Category: Credit Cards

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.

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.

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.

In the past, many small business employees and owners may have found it difficult to process credit card payments from remote locations, where they didn’t have access to their accounts or equipment. However, that could all change thanks to a new mobile phone program.

Sage Payment Boss, a new program from business software company Sage North America, allows small businesses allow customers to take on credit card debt from anywhere they can connect to a 3G network with their cell phones. As long as the small business can connect to their merchant accounts, they can process and verify any payment by credit card, and even send out an electronic receipt when the transaction is completed.

The program can also be used in conjunction with Sage’s Billing Boss, which also tracks and manages incoming cash flow in real time and monitors sales activity.

Several major cell phone carriers, such as Verizon and AT&T, are also about to implement a system that would allow consumers to use their cell phones to make credit card payments by simply waving them in front of a wireless sensor.

A small but growing number of Pennsylvania residents are opting to use credit cards to pay their taxes, despite the fact that they are charged extra to do so.

According to a report in the Pittsburgh Post-Gazette, more towns, cities and counties in the state are now allowing residents to take on credit card debt to pay their taxes online. And though this payment method comes with a fee of about 3 percent, it is quickly growing in popularity. These fees are being charged to offset the cost of having a third party process the transaction, since the state is not able to do so itself.

One local tax collector told the paper that his office has typically heard three reasons for consumers to pay by credit card despite the additional fee: a cash flow problem, the appeal of earning credit card rewards points or miles, or the convenience of being able to pay the bill online.

The Internal Revenue Service allows Americans to pay their federal taxes by credit card as well. Like Pennsylvania, the IRS charges a small percentage per transaction because it too has to go through a third party to process the payments.

In the past, consumers who were behind on paying off their credit card debt could have expected to be hit with a penalty interest rate that was much higher than their basic APR. However, those days may soon be forgotten.

According to a report from the Associated Press, Wells Fargo recently announced it would eliminate all penalty interest rates – which it traditionally held at 27 percent – for accounts that were more than 60 days delinquent after July 6. Any accounts that incurred penalty rates prior to that will still be required to pay theirs until that debt is eliminated.

The report said that Wells Fargo will still maintain late fees of $25 or the minimum payment due, whichever is less. That late fee can escalate to $35 if another late payment is made within six months of the first one.

A recent report from Mintel Comperemedia found that despite experts’ predictions, many banks, like Wells Fargo, have not adopted practices that could have been harmful to consumers in the wake of the new credit card laws.

An increase in consumer spending – not by volume but rather in the value of the things they bought – helped MasterCard post large profits in the second quarter.

The company, which processes a large percentage of all credit card transactions in the U.S., said that profits rose 31 percent between April and June of this year thanks to decreased operating expenses and an increase in consumer spending on a per-purchase basis. In addition, American consumers spent more overseas in the three-month period.

"We are pleased with our performance in the second quarter," said MasterCard president and chief executive officer, Ajay Banga. "Solid GDV growth, particularly in markets outside the U.S., continued momentum in worldwide cross-border volumes, and thoughtful expense management all contributed to good financial results this quarter."

The company’s numbers showed what could be a renewed consumer confidence, because while the company’s profits climbed considerably, the number of total transactions it processed was essentially flat, increasing just 0.1 percent. This is an indicator that while consumers aren’t making more purchases, they are buying more expensive items.

Consumers that stay in hotels may sleep soundly, but when they do, they have opened themselves up to a serious hacking threat.

Hotels are targeted by hackers looking for credit card information more often than any other industry, according to a new report in the New York Times. A study by a data-security consulting company found that 38 percent of all credit card hacking cases in 2009 involved hotels, while the financial services industry (19 percent), retail (14.2 percent) and restaurants and bars (13 percent) came in well behind.

One security expert told the paper that hackers zero in on hotels because the industry has a well-earned reputation for lagging behind others in terms of protecting, storing and transmitting its customers’ credit card data starting with the point of sale. He added that this information is available to hackers using even "the most simplified methods."

Those who travel a lot are more likely to fall victim to identity theft because of the infrequency with which they check their statements or their credit report. Because of this, hackers can get away with fraudulent charges for months before their victim notices a discrepancy.

Retailers across the country are feeling a bit of a pinch as national consumer spending and credit conditions remain tight.

Despite the slowly-improving economic climate, consumers remain cautious with their money and that’s having a negative impact on retailers nationwide, Matthew Shay, president and CEO of the National Retail Federation, told CNBC.

"I think what we are seeing … is continuing discomfort with the number of fundamental questions about our economy that remain unanswered, primarily among those is when are we going to see robust, and sustained job creation, and when are we going to see the restoration of the free flow of capital, and credit, to small businesses and investors," he told the network.

Consumer spending makes up about 70 percent of all economic activity in the U.S. and the retail sector makes up about one in five jobs nationwide, Shay told CNBC. Retail stocks have been trending lower in May and June, trading 20 percent below highs set in April.

However, a recent Thomson Reuters/University of Michigan study found that consumer confidence was 1.7 percent higher in May than April, and up 7.1 percent over the same month last year.

Because bad consumer loans in sectors such as mortgages and credit cards are what got the country into its current tenuous financial state, government officials have spent months trying to correct these mistakes.

Many consumers may have questions about what mechanisms have been introduced and how they provide more protection against troublesome practices from lenders. Fortunately, the Associated Press published a report designed to answer some of them. Many, for example, may be wondering how the legislation protects consumers from. Federal regulators can now write and enforce rules for financial services and products, and will do so with the consumers’ best interests in mind.

Financial institutions will be prevented from costly or dangerous practices by a new layer of oversight, the report said. All institutions will be monitored by a consumer agency in addition to the existing governmental oversight. Many financial companies were not previously monitored and may have caused some to run up excessive credit card debt.

A Reuters report said that both the House and Senate will form watchdog groups to monitor all mortgage and credit card lenders and help regulate their actions, though there has been some debate over who will have authority over these groups.