Category: Credit Cards

During the recession, millions of consumers shied away from using their credit cards on a regular basis due to financial concerns that forced them to reassess their debt relief plans. But now, after many may have been able to successfully reduce debt, consumers are returning to credit use.

Visa recently announced that in the final three months of last year, the amount of card use, and spending, it observed rose significantly on a year-over-year basis. The number of transactions the company processed climbed 8 percent from 2010's total to 13.6 billion, and the amount of money spent on its branded debit, credit and prepaid cards jumped 11 percent to a total of more than $994 billion.

Recent studies have suggested that the new surges in card spending have to do with consumers continuing to move away from using cash to complete purchases, instead relying on credit and debit. But in the last few months, consumers have added significantly to the amount of credit card debt they carry. Some say this is the result of just seasonal increases in spending seen every year, but others believe the improving economy plays a role in consumers' confidence to better handle their accounts.

The federal agency tasked with helping to protect consumers from misleading or confusing lending practices is now looking into a service credit card issuers provide ostensibly to help avoid fraudulent credit card debt.

The new federal Consumer Financial Protection Bureau, with the help of the Federal Deposit Insurance Corporation, is looking into a plan offered by Discover Financial Services that says it will protect consumers in the event of misuse of their credit card account, according to a report from American Banker. Lenders have expressed concerns that heavier regulation of these plans will only lead to more debt relief issues for cardholders enrolled in them, but recent studies have highlighted that card issuers only return about 21 cents from every dollar paid into these premiums, and institutions turn about $1.3 billion in profit on them annually.

If the financial institutions offering these plans were to categorize them as insurance, that payout ratio would be illegal, and as a consequence, there is concern in the lending industry that the investigation could become broader, the report said.

Fraud can seriously impede consumers' ability to reduce debt, and carefully checking their monthly statements can help spot bogus charges.

While many aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act have come under fire in recent months, particularly from Republican lawmakers and presidential candidates, Treasury Secretary Timothy Geithner recently defended the law.

Geithner recently issued a statement in which he said that many aspects of the Dodd-Frank Act are already working to help consumers and businesses alike, and that those who would either work to slow, reverse or completely repeal the bill in the coming months would be doing a considerable amount of harm to the economy. That's because lawmakers are now writing a number of additional rules and regulations, which are not finalized as yet, within the framework of Dodd-Frank. Scaling it back, therefore, might cause added delays in whatever is currently being written.

He also said that the Consumer Financial Protection Bureau is doing a lot of good for consumers who previously had little recourse in dealing with disputes related to their outstanding mortgage bills or credit card debt.

The CFPB has been working to develop a number of protections for consumer credit accounts and help boost debt relief efforts, including the testing of new disclosure forms that simplify lending agreements for both credit cards and mortgages.

In an effort to help make credit card information safer and protect consumers from being hit by bogus credit card debt, MasterCard is rolling out a new plan to introduce a safer type of credit card within the next 14 months.

MasterCard, the world's second-largest processor of debit and credit card payments, recently unveiled what it calls the "roadmap" to EMV credit cards, which are considered far more secure than traditional cards because of the way they store information. EMV cards, also known as "chip and pin," use a microchip embedded within the card itself to store information and require the user to enter a code to confirm a purchase.

Nearly every credit card ever issued in the U.S. still relies on the magnetic strip technology to store information, but rising credit card fraud totals have prodded payment processors to push for the more secure route. The U.S. is the last major country in the world to still rely upon the old credit card technology.

Consumers should always carefully look over their monthly bills to make sure there is no fraudulent credit card debt on them. Leaving these charges unattended can make it more difficult to reduce debt going forward.

At the same time as the Federal Trade Commission settled a major suit with one of the nation's largest purchasers of consumer credit card debt, it also unveiled a document that will help clarify consumers' rights when they are being pursued by collectors.

The document, entitled " Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts," spells out how consumers should expect to be treated by collection firms under the law, the FTC said. For example, debt can fall out of the statute of limitations, meaning that consumers can no longer be held responsible for it legally, but many collection companies may try to mislead them into paying it anyway.

"Most consumers do not know their legal rights with respect to collection of old debts past the statute of limitations," said David Vladeck, director of the FTC's Bureau of Consumer Protection. "When a collector tells a consumer that she owes money and demands payment, it may create the misleading impression that the collector can sue the consumer in court to collect that debt."

If consumers are being pursued by debt collection companies, they will now be able to check online to ascertain what their rights may be in dealing with these businesses.

Consumer debt has fallen considerably over the last year, as have late payments across a number of loan types, but at the same time, consumers are once again starting to open new credit cards.

Consumers were far more conscientious in their attempts to reduce debt in 2011 than they had been in the past, as the total amount owed to lenders across all loan types slipped to $11.1 trillion nationwide, down from October 2008's all-time record of $12.4 trillion, according to the latest National Credit Trends Report from Equifax. Delinquent credit card debt on both bank- and retailer-issued cards slipped considerably in 2011, by 29 percent and 15 percent from 2010's totals, as did instances of late payments for mortgages, consumer finance loans and auto loans.

At the same time, though, origination of bank-issued credit cards for subprime borrowers increased significantly between January and October, rising 48 percent, the report said. In addition, retailers saw the number of cards opened by all borrowers tick up 7 percent, reversing a trend of four straight years of declines.

Experts believed that the recession drastically changed consumers' attitudes toward borrowing and led them to focus on debt relief, but new card originations may show consumers are eager to do so again.

While many consumers are trying to reduce debt and get a better hold of their finances, some of the nation's top credit card lenders may soon be able to help with that debt relief thanks to new documents that make borrowing agreements easier to understand.

Major banks are now starting to issue simplified documents for checking accounts, which clearly list the terms of the agreement in plain language, and it's expected that credit card contracts will come next, according to a report from the Columbus Dispatch. These financial institutions are likely taking the lead of the new federal Consumer Financial Protection Bureau, which itself is testing a simplified lending agreement at the Pentagon Federal Credit Union.

That document is just 1,100 words long, compared with the average of current credit card agreements that checks in at more than 5,000 words, the report said.

The CFPB is also working to set up a comprehensive database of all credit card offers available nationwide so that consumers can compare a number of accounts to determine which will help them limit their credit card debt.

Many consumers are now taking advantage of social couponing services like Groupon and LivingSocial to find savings on items they may want to purchase. Now the nation's largest credit card lender is working on a similar program for its debit and credit card holders.

BankAmeriDeals, a kind of social couponing service that offers consumers daily discounts based on their previous card spending habits, is now being tested by Bank of America employees in three states and will be rolled out to its workers across the country over the next few weeks, according to a report from The Associated Press. The service works by offering Bank of America credit or debit card customers deals when they log into the company's online banking sites, based on what stores they've purchased from in the past. Consumers can then click the offers to link them automatically to the account, with no printing required. Currently, there is no timetable for the bank to introduce the service to the general public.

But instead of granting consumers the discount at the register, the program works more like a traditional cash back rewards program, by giving the consumers the lump sum of the money they saved using the service in one payment at the end of every month, the report said. Customers will typically receive 16 or 20 of these offers every month, but those who use it more often will likely receive more. Those who want to opt out from receiving these offers will be given the option to do so as well.

Bank of America is launching this program because it grants consumers what are essentially cash back rewards that it does not have to pay for, the report said. Merchants will be the ones offering and paying for these discounts, not the bank, but it still serves as a means of incentivizing card use and as a way of building loyalty. For this reason, other banks including Chase and Regions are currently testing similar programs.

Banks are still trying to boost use of credit cards since many consumers changed their purchasing habits during the recession and are still looking for ways to reduce debt. However, many Americans are slowly beginning to return to their pre-recession spending habits of adding to their credit card debt and then paying it off over time.

Americans have slowly started using their credit cards more often again, but many are still relying on cash to make the smaller purchases – such as those for coffee or at the drug store – they need in their everyday lives.

A recent Javelin Strategy and Research study found that 79 percent of respondents had used cash to make a purchase in the previous seven days, compared with 65 percent combined who used either a debit or credit card, according to a report from the Huffington Post. This shift may indicate just how much consumers began to rely on cash to make small purchases during the recession.

However, experts say that even as Americans shift back to using their credit cards more often, cash will likely remain just as popular as it has, because during the recession, consumers who prefer to make purchases with cards simply used debit instead, the report said.

Consumers' credit card use took a serious dip during the recession because many were dealing with significant financial difficulties and looking for ways to reduce debt.

A court case between millions of businesses and the country's largest financial institutions could end up leading to lower prices and therefore potentially less credit card debt for consumers.

The lawsuit, a private antitrust case between about 5 million merchants large and small against financial giants like Visa, MasterCard and 13 of the biggest banks in the country, is over what businesses say are unfairly high interchange fees charged to them every time they accept a credit card transaction, according to a report from CNBC. And the case could have a far-reaching impact when it comes to those large financial institutions. Some analysts say they may settle – and that it could cost them as much as hundreds of billions of dollars to do so – or that it may come down to the judge making a decision that could lead to lower prices.

Some believe that the judge could institute a fee limit on credit card transactions of as little as 0.5 percent of the purchase's total value, down 75 percent from the current average of roughly 2 percent, the report said. That's equal to the limit imposed in Australia, but still well above the fee cap of just 0.3 percent in the European Union.

For banks, the damage of such a fee could be significant for financial institutions, which is why some expect a settlement instead of letting the case begin as scheduled in September 2012, the report said. Some of the nation's largest banks could stand to lose more than $3 billion annually to such a fee cap.

That limit would be imposed in addition to the similar one implemented for debit card transactions in July of last year, the report said. That restriction, imposed by the Durbin Amendment to the Dodd-Frank Act, cuts the amount a payment processor can charge a business for accepting a debit transaction to just 21 cents per purchase instead of the previous average of 44 cents, based on a percentage of the total value of a purchase.

Merchants say they typically have to charge higher prices because of the interchange fees they pay to lenders. But with these limits being imposed, it could lead to lower prices for the same items, which could help consumers save money and reduce debt.