A summary of this week’s top credit card stories.
DEFAULT, NOT THRIFT, PARES COUNTRY’S DEBT
Consumers in the United States are paring down their debts faster than many economists had expected. The falling debt burden conjures up images of a nation seeking to repent after a decade of profligacy, conscientiously paying down mortgages and credit-card balances.
That may be true in some cases, but it’s not the norm. In fact, people are making much more progress in shedding their debts by defaulting on mortgages and reneging on credit
cards.
The lesson seems to be that the way to get ahead in the world is to take huge risks–buy a house you can’t afford with no money down, or invest huge amounts of borrowed money in risky loans–but let somebody else pick up the bill if things go wrong. As the growing U.S. federal debt demonstrates, that’s not a sustainable way to run an economy.
Story by Mark Whitehouse for the Wall Street Journal.
http://blogs.wsj.com/economics/2010/06/12/number-of-the-week-default-not-thrift-pares-us-debt/
CARD ACT IMPACTS AD SPENDING, MESSAGES
Credit card reform legislation is impacting not only the revenues of credit
card companies, but ad expenditures and messaging, according to a Kantar
Media study. For the study, Kantar looked at historical marketing data
stretching back five-plus years and covering TV, internet, magazine,
newspaper, radio and outdoor. After peaking in 2005 at $2.17 billion,
category ad spending declined by more than 35% during the next four years
and finished 2009 at $1.40 billion. While total category spending has
started to rebound and has posted two consecutive quarters of solid growth,
it is due to two major advertisers: American Express and Chase. For the six
months ending March 2010, Amex and Chase more than tripled their ad budgets
versus the year-ago period and accounted for nearly 40% of total category
spend. New credit card product launches contributed to the hikes. However,
several major marketers have yet to restore their media budgets, according
to Kantar. Most of the major card issuers continue to focus on rewards
programs as the key selling point in their TV commercials.
Story by Tanya Irwin for Marketing Daily.
http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=130029
CREDIT UNIONS TO PROMOTE THEIR STRENGTHS
Now might seem a perfect moment for credit unions to shout from the rooftops about what makes them different from for-profit banks.
For starters, most credit unions did not engage in the type of risky lending that led to the crisis. Generally, credit unions also did not charge the kind of sky-high interest rates on credit cards and exorbitant overdraft fees that fueled anger at their bigger competitors.
Yet, despite growing antipathy toward big banks, most credit unions have stuck to their time-worn routines: gentle membership drives, bland advertising and contentment with the business they have. That slow approach makes the recent wave of cheeky, take-that advertisements from a handful of credit unions stand out all the more.
Story by Andrew Martin and Ron Lieber for the New York Times.
http://www.nytimes.com/2010/06/12/business/12credit.html?src=busln
FEDERAL RESERVE ANNOUNCES NEW CREDIT CARD PROTECTIONS
On Tuesday, the Federal Reserve announced new rules and credit card
protections which go into effect on August 22. Under these new rules, there
are limited and conditional protections against interest rate increases. Any
increase in your APR must be re-evaluated by your issuer every six months,
including any increases that took place after January 1, 2009. If
appropriate, the issuer must reduce your rate within 45 days after
completing the evaluation. Additional rules include capping late fees at $25
with some exceptions; limiting penalty fees so they cannot exceed the dollar
amount of the consumer’s violation; and prohibiting issuers from charging an
inactivity fee on cardholders who don’t use their credit card.
http://www.lowcards.com/blog/category/credit-card-press-releases/
SHOULD BANKS, MERCHANTS OR CUSTOMERS
BEAR THE COST OF PAYING WITH PLASTIC?
It’s not that merchants dislike debit cards or, for that matter, credit
cards, which require them to pay processing fees of up to 3% of the sale
price. They’re convenient for customers, and plastic payments don’t bounce
like checks. Merchants just don’t want to pay for these benefits–they want
banks to do it, as is the case for paper checks. At the very least,
merchants want banks to lower their processing fees to something closer to
what they believe is the actual cost of handling an automated transaction.
What’s “reasonable and proportional”? Unclear. But it would seem by the
nature of the amendment that however much it is, it’s less than what banks
currently charge. The financial-services industry, needless to say, doesn’t
like this idea one bit and has been unleashing its own lobbyists to have the
amendment watered down or dropped from the legislation.
Story by David Lazarus for the LA Times.
http://www.latimes.com/business/la-fi-lazarus-20100615,0,1491027.column
LOWCARDS.COM WEEKLY CREDIT CARD RATE REPORT
Based on the 1000+ cards in the Lowcards.com Complete Credit Card Index,
the average advertised APR for credit cards this week increased to 13.63%
from the 13.61% last week. Six months ago, the average was 13.07%.
One year ago, the average was 12.04%.
http://www.lowcards.com/ratereport/credit-card-rate-report.asp
AIRLINE CARDS BAG THE BAGGAGE FEE
The ever-changing world of airline fares and fees is getting a little more
confusing — but maybe a lot cheaper — thanks to the newest travel perk:
free baggage check with an airline’s credit card. Continental Airlines
introduced the benefit last fall on its Chase credit card, followed by Delta
with its premium Skymiles American Express card. Both cards waive the fee
for a flier’s first checked bag–a $50 charge on a round trip–for up to
nine people traveling together on the cardmember’s reservation.
It sounds like a good deal, but there’s a catch: another fee. In the case of
Continental, it’s the $85 annual fee for the OnePass Plus card, and for
Delta, it’s $95 for the Gold Skymiles card. By adding the baggage perk, these
airlines and card issuers can offset reductions while convincing cardholders
to pony up the added annual membership fees. The branded cards also build
loyalty to the airline and the card issuer, keeping cardholders from jumping
to grab new offers from other issuers.
Story by Brian O’Connor for the Detroit News
FINANCIAL TIPS FOR NEWLYWEDS
June is the traditional “wedding season” and many newlyweds are dreaming of
a happy life together. Agreement over finances and paying off debt are
important preparations for a long-lasting union. According to the study,
“Bank On It: Thrifty Couples are the Happiest,” conflict about money
predicts divorce better than any other type of disagreement. Couples who
disagree about finances once a week were over 30% more likely to divorce
over time than couples who only disagree about finances a few times per
month. Before you get married, know how your future spouse will treat money.
Don’t assume that your spouse shares your beliefs about money. Even if your
future spouse is kind and respectful to you, he/she may treat money
differently. The spending and saving habits may surprise you. A free spender
before marriage will probably be a free spender after marriage.
http://www.lowcards.com/blog/656/
CONSUMERS AND THEIR CREDIT CARDS
Have a look at outstanding revolving credit (almost all of which is credit
card debt) over the past eight years. Two things stick out: First, credit
card debt has dropped precipitously. That’s great news! It’s step one in
repairing household balance sheets, which were pillaged over the past
decade. Secondly, as large as that drop appears, credit card debt is still
about where it was in 2006. By any measure, that was a time of debt gluttony
and irresponsibility. Nominal GDP is about 7% higher today than it was back
then, so the comparison isn’t perfectly apples-to-apples. But the 2007-2008
spike in debt was so fierce that even a large decline in total credit card
debt only brings us back to still-bubble-year levels. There’s more work to
do, in other words.
Story by Morgan Housel for the Motley Fool.
FEDERAL COURT NOW TAKING CREDIT CARDS
The Clerk of the U.S. District Court for the Northern District of Iowa has
what may be some welcome news for defendants in that jurisdiction who are
either found guilty or decide to enter guilty pleas. The court now takes
credit cards. The clerk’s office announced Friday that the court will now
accept Visa, Mastercard, Discover and American Expresscards for criminal
payments at both its Cedar Rapids and Sioux City locations.
http://www.chicagotribune.com/news/chi-ap-ia-court-creditcards,0,4928086.story
AMERICANS REBUILDING WEALTH SLOWLY AND UNEVENLY
The rebuilding of Americans’ wealth is proceeding in steps rather than
strides. Households’ net worth rose last quarter–the fourth straight
quarterly gain. Yet tumbling stock prices have reduced their wealth since
then. Some economists say Americans’ net worth may now be down slightly for
the year. That helps explain why many say it will be 2012 or 2013, at best,
before Americans’ wealth will return to its pre-recession levels. In the
midst of the recession, household net worth sank as low as $48.3 trillion.
It’s since risen 13 percent. Yet even counting last quarter’s gain, net
worth would have to rise 21 percent more to regain its pre-recession peak of
$65.9 trillion. As Americans have gradually recovered some of their wealth,
many of them, especially the affluent, have been spending more. But the
housing and stock markets remain fragile. That’s why most consumers aren’t
spending as freely as they typically do in the early phases of recoveries.
Story by Jeannine Aversa and Dave Carpenter for the AP.
http://www.google.com/hostednews/ap/article/ALeqM5j7pKMyS43i0iLdJEwuDTC5ZGe2IQD9G8LEQ00
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