Category: Credit Cards

The holiday spending season started off with a bang in 2009, as new figures on retail spending during the month of November show substantial increases in sales that surpassed many experts’ expectations, according to the U.S. Commerce Department’s Census Bureau.

According to the monthly sales for retail trade and food services report released on Friday, seasonally adjusted U.S. retail and food services sales for November increased by 1.3 percent to $352.1 billion from October’s figures.

"The major area of concern in the economy has been the consumer, and so far things have been holding together better than almost anyone thought," said Pierre Ellis, a senior economist at Decision Economics, according to Reuters. "You are likely to see Q4 (gross domestic product) forecasts start to be marked up."

The figures also represented a 1.9 percent increase over November 2008’s figures, despite a 2.1 percent drop in sales from September through November compared to the previous year’s figures.
In regard to retail sales, figures jumped 1.4 percent from the previous month and 2.2 percent November 2008 figures.

The figures would seem to support the litany of reports this season that have found consumer who had been consolidating debt for much of 2009 opening up their wallets and spending more freely during the holidays.

As the recession comes to an end and consumers begin to get a hold of their finances through consolidation and credit card counseling services, creditorsare hopeful that the economy may stabilize in 2010.

Speaking at a financial services conference sponsored by Goldman Sachs, MasterCard’s Head of Core Products Tim Murphy referenced the company’s latest SpendingPulse survey that found retail spending had increased by 0.2 percent in November, according to MarketWatch.

While the data represented the third straight month of growth, Murphy said that consumers were still showing frugality due to the recession and was unsure of how long the trend would last.

Nonetheless, he felt that even with the decreased spending that 2010 would likely be an improvement over 2009.

"The worst is behind us," he said.

Speaking at the same conference, Capital One CEO Richard Fairbank predicted that consumers would continue to default on credit card payments until the late payments peak during the first quarter of 2010.

"We’re weathering the storm, but the storm is not over," he said, according to Reuters.

Fairbank also predicted that credit card delinquencies would show mixed results throughout 2010, but that defaults would eventually decline as credit card chargeoffs peak later during the year. Following their peaks, he expected most figures to stabilize for the remainder of the year.

Consumers dealing with credit card debt counseling will continue to make strides to eliminate any debts they owe to creditors in 2010, as delinquency rates will drop for the third consecutive year, according to TransUnion.

According to annual credit forecasts released on Tuesday, 2010 credit card delinquency rates are expected to decline by 2.8 percent, or 0.03 percentage points, to 1.04 percent.

"The decrease is projected to be smaller than in previous years, indicating that this might be the best consumers can do in managing delinquencies in the current economic environment," said Ezra Becker, the director of consulting and strategy for TransUnion’s financial services group. "It will be interesting to see how the CARD Act, primarily taking effect in February 2010, will impact both consumer and lenders."

The projected decline would put the credit card delinquency rate at the end of 2010 0.32 percentage points below its 1.36 percent rate recorded two years earlier. It would also be a much smaller year-over-year decrease than the 11.6 and 11 percent declines seen in the two previous years respectively.

Becker added that the 2010 decline would be caused primarily by smarter financial decisions from consumers. He said that rates would decline as cardholders keep their current debt to a minimum while working "aggressively" to pay off what they already owe.

With the holiday shopping season now officially underway, Americans across the country are taking to both brick-and-mortar and online retailers to stock up on gifts for loved ones.

However, because of the increased damage that an ill-timed identity theft could cause cash-strapped consumers looking to consolidate debt, online security company McAfee has compiled a list of scams that have been especially popular this year.

One scam being used increasingly on consumers that the online security company warned of was the use of false auction websites to obtain confidential information. With the use of sites such as eBay seeing a rise in activity as consumers show increased frugality, a false email posing as a bill for a purchase from an auction website could easily fool a shopper.

The company added that scam artists had begun making use of social networking websites as well, offering fake friend requests via email that actually contain malicious software in links that claim to forward users to sites such as Facebook or Twitter.

"Santa may put malware in people’s stocking this season if you aren’t careful," David Marcus, the director of security research and communication for McAfee, told the Columbus Dispatch.

"The bad guys like holidays because they know people are looking for bargains or holiday cards and step up their game to con consumers," he added.

McAfee also warned that fraudulent e-cards that claim to be from a legitimate website could be another way for hackers to install malware on a computer.

A newly released report by the Government Accountability Office confirming that credit card interchange fees increase costs for merchants has led to many organizations calling for Congress to enact reforms.

Following the report’s release, the National Association of Convenience Stores issued a statement calling the fees, which are assessed on a merchant every time a credit card is used as a payment, as "a cash cow for credit companies and banks" instead of the processing cost they claim it to be.

"[The GAO] found that the 10 largest banks have a stranglehold on this market, have used it to raise their fees, which all consumers pay, and that small businesses and low-income, cash-paying consumers get the worst deal from this arrangement," said Lyle Beckwith, NACS senior vice president of government relations.

He added that the GAO report "solidly debunks" claims from creditors such as Visa and MasterCard that swipe fees had not been increasing and that credit cards increased sales for merchants.

"The GAO report should sound the alarm that it is time for Congress to reform swipe fees," he added.

The National Retail Federation also issued a statement "welcoming" the report and hoped that its presence would lead to Congress passing legislation "to bring these fees and practices under control."

As merchants pay increasing amounts of swipe fees to creditor, they must raise their prices in order to maintain profits, making it tougher for those looking to consolidate debt to afford shopping at the retail locations.

The U.S. Federal Reserve has announced a new set of proposed rules regarding the shelf life of gift cards and how often fees can be applied to them.

Under the proposed rules, no dormancy, inactivity, or service fee could be applied to any gift or prepaid card until the card had been issued for a minimum of five years and inactive for at least one year. Once fees could be applied, the rules would prohibit more than one fee from being applied every month.

Card issuers would also be required to clearly disclose all fees and expiration dates to the consumer upon purchase or "reloading" of the card.

The rules will undoubtedly help those who looking to consolidate debt by ensuring that gift cards retain their value over time.

"Consumers who do not use the value of the card within a short period of time may be surprised to find that the card has expired or that dormancy or service fees have reduced the value of the card," the Fed said of their decision, according to the Associated Press. "Even where fees or terms are disclosed on or with the card, the disclosures may not be clear and conspicuous."

The Fed’s proposal on gift cards completed a charge given to them as part of the Credit Card, Accountability, Responsibility and Disclosure Act of 2009 to reform the gift card system and issue new regulations.

With conflicting signs of whether spending during the upcoming holiday season will expand or contract, a new report from the Commerce Department seems to point to the latter.

Consumer spending for the month of September declined by 0.5 percent, marking the largest drop in monthly spending seen by the Commerce Department since December 2008. The decline also comes after a far more positive showing in August, which was an upwardly-revised increase in spending of 1.4 percent.

Still, the decline in September was anticipated by many experts who did not expect Augusts’ rise in spending to last following the end of the boost provided by the Cash for Clunkers program.

"The consumer went out spending in August, but once that incentive was taken away they didn’t have the same reason to spend as much," Jonathan Basile, an economist at Credit Suisse, told Bloomberg. "Consumers are going to be selective and not necessarily aggressive going into the holiday season."

The decline in spending could also show that consumers who are dealing with debt or credit card counseling may be beginning to limit their spending as the holidays approach. A recent study by Consumer Reports found that 65 percent of consumers expected to cut back on their holiday purchases this season.

The last thing that anyone facing debt consolidation needs is a cyber attack from a hacker looking to likely worsen an already poor financial situation.

However, a new survey has found that many Americans are not making enough effort to protect the data on their computers from hackers

According to a study from the National Cyber Security Alliance and Symantec Online, while 85 percent of Americans feel it is their responsibility to manage the security of their own online data, only 27 percent said they had taken the initiative to make electronic backups of essential files on a weekly basis.

Despite so many Americans lacking in data protection, many admitted to storing important information on their computers. Thirty-nine percent of those surveyed said they stored bank information on their computers while 30 percent said they saved tax returns.

"Cyber security requires vigilance, maintenance and contingency planning every day of the year," said NCSA Executive Director Michael Kaiser. "Complex passwords and backing up are critical. Americans are doing better; they need to do better still and integrate cyber security into their lives until it’s second nature."

He added that while people seemed to be aware of their responsibility to protect themselves online, they need to implement their own security plans in order to make the internet a safer place.

Politicians lobbying to speed up the implementation date of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 to force creditors into action may have a point, as few credit card companies have adjusted to new regulations that will aid those who have been forced into credit card counseling.

According to BillShrink.com, issuers have yet to apply a new consumer protection law in the CARD Act that gives cardholders the right to fair allocation of payments that will first pay off balances with higher interest rates.

Similarly, no creditors began programs to provide educational information to card holders on how to properly pay off their bills in order to leave their credit score in the best position, while only four had done away with the $5 to $15 surcharge for bills paid over the phone rather than online or by mail.

A recent study by the Pew Trusts found similar results regarding a section of the CARD Act going into effect in August 2010 that will required penalty fees and charges to be "reasonable and proportional" to the infractions they were being levied against.

Despite that, the report found that 99 percent of bank cards had a late fee while 80 percent had an overlimit fee, both of which had a median price of $39.

During financially tough times, many consumers find themselves having increased contact with their bank as they look to manage debt and deal with bill consolidation. However, according to a new survey from Mintel Comperemedia, adults are somewhat picky about how that business is carried out.

According to a survey from Mintel Comperemedia, a majority of adult respondents – 65 percent – said they favored conducting financial business with bank employees at a branch in a face-to-face manner.

Doing business on a bank’s secure website was the second most popular method of contact with a bank, with 44 percent of respondents favoring it, while 43 percent said they were comfortable conducting financial business over the phone.

However, online banking methods gained with the generations, as 52 percent of both Generation X and Generation Y-ers said they were comfortable doing business with a bank over their website.

The survey also found that there seemed to be a marked difference when it came to how consumers preferred to be contacted by banks, as no one method was preferred. Being contacted by mail, email, or in person had similar amounts of respondents who preferred them as a means of contact at 43 percent, 42 percent, and 40 percent respectively.