Continue Reading...

Consumer debt rose $1.3 billion in November, the Federal Reserve said Friday. That follows a revised $7 billion increase in October.

The increase pushed overall borrowing to an annual rate of $2.4 trillion. That's not much higher than the $2.39 trillion rate from September -- the lowest point since January 2007. It's 6.9 percent below the $2.58 trillion high point hit in July 2008.

The figures are not adjusted for inflation.

Continue Reading...

I confess, I originally followed a link from Credit Slips' Katie Porter to the forthcoming Journal of Consumer Reports paper "How Credit Card Payments Increase Unhealthy Food Purchases: Visceral Regulation of Vices" because it reminded me of the so-far totally false "starve-the-beast" theory, which pretends that cutting taxes will lead inevitably to smaller government. But I ended up falling in love with the paper on its own merits, aside from any possible relevance to tax cut shenanigans. After all, if there is one thing that I am a true expert on, it is the sad reality that "the depletability of cognitive resources" often leads to a failure to fend off our "visceral responses to vice products." Or, more colloquially, when we don't think things through, we tend to splurge on that extra order of fries.

Continue Reading...

On Aug. 22, the final phase of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 came into effect, instituting new limits on penalty fees and other requirements. (US News & World Report has a good breakdown on the changes here.)

On Aug. 23, the Wall Street Journal reports, citing data covering the second quarter of 2010,  "issuers responded by pushing card rates to their highest level in nine years."

The juxtaposition jibes all too nicely with the warning frequently voiced on the Journal's opinion pages that any attempt to reduce credit card company profits by clamping down on exorbitant fees or arbitrary, outrageous interest rate hikes would be answered by higher across-the-board interest rates and scarcer cheap credit.

Continue Reading...

Landmark reforms this year were intended to stop billing practices that gouge unwitting consumers. Yet banks are hanging onto a tactic that ensures borrowers rack up as much as possible in interest charges.

The practice in question comes into play whenever portions of a cardholder's balance carry different interest rates. Cash advances, for example, can come with dramatically higher interest rates than purchases. At Bank of America, it's about 24 percent versus as low as 13 percent.

From the consumer's perspective, it makes more sense to pay down the higher interest rate balance first, because it rises at a faster pace.

Before the reforms went into effect, however, banks would apply any payments first to balances with the lowest rate. This ensured that the costlier balance kept fattening up for as long as possible.

The tactic was among those targeted by regulators. The new credit card law, which took effect in February, specifies that any payments above the minimum must first be applied to the balance with the higher interest rate.

The key phrase? "Above the minimum"

That means minimum payments can still be applied to the lower rate balances.

Continue Reading...

Well, actually, Klein doesn't mention Johnson by name. But he does explain why Citibank's credit card business is headquartered in South Dakota, which is the primary reason Johnson carries the industry's water. In 1978, the Supreme Court ruled that banks could charge interest rates as high as they wanted to any customer in the country, governed only by the laws of the state in which they were headquartered. New York had relatively tough usury laws, so in 1980 Citibank went shopping for a new headquarters.

According to the recollection of South Dakota's governor, Bill Janklow, after the bank convinced him a change in the laws would bring jobs to the state, Citibank drafted a law revoking usury limits and the legislature passed it in within 24 hours. Citibank promptly relocated its credit card business. The move set off a chain reaction, as other states strove to duplicate South Dakota's success by promptly getting rid of their own usury laws.

Continue Reading...

"The CARD Act is leading all issuers to the top of the credit food chain, and more competition is never a good thing in any industry, regardless of the product, but particularly in the relatively homogenized card space," said Jason Arnold, an analyst at RBC Capital Markets in San Francisco.

Continue Reading...

But I was wrong. The letter informed me of positive changes to the terms of my Cardmember Agreement mandated by the Credit Card Act of 2009.

There are three main changes that will go into effect Feb. 22.

• Payments greater than the minimum payment will now be applied to higher rate interest balances first, and then to lower interest rate balances. The opposite was previously true, because credit card companies would naturally prefer that your balance accrue where it will do you the most financial harm.
• I now have 21 days from the close of each billing cycle to make my payment. Some credit card companies previously allowed for much smaller windows.
• If I screw up and miss a payment or am late on a payment, Chase can and will apply a "penalty APR" that jacks up my interest rate. But now, if I make at least the minimum payment for six straight months, Chase must return me to my lower rate.

Continue Reading...

Blogging at Capital Gains and Games, Pete Davis tells us that in his long experience watching and working in Washington, "lame duck committee chairs lack power" because "everyone below them is jockeying for power."

And who is the number one choice to replace Dodd as chairman of the Senate Banking Committee, presuming the Democrats hold on to their majority? South Dakota's Tim Johnson, the only Democrat who voted against last year's credit card reform act.

Bloomberg has the scoop. South Dakota has extremely lenient regulations on credit card companies, so Visa is headquartered there, as is Citigroup's credit card business.

Continue Reading...

So you make some smart decisions. You cut back on expenses. No more expensive dinners out on the town. No more pricey vacations. Most important -- you focus on paying down your credit card debt. You become a saver, instead of a conspicuous consumer.

And one day, you look with satisfaction at a zeroed out balance on your plastic. Nice work!

But don't keep it up too long, because what's good for you is bad for the credit card companies. And they simply won't stand still while your plastic stays in your wallet. According to Bloomberg News, the credit card companies have come up with yet another way to gouge some flesh from the newly thrifty -- "inactivity" charges: fees for not using your cards.

Continue Reading...

From Rasmussen Reports, via Naked Capitalism:

50 percent of Americans say interest rates on their credit cards have been raised in the past six months, as Congress seeks to limit the ability of banks to raise those rates...

77 percent of Americans believe that credit card companies take unfair advantage of consumers with the interest rates they charge. Just 14 percent do not agree.

From a Bloomberg News article detailing the prospects of TARP overseer Elizabeth Warren's brainchild, the Consumer Financial Protection Agency:

"The time for pitchforks and torches is over," [said Scott Talbott, chief lobbyist for the Financial Services Roundtable]. "The focus should be on reforming the system and making it better."

Continue Reading...

So what's a self-respecting credit card company going to do? Why, raise rates before the law goes into effect, of course! A tweet from Felix Salmon alerts us to a Bloomberg News story that is unlikely to be greeted with equanimity by anyone already annoyed by the behavior of large financial institutions in the United States.

Continue Reading...

Here's how BofA describes it:

Key features of the BankAmericard Basic Visa card include:

• The interest rate is the same for all transactions, including purchases and cash advances, making it easy for customers to keep track of their interest rate at any given time.
• One interest rate -- U.S. Prime plus a margin of 14 percent -- that never changes for the life of the account. Rate increases and decreases will only occur if the Prime Rate changes.
• No over-the-limit fee.
• Easy- to-understand, single-page disclosure explains terms and conditions.
• One flat fee of $39 for late payments.

Continue Reading...

Here's today's entry, courtesy of the Financial Times:

Citigroup has sharply increased interest rates on up to 15 million U.S. credit card accounts just months before curbs on such rises come into effect, in a move that could fuel political anger at the treatment of consumers by bailed-out banks.

People close to the situation said that Citi, which is about to cede a 34 percent stake to the U.S. government as part of its latest rescue, had upped rates on between 13 million and 15 million credit cards it co-brands with retailers such as Sears.

Citi's rate increases emerged on the day the government proposed legislation to create a new regulator with sweeping powers on consumer protection and a week after the bank was attacked by some politicians for raising employees' salaries.

The rate increases fell mostly on borrowers who failed to pay off their monthly balance in full. Let that be a lesson to us all.

Continue Reading...

I will be honest. I would never have made it past the opening slide. But then I would never have laid my eyes on the ultimate prize:

But the prize for the oddest slide goes to #27, which talks about moving into new segments including the introduction of a credit card designed exclusively for women, which, at least to this woman, seems beyond kooky. This sort of thing might have made sense in the 1970s -- I still remember my mom making a point of opening up an account at the First Women's Bank of New York -- but seems a bit dated now.

Continue Reading...

The bill doesn't include a hard 15 percent cap on credit card interest rates, as proposed by Bernie Sanders, and it doesn't include a provision that would make it easier for merchants to offer discounts to customers who do not use credit cards, but it does represent some progress nonetheless.

Customers will have to be more than 60 days behind on payments before a credit card company can raise rates, and issuers will be required to lower the rates to their original level if the customer pays the minimum balance on time for the next six months.

Continue Reading...

Interchange is The Home Depot's third largest operating cost. And this is from a company that gets comparatively low interchange rates just by being large. Interchange is costing large, sophisticated merchants more than health care.

Every time a customer uses a credit card to purchase something, the retail merchant pays an interchange fee to the credit card issuer. Levitin reports that in the U.S. total interchange fees added up to $48 billion last year. He theorizes that lowering the maximum interchange fee allowable would provide a "nice" stimulus to the economy -- without adding to government expenses.

Continue Reading...

Debate continued Thursday in the Senate on a credit card reform bill that the White House is pushing to get enacted by Memorial Day. And while it is not exactly a shocker that an amendment proposed by Vermont's Bernie Sanders (who really is a socialist), would go down to defeat, other amendments to the bill aimed at helping consumers and small businesses are also facing uphill battles. As I write these words, Senator Kit Bond, R-Mo., is pushing an amendment he is co-sponsoring with Durbin that would allow retailers to give discounts to customers who use cash or debit cards.

Continue Reading...

But buried about halfway down is an even more alarming observation:

In the official stress test results, regulators published losses only on credit cards held on bank balance sheets. The $82.4 billion figure did not reflect another element in their analysis: tens of billions of dollars in losses tied to credit card loans that the banks packaged into bonds and held off their balance sheets. A portion of those losses, however, will be absorbed by outside investors.

Continue Reading...

Default rates are surging: "In the fourth quarter of 2008" writes Weller, "credit card companies charged off -- declared as uncollectible -- a whopping 6.3 percent of their debt."

(And the numbers are continuing to get worse -- Bloomberg reports that the average "charge-off rate" in January 2009 was 7.1 percent.)

Weller observes that all this is coming after the credit card industry's successful effort to solve their "deadbeat" problem by getting the laws changed to make it harder for borrowers to declare bankruptcy. And then he delivers a stinging conclusion.

Continue Reading...