosen, more will be in a position to get a new line of credit and boost their spending again.

The report noted that retail sales likely crept up slightly in August – by 0.3 percent – after a similar jump in July. Some economists have seen this as a strong enough sign of recovery that they’ve declared the recession over, even as fears of a relapse persisted.

Consumers successfully saved 5.9 percent of their income in 2009, up considerably from earlier estimates of 4.2 percent, and that rate stayed more or less steady through the first seven months of the year. The report said that this implies more progress than expected in Americans’ finances.

“The consumer has already done a lot of the heavy lifting,” New York-based economist James Glassman told the news service. “I don’t think there is all that much balance-sheet drag ahead.”

Other economists say that the quality of consumer credit has improved rapidly as charge offs continue to slide to pre-recession levels and delinquency experiences even greater drops, the report said.

Often, the rates of charge offs and delinquent credit card debt are closely tied to those for unemployment, but as the latter has stagnated, the former two have slid significantly, leading some to speculate that consumers without a job cannot have been locked out the credit system.

When attempting to buy a product online, consumers have very few payment options that do not involve taking on credit card debt. But some say they’d prefer to have more.

A new study from the online payment site eBillme.com found 27 percent of respondents said they would shop online more often if they had an option for payment besides taking on credit card debt, CNN Money relayed. The respondents said they prefer to control their finances by paying in cash. Of course, this isn’t possible over the internet, but there are a number of options considered “cash equivalent.”

For example, services, such as eBay-owned PayPal and eBillme, allow users to link their bank accounts to online profiles so they can choose to take money directly out of their checking or savings. PayPal is by far the biggest of these services on the internet, and can be used at checkout not only for eBay auction winnings, but also at hundreds of other sites. In addition, eBillme is accepted by over 800 online retailers.

“It’s a debt-free way of shopping online,” said Marwan Forzley, eBillme’s CEO. “No interest or fees, and since you can only spend with the money you have available, it’s a great option for sticking to a budget.”

Forzley added the vast majority of consumers – 74 percent – use cash or cash equivalents, such as prepaid cards or gift cards, when making payments in the real world, the news provider reported. More stores began offering gift cards in recent years as consumers increased demand for them; these can often be used to make online purchases as well. However, gift cards may come with some initial fees when they are first set up, or maintenance charges if they go unused for a certain amount of time. But some consumers may prefer this type of fee over taking on credit card debt.

The report also noted consumers can use the popular CoinStar machines to make giftcards for online retailers like Amazon.com and iTunes, as well as companies with both brick-and-mortar and online stores, such as Old Navy and CVS.

Many consumers have been successful in paring back their credit card debt recently by keeping a closer eye on spending and paying more toward their balance every month.

While most consumers across the country are trying to reduce their credit card debt, those in Atlanta, Georgia, still have considerably more than the national average.

According to a story in U.S. News and World Report, whichcited statistics from a study by Experian, consumers in Atlanta carry more credit card debt than those in any other city, with an average of $6,753 owed to lenders. However, that city is just the fifth-highest ranked in terms of overall debt. Denver, Colorado, has the most debt in the country, though it’s just fourth in credit card debt.

Seattle, Washington residents carry an average credit card debt that narrowly trails Atlanta’s, at $6,577, with Baltimore, Maryland ($6,440), and Denver ($6,211) behind it. Dallas, Texas, had the third-most total debt but was well behind in credit card debt.

The previous version of this study, which was released in May, also found Atlantans had the most credit card debt, but on a relatively small number of accounts when compared to other major metropolitan areas, such as New York City and Boston.

It appears consumers are now so worried about compiling credit card debt that many have stopped using credit to make purchases, and are using their debit cards instead.

The total number of nationwide debit card transactions passed those made with credit cards for the first time ever in 2009, and is expected to do so again this year, a new report from Javelin Strategy and Research said. Visa saw a 7.3 percent decrease in the number of credit card purchases made, while debit card payments rose 7.9 percent. Similarly, MasterCard debit transactions rose 5.8 percent, and Discover Financial Services saw a 2.8 percent increase.

The study said 56 percent of consumers reported they had used their credit card in the previous month, compared to 87 percent who had done so in 2007. If this rate of decline continues, less than half of Americans – 45 percent – will take on credit card debt with regularity next year.

“Consumers are turning from one form of plastic to another,” James Van Dyke, president and founder of Javelin, told Bloomberg. “Credit cards are falling out of favor as cardholders become more cautious and look for more conservative payment methods.”

Two groups that are using debit cards rather than compiling credit card debt are young consumers and those with low income. The survey found consumers in their twenties are growing accustomed to using their debit cards more often, and thus, they will continue to do so into the future, eschewing the use of cash and checks.

In contrast, lower-income consumers tend to use reloadable prepaid cards, if they use cards at all, Javelin noted. This type of card is expected to become more popular in the future, as financial regulations put an end to things like free checking, increase fees and change rewards programs. Use of these cards could rise to 9.3 percent of all online purchases by 2014.

Not only have consumers curbed their spending, but they have also made a more concerted effort to pay off their credit card debt. Nationwide consumer credit has dropped for the last few months. This trend shows no signs of slowing down any time soon as the recession continues to make slow improvements.

Many credit card companies have seen their businesses become more reliable even after the passage of the Credit Card Accountability, Responsibility and Disclosure Act thanks to more consumers paying off their credit card debt.

Credit card companies, such as Capital One Financial and Discover Financial Services, have seen stabilized earnings and losses in recent months, according to a report from business research firm Stock Call. This is because the companies have tightened restrictions on what kinds of consumers they will allow to compile credit card debt. These new rules allow them to release money that was held in reserve to counterbalance losses from delinquent credit card debt.

The report also said credit card companies have been able to step up lobbying efforts with 25 percent more funding because there is still some uncertainty in the industry regarding possible future changes to federal law.

More consumers have contributed to the stabilization of the industry by reining in their own spending as the economy continues to make slow progress. Controlled spending allows individuals to pay off more credit card debt, and, as a result, lenders are charging off fewer delinquent accounts.

New federal regulations may have been designed to prevent young adults from piling up credit card debt, but some lenders may be circumventing those rules.

According to a report from Bloomberg, the state of New York has launched an investigation into the marketing practices of various credit card companies. Attorney general Andrew Cuomo has sent a letter to every college and university in the state and requested that they submit any exclusive contracts they have with credit and debit card companies.

Specifically, the state wants to determine whether marketers have gotten personal contact information for students without their consent, and are sending them offers that could result in their piling up credit card debt. The Bloomberg report said the state will soon begin the process of reviewing the contracts that grant lenders exclusive rights to market credit cards at a given university.

“Today’s students are facing a growing mountain of debt that can burden them long after graduation,” Cuomo said. “As the new school year begins, we want to make sure that colleges and universities are doing all that they can to help students avoid financial dangers.”

The report said Cuomo conducted a nationwide investigation in 2007 into such conflicts of interest, which specifically target college students for credit card debt. That found that payments and perks were being paid to colleges and financial aid offices. As a result, about a dozen lenders and 28 colleges cut their financial ties.

A report from Consumer Affairs said that Cuomo’s letters also included requests that schools adopt policies that would help their students avoid credit card debt. The investigation also concerns deceptive credit card marketing practices that may not spell out the dangers of accumulating a significant amount of credit card debt in a number of ways. These include solicitations at student centers, school athletic events, orientations, buildings with classrooms and other locations around campus.

The average college student now graduates into the real world with thousands of dollars in credit card debt spread across several accounts. However, provisions of the Credit Card Accountability, Responsibility and Disclosure Act now prohibit many of the practices of lenders that may have led to such situations in the past, such as banning the offering of promotional items like free t-shirts for enrolling.

It seems more consumers have been able to reduce their credit card debt recently, as charge offs dropped from June to July.

According to a new report from Standard and Poor’s Ratings Services, the final numbers related to charge offs – the amount of accounts lenders write off as irretrievable – for the month of July dropped a full percentage point from June’s 9.7 percent to 8.7 percent. This was the first time since March 2009 that S&P found the rate of seriously delinquent credit card debt slipped below 9 percent.

“Contributing to the declines, in our view, are reduced spending and more saving by consumers, along with the increasing difficulty and expense for borrowers to get and maintain credit,” Kelly Luo, a credit analyst at Standard & Poor’s, said.

The report noted that outstanding credit card debt owed to the lenders S&P tracks dropped 1 percent from June to $341.9 billion. That represents a drop of 17.1 percent from the July 2009 total.

Often, consumer credit is tied to unemployment figures, and the continued high rates of joblessness may be contributing to the drops in credit card debt as consumers can no longer qualify to borrow.

Given how Google’s profit increases have ground to a halt in recent months, Facebook has begun to aggressively expand its Credits payment system. This includes a new process that will allow consumers to use its online currency in lieu of taking on credit card debt.

According to a report in the San Francisco Chronicle, Facebook will now start selling gift cards for its Credits system in brick-and-mortar Target stores, and will make them available in amounts of $15, $25 and $50. And while consumers will be able to continue to use this currency as they have in the past – to buy advertisements on the site, or make payments for games like Farmville – their options will also be expanded.

The report said that one option Facebook is currently exploring and may implement in the near future would allow users to make payments at selected third-party ecommerce with their Credits rather than taking on credit card debt to do it. This process could not only help consumers scale back the amount of credit card debt they take on, but also give them added convenience. Sites may allow consumers to simply click a “Pay With Facebook” button, rather than fill out all their information.

In addition, the report said that consumers may be able to store their payment information with Facebook when they take on credit card debt to buy Credits online. If so, that could also be used in conjunction with the new Pay With Facebook function, in a way similar to how PayPal works.

The social networking giant is expected to make between $1 billion and $1.5 billion on brand advertising revenues alone this year, the Chronicle said. But this new revenue stream, which will roll into Target stores nationwide starting September 5, could make it a few hundred million dollars more. A former executive at the company told the paper that this business alone could end up being a third of its revenues by the end of the year.

Facebook has over 500 million users worldwide, and many of those are people in their teens or 20s. This market is one that the company has successfully targeted in the past, and one which would be very attractive to third-party business partners looking to increase their exposure.

The number of offers attempting to convince American consumers to take on credit card debt that were sent out between April and June marked a significant increase from the previous three-month period.

According to a report from the financial news website The Street, which cited statistics from Synovate Mail Monitor, credit card issuers sent out 640.3 million credit card offers during the second quarter of the year. This was a jump of 83 percent over the 349.1 million they sent out in the first quarter of the year, which was largely paced by two companies. Chase sent out four times as many offers in this period, and Citi’s total nearly tripled.

Companies sent out 1.12 billion offers in the first six months of 2010 in an attempt to get consumers to use their company to take on credit card debt, compared with just 1.39 billion sent all of last year. Of those sent from January to June, 71 percent contained some sort of introductory reward or rate, which was the highest such percentage seen since Synovate began tracking this data 22 years ago, the report said.

Credit card lenders are likely sending out these offers because they have an improved view of the national economy thanks to lower rates of delinquency and charge offs seen in recent months.

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.