With the economy tanking, credit card companies are hoping consumers will bail them out in more ways than one. Taxpayers have already sent millions of their own dollars to card companies as part of the federal bailout. But now consumers are being asked to pick up the tab for card companies’ tanking balance sheets. (more…)
Popularity: 4% [?]
After some 10 million consumers with poor credit saw their credit lines reduced earlier last year, responsible consumers with good credit are now seeing the same credit card limit reductions as credit card issuers move to insulate themselves from defaults, reports USA Today (“Lenders Slash Credit for Responsible Borrowers,” April 2, 2009).
Approximately 22 million cardholders — all of them consumers who have kept up on their credit card payments, have paid their bills on time, and have maintained their credit — have had their accounts closed or credit limits cut, according to a recent report by Fair Isaac, the creator of the FICO credit score.
Typically, lenders have targeted those with poor credit but as the economy has continued to unravel, lenders have changed their definition of risk, says Josh Lauer, a professor at the University of New Hampshire who is writing a book on credit reporting.
Consumers who have high credit scores tend to use their credit cards less and carry low balances, says Fair Isaac’s Careen Foster, which may be why they’re now being targeted by lenders.
And consumers who pay their bills on time aren’t a very profitable demographic for lenders since these consumers tend to pay few credit card fees, adds John Ulzheimer, president of consumer education for Credit.com. Even though these cardholders are less likely to default, lenders must still set aside reserves in case consumers stop making payments on their loans.
When credit card companies close a consumer’s accounts or reduce a consumer’s credit limit, it can increase the proportion of available credit a consumer is using and bring down his or her credit score, making it harder to qualify for any type of loan in the future, especially for a consumer who already has bad credit.
The good news for those who have been responsible with their credit is that, according to the Fair Isaac report, card companies’ recent credit line reductions have had very little impact on these consumers’ credit scores, perhaps because these consumers have had their credit limits cut by only 5 percent.
Bank analyst Meredith Whitney estimates that by 2010 banks will have slashed another $2.7 trillion of available credit on consumer cards. With lenders continuing to tighten their credit standards, Ulzheimer says cardholders, even those with good credit, can’t afford to be complacent about their credit scores.
Popularity: 6% [?]
Lawmakers are attempting to resurrect the Credit Cardholders’ Bill of Rights legislation that died in the Senate last year in an attempt to provide relief for indebted credit card holders, reports Inside ARM (“Credit Cardholders’ Bill of Rights Gets New Life in Congress,” March 25, 2009).
Introduced by Sen. Sheldon Whitehouse, D-R.I., and Sen. Richard J. Durbin, D-Ill., H.R. 627 would protect consumers from credit card companies’ predatory lending practices by limiting their exorbitant interest rate increases.
“The standard credit card agreement gives the lender the power to bleed their customer through evolving and ever more crafty tricks and traps,” Sen. Whitehouse said in a Senate hearing last week (“Debating a Ceiling On Credit Card Fees,” The Washington Post, March 25, 2009). “Under this business model, the lender focuses on squeezing out as much revenue as possible in penalty rates and fees, pushing the customer closer and closer to the edge of bankruptcy.”
The proposed legislation would apply to those companies that raise card rates higher than 15 percent plus the current yield of a 30-year treasury bond, which is currently set at 18.5 percent.
Federal Reserve regulations set to go into effect in 2010 that will target predatory lending practices by credit card issuers would be expanded under the new Credit Cardholders’ Bill of Rights:
While banking industry advocates admit that some card issuers have engaged in harmful practices , they say the industry as a whole has not overstepped its bounds and that cardholders issuers could be hurt rather than helped by the new legislation.
If the bill passes, “the market response would simply be to restrict credit, raise interest rates and fees or both,” said Kenneth Clayton, senior vice president and general counsel of the American Bankers Association’s Card Policy Council, in a letter to the Senate subcommittee. “This would significantly hurt tens of millions of Americans at the very time they can least afford it.”
Popularity: 5% [?]
Credit card holders just barely bucked year-end credit card trends at the end of last year, charging less than expected and making slightly more of an effort to get caught up on their credit card balances compared to 2007, according to a recent anonymous survey of 27 million random TransUnion credit profiles. (more…)
Popularity: 4% [?]
Credit card holders have had some pretty big changes made to their accounts over the last few months, witnessing credit card issuers slash their credit limits, increase their interest rates, and even shut down their unused accounts as these companies aggressively try to minimize the risks posed by cash-strapped consumers.
But card holders have seen little effort by credit card companies to encourage consumer spending, until now. (more…)
Popularity: 8% [?]
Consumers may want to think twice about where they shop and the type of purchases they make to avoid getting hit with a lower credit limit, reports ABC’s Good Morning America (“‘GMA’ Gets Answers: Some Credit Card Companies Financially Profiling Customers,” Jan. 28, 2009). (more…)
Popularity: 3% [?]
Credit card companies are increasingly forgiving borrower’s debts or are working with consumers to pay their debts in anticipation of record credit card defaults in 2009, reports The New York Times (“Credit Card Companies Willing to Deal Over Debt,” Jan. 3, 2009). (more…)
Popularity: 5% [?]
Credit card companies will soon have to abide by new federal regulations meant to protect consumers from interest-rate increases and other unfair credit card practices, reports The Associated Press (“Regulators Adopt New Credit Card Rules,” Dec. 19, 2008). (more…)
Popularity: 4% [?]
The Florida attorney general has reached a settlement with a Florida lawyer accused of defrauding thousands of consumers in a debt relief scheme, according to a report by NBC 6 (“Judge Bars Lawyer From Doing Debt Consolidation Work,” Nov. 25, 2008). (more…)
Popularity: 3% [?]
Ballooning credit card debt and the inability of debt-laden consumers to make their payments have led to widespread defaults, a possible indicator that credit cards may become the next financial crisis, reports Time magazine (“With Defaults Rising, Is a Credit-Card Crisis Looming?” Nov. 14, 2008). (more…)
Popularity: 5% [?]