Credit Card Industry Aims to Profit From Sterling Payers
Posted by Michelle Moquin on June 16th, 2009
Good morning!
I found this article that I think many of you would be interested in reading. It is a long article but there is a lot of good stuff here. Let me know your thoughts – blog me. And if not….then blog me something else you want to say…..
The forum is now open :)
Credit Card Industry Aims to Profit From Sterling Payers
Credit cards have long been a very good deal for people who pay their bills on time and in full. Even as card companies imposed punitive fees and penalties on those late with their payments, the best customers racked up cash-back rewards, frequent-flier miles and other perks in recent years.
Related
What Does Your Credit-Card Company Know About You? (May 17, 2009)
Should responsible card users be penalized for paying off their monthly balance?
Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.
Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.
“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”
As they thin their ranks of risky cardholders to deal with an economic downturn, major banks including American Express, Citigroup, Bank of America and a long list of others have already begun to raise interest rates, and some have set their sights on consumers who pay their bills on time. The legislation scheduled for a Senate vote on Tuesday does not cap interest rates, so banks can continue to lift them, albeit at a slower pace and with greater disclosure.
“There will be one-size-fits-all pricing, and as a result, you’ll see the industry will be more egalitarian in terms of its revenue base,” said David Robertson, publisher of the Nilson Report, which tracks the credit card business.
People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride, he said, because many have not had to pay an annual fee even as they collect points for air travel and other perks.
“Despite all the terrible things that have been said, you’re making out like a bandit,” he said. “That’s a third of credit card customers, 50 million people who have gotten a great deal.”
Robert Hammer, an industry consultant, said the legislation might have the broad effect of encouraging card issuers to become ever more reliant on fees from marginal customers as well as creditworthy cardholders — “deadbeats” in industry parlance, because they generate scant fee revenue.
“They aren’t charities. They have shareholders to report to,” he said, referring to banks and credit card companies. “Whatever is left in the model to work from, they will start to maneuver.”
Banks used to give credit cards only to the best consumers and charge them a flat interest rate of about 20 percent and an annual fee. But with the relaxing of usury laws in some states, and the ready availability of credit scores in the late 1980s, banks began offering cards with a variety of different interest rates and fees, tying the pricing to the credit risk of the cardholder.
That helped push interest rates down for many consumers, but they soared for riskier cardholders, who became a significant source of revenue for the industry. The recent economic downturn challenged that formula, and banks started dumping the riskiest customers and lowering their credit limits in earnest as the recession accelerated. Now, consumers who pay their bills off every month are issuing a rising chorus of complaints about shortened grace periods, new hidden fees and higher interest rates.
The industry says that the proposals will force banks to issue fewer credit cards at greater cost to the current cardholders.
Citigroup and Capital One referred comments to the A.B.A. Discover and American Express declined to comment. Bank of America intends to “provide credit to the largest number of creditworthy customers possible, while also remaining prudent in our lending practices,” said Betty Riess, a spokeswoman. Together with JPMorgan Chase, which has said the changes will force it to limit credit availability and raise fees, these banks account for 80 percent of the credit card industry.
Banks are not required to publicly reveal how much money they make from penalty interest rates and fees, though government officials and industry consultants estimate they constitute a growing portion of revenue.
For instance, Mr. Hammer said the amount of money generated by penalty fees like late charges and exceeding credit limits had increased by about $1 billion annually in recent years, and should top $20 billion this year.
Regulations passed by the Federal Reserve in December to curb unexpected interest charges would cost issuers about $12 billion a year in lost fees and income, according to industry calculations. The legislation before Congress would build on the Fed rules and would further squeeze banks’ revenue when they are being hit with a high rate of credit card charge-offs. The government’s stress tests showed that the nation’s 19 biggest banks will take on $82 billion in credit card losses in the next two years.
A 2005 report by the Government Accountability Office estimated that 70 percent of card issuers’ revenue came from interest charges, and the portion from penalty rates appeared to be growing. The remainder came from fees on cardholders as well as retailers for processing transactions. Many retailers are angry at the high fees and plan to pass them on to shoppers once the Congressional legislation takes effect.
Consumer advocates say they have little sympathy for credit card issuers, arguing that they have made billions in recent years with unfair and sometimes deceptive practices.
“The business model will change because the business model doesn’t work for the public,” said Gail Hillebrand, a senior lawyer at Consumers Union.
“In order to do business under the new rules, they’ll actually have to tell you how much it’s going to cost,” she said.
With many consumers mired in debt and angry at what they consider gouging by credit card companies, the issue of credit card reform has broad populist appeal. Members of Congress and the Obama administration have seized on the discontent to push reforms that the industry succeeded in tamping down when the economy was flying high.
Austan Goolsbee, an economic adviser to President Obama, said that while the credit card industry had the right to make a reasonable profit as long as its contracts were in plain language and rule-breakers were held accountable, its current practices were akin to “a series of carjackings.”
“The card industry is giving the argument that if you didn’t want to be carjacked, why weren’t you locking your doors or taking a different road?” Mr. Goolsbee said.
Ron Lieber contributed reporting.
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Lara: I was literally blown away by your comments the other day. You are a young girl who has so much to offer. I only wish I could’ve been as intelligent and intuitive, not to mention very articulate at your age. You are years beyond and as much as I am touched by you wanting to become a woman like myself…at your age, you are already a woman that anyone would be proud of. I am sure your parents feel they have been blessed.
Congratulations for making it into Stanford. I look forward to seeing what you end up doing with your life. And yes, San Francisco is close to Stanford – about and hour or so away. I would love to meet you sometime.
Robert: What’s going on with the two girls: Euna Lee and Laura Ling?
Thais: Well I guess I should called yesterday’s post…”…Let Them Vent”, as that is truly what it is about. And vent you did. You gave us a ton of information…And those of you who question the stats – google it – Ain’t it just grand that we have such access to so much information? There is no excuse anymore to say that you are uninformed. I just call it plain Lazy.
On another note…your story was so disturbing I can’t get it out of my mind. I can just imagine how degrading it must’ve been for you. The cops actions are just sickening. And how painful for your brother. It is just so not right.
Your story is reminding me of an experience I had. Along time ago I was in downtown SF walking with my boyfriend late at night. We were stopped by the police on the street. What was the reason? He said that my breast was hanging out and I was exposing myself. This was not true at all. I thought he was joking but he continued to question us and ask for ID. Then he arrested my boyfriend. He supposedly was similar in looks and build to some guy they were looking for. They took him away right there leaving me in downtown SF all by myself. It was about 2 am….The story continues but not worth the right. My point being that I felt so degraded. The cop was looking at me as if I were a whore, and when he told me that I was exposing myself I just didn’t know what to say except ‘No’ – my blouse was not open anywhere but he kept saying that he saw my breast. What a complete ass. I haven’t thought about that story in years but it still makes my skin crawl.
Anyway….thank you for sharing and venting….It is my pleasure to provide the space to do so…so vent on….
Doug: Thank you. I so hope you are right.
Mark: Thank you for recognizing and admitting your struggles of racism. And your attempt to be open minded and willingness to change. If only more whites out there would just acknowledge their bigoted ways, and realize that it is time to let the old beliefs die. I am delighted that bigotry is no longer invited in your home. It is a step in the right direction. I am inspired by you and your wife and I hope that your new outlook is infectious to those that surround you.
Zen Lill: The most shocking thing is that no one….absolutely no one did, anything about it. There was no uprising. Sure, maybe some wanted to, but look how long before Civil Rights came about that was supposed to outlaw racial discrimination. As we all know, racial discrimination has still not come to an end.
Hines: Thank you. And no, I don’t either. Who knows?
Maria: That video clip is a prime example of the men in blue…’our heroes’ taking advantage of their uniform by needlessly harassing so they can express their racist ways on innocent people. Take away their badges and these bigots wouldn’t be so bad-assed anymore. All I can say is thankfully we have cell phones that can capture these racist cops. Now more needs to be done than just a slap on the wrist…in this case the cop got a paid leave. Gee…he gets time off and he still gets paid. Does that sound like punishment? I guess in a racist mind, it may, because that means he can’t hide behind his uniform slingin’ his gun and intimidating OTW’s.
Liz: My pleasure. I just wish it were never in our history for me to want to show it.
Lois: Thank you and thanks for blogging the article too.
Hey…I’m off to enjoy my java before work. Have a good one.
Gratefully your blog host,
michelle
Aka BABE: Your Bad Ass Bitch Editor
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June 16th, 2009 at 8:14 am
SUPERCHARGE YOUR METABOLISM WITH STRAWBERRIES
Here’s one of the best-kept secrets of the season: In addition to being delicious and full of antioxidants, strawberries can boost your metabolism and help your body burn fat. These delicious berries supply powerful nutrients that can help you lose weight and even keep your brain young and fit, according to Leo Galland, MD, author of The Fat Resistance Diet.
STRAWBERRIES BOOST METABOLISM
Dr. Galland, who frequently uses foods for prevention and treatment of common conditions, told me that strawberries promote weight loss in at least three ways. Strawberries can:
• Increase the body’s production of a hormone that stimulates your metabolism and curbs your appetite. Anthocyanins, a chemical constituent of strawberries, stimulate synthesis of the hormone adiponectin, which is produced by fat cells. Adiponectin stimulates fat burning.
• Slow the rate of digestion of starchy foods. Anthocyanins and ellagitannins found in strawberries inhibit the enzymes that transform dietary starch into sugar. This helps control the rise in blood sugar that follows a starchy meal. This is a key benefit for those with type 2 diabetes.
• Help your weight-reducing hormones function properly.
According to Dr. Galland, strawberries are a perfect part of his “fat resistance” plan because one cup of sliced strawberries has only 53 calories and comes loaded with 98 mg of vitamin C, 3 grams of fiber, plus calcium, magnesium and potassium.
Strawberries may also help keep the brain young and fit. Research with laboratory animals has demonstrated functional benefits of strawberries for the aging brain, including preservation of memory and learning ability.
All this is in addition to the high anti-inflammatory antioxidant content in strawberries, which helps protect against heart disease and stroke.
HOW TO ENJOY STRAWBERRIES: ?SHOPPING AND EATING
The fresher the better when shopping for berries. Buy organically grown ones when you can find them, as organic strawberries have been shown to have higher levels of vitamin C. Choose strawberries that are bright red and firm, skipping any that are bruised or soft. Wash them thoroughly just before eating or using them, so they won’t get soggy and to remove pesticide residues, since strawberries have higher pesticide levels than many other crops.
In a world of sugary temptations, strawberries can be considered a 100% guilt-free treat, according to Dr. Galland. “Strawberries give you flavor, color and aroma, awakening your taste buds to the fresh, natural foods your body needs to be healthy and vital,” he said. “Enjoy them as I do, without adding sugar or cream, and let the natural sweetness shine through.”
Get a free one-day meal plan with recipes by visiting Dr. Galland’s Web site at http://www.fatresistancediet.com/trial/.
Source(s): ??Leo Galland, MD, is an internist in private practice in New York City. Dr. Galland is the director of the Foundation for Integrated Medicine and the author of Power Healing (Random House) on integrated medicine.
June 16th, 2009 at 8:16 am
It is always scary to see the radicals in any party but as a Republican, I am increasingly embarrassed by some of the more vocal (and radical) members of my party. I don’t really care about Coulter, she just likes to tick off people and figured out a way to make money doing so, she’s not the first and is probably not going to be the last either. What troubles me more is that there are very few, if any, news sources are unbiased (a lecture I hear almost daily from my mother who left the newspaper industry right before it started breaking down). Maybe it’s just because I’m obsessive about objectivity but I do think things would be better off if the mainstream media only produced facts and left the passionate narratives to bloggers.
Not that that would help people like the shooter. I don’t know if anything could have been done to prevent this tragedy. My thoughts and prayers are with the victim’s family.
June 16th, 2009 at 8:27 am
Sorry I haven’t been around. Went to the mainland to visit some family. A little shout out to those who entertained me when I was out there. Okay, for some news.
Here on the Island we are looking to find the best siopao. Only Chamorros know how much we love it.
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Where is Guam’s best siopao?
JUNE 16, 2009
Everyone has an opinion on where to find the most delectable siopao. Some have almost come to fisticuffs not only over pronouncing this on-the-go meal’s name but also it’s makeup — whether it’s better with chicken or pork, with or without egg.
But somewhere on Guam the best siopao is waiting to be crowned by Pika.
So who’s got it? Is it your local mom-and-pop store? A gas station? A bakery?
Send in your siopao nominations to thebest@guampdn.com by June 21 and tell us why it’s worth your vote. We’ll collect the submissions, embark on tireless research and tell you who we think deserves the title.
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Hafa adai
Anna
June 16th, 2009 at 8:29 am
“As a group, they are the pop culture equivalent of necrotic carrion beetles, crawling with insectile determination from one infected open wound in the American psyche to another. The wounds include fear of race, fear of foreigners, fear of sexuality, fear of difference, hysterical religious fundamentalism, violent nationalism, and paranoia. They lay their eggs in the infected abrasion, then scuttle away. When the eggs hatch, disgorging rage and discontent, they start counting money.”
This is perhaps the most accurate and scathing appraisal of the aforementioned Right Wing media whores, I have yet read or heard. These people and their followers are nothing so much as race-baiters, haters and evil satyrs who cater to the basest instincts of their “base”. They and their fellow wing nuts have effectively hijacked the Republican Party leaving millions of voters with nowhere to go. For a liberal Dem like me, that’s all well and good. But for the political health of our country it’s a shame and worse, a danger to our representative democracy as it exists under the current two-party system.
The above mentioned personalities are the chief rabble rousers who continue to degrade and debase the American political process into the quagmire and morass it has become. Ultimately, this kind of “take-no-prisoner”, “scorched earth” style of political commentary and foment forces our elected leaders into positions that frequently do not allow them to legislate or govern as they should. And therein, lies the biggest danger to the Republic.
June 16th, 2009 at 8:30 am
Vitriol and racial/sexual hatred and hegemony are at the heart of American history, For Mr. Rowe to suggest this as shocking and recent phenomena is quaint and naive at best. The United States was founded on such puritanical and fierce pugilistic xenophobia that extended the life of such barbaric murder and Human Rights assailants such as slavery, Jim Crowe Laws, Segregation, The Trail Of Tears, the disembowelment of Native Americans, Africans, Immigrants, and anyone not cocaine-white and Protestant.
It is important to address such hatred whenever it translates to the death and murder of those among us whom are attempting to live in tolerance, and is equally important to bring out those who use hatred as a vehicle under the cowardly guise of First Amendment privilege, using their celebrity to exact harm against those who they deem not ‘pure’ in thought, actions, or ethnicity.
But lets keep it honest: This IS America.. this violent history of hatred and intolerance is part of our legacy, and part of we are as a collective at present. To sentimentalize of what ‘used to be’ is ridiculous and without reasonable hindsight. I believe this article is well-intentioned, but indeed if these things are to be debated, it needs to be viewed with more honesty and without the protracted appearance of needless self-serving candor. America has racism, hate, paranoia, violence, and puritanical elitism as part of its social DNA.
June 16th, 2009 at 8:32 am
thanks for the heads up Michelle. Great article
June 16th, 2009 at 8:33 am
now let me get this straight . Are you saying that because this country have had a history of genocide and racism that it is acceptable that people like Ann Coulter ,Rush Limbaugh ,O’Riley ,Palin and the like should not be held accountable for inciting more hatred and racism ? So your saying we should keep the status quo and not make this country a safer and more peaceful place to live by not allowing such hatred to be televised into our living rooms for those to see who are already tettering on the brink of committing a homicide and only need that nudge that Fox Faux New etc are oh so willing to give them without conscience .
Oh yeah I see the logic in that ,”shaking my head in disbelief ,”.
When a country doesn’t learn from its mistakes history repeats itself .So how many times does history have to repeat itself before you finally understand this must stop now ?
BTW this is coming from a metis whose ancestors were nearly wiped out because of hatred ,greed and racisim !
June 16th, 2009 at 8:35 am
The banks have found a way to profit even more from their credit cards. Thanks for giving us some hints that may help us deal with the situation.
Paul
June 16th, 2009 at 8:36 am
All of these people from Sarah Palin to Bill O’Riley , Ann Coulter, Beck , Rush Limbaugh , Right wing Christian preachers who spew hate and the Republican party themselves for ever picking Sarah Palin as a vice Presidential candidate with her known racist beliefs ,lack of education or world knowledge and her radical right wing Christain views then allowing her to incite violence and hatred on the campaign trail with those hateful radical beliefs . There are a number of people who silently stood by allowing these people to spew their hate and racism including the media that allowed aired this garbage all but given its permission to those people who would commit these violent sick acts . No you will never see them take responsibility until we stop watching programs like Fox Faux News. This is no comedy show its not funny when they are inciting people to kill !
June 16th, 2009 at 8:37 am
“In that moment, I felt deeply for my Republican friends who, on some level, must also be experiencing the embarrassment and discontent of recognizing that their party had been hijacked by racists and religious fanatics who derided education and achievement as “elitist.”
Funny, I live in California where we would appreciate some support from Obama for same-sex marriage and repealing DADT and DOMA, and overturning Prohibition, but he won’t because he prefers to pander to evangelicals in hopes of winning their vote. There’s is substantially little difference between Dems & Repugs — the Dems make lots of promises but refuse to enact needed changes.
June 16th, 2009 at 8:43 am
Hafa adai
Anna, Missed you. Glad to have you back on the Island. Guam Police are cracking down on bad drivers. That is always a good thing. But this just seems as a way to get money to make up for the lost revenue do the the country’s financial crisis. You be the judge.
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GPD Traffic Crackdown This Week- “Operation Safe Streets, Safe Guam”
Written by Kevin Kerrigan
Tuesday, 16 June 2009 10:55
Guam
Guam – The Guam Police Department is warning drivers to “beware,” a traffic crackdown gets underway today at 3 pm.
Its “Safe Streets, Safe Guam.” The Highway Patrol Division will be out on the roads checking registration and tags, looking for people who haven’t buckled up, equipment violations, and speeders.
They’ll also be looking for vehicles without front license plates, tint violations, defective mufflers and no mud flaps or mud guards.
Those with no valid drivers license will be cited to include registered owners allowing the violation.
In addition there will be another round of DUI checkpoints starting this Thursday, June 18 and running through June 20th.
DUI checkpoints will be set up along Route #1 along Marine Corps Drive; Route #14 in Tumon, Route #16 in Dededo and in Harmon; and Route #8 in Maite and Barrigada.
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Robert
June 16th, 2009 at 8:44 am
Until there IS warning. Obama’s campaign exposed ugliness I hadn’t encountered before. Phone banking in K.lan country during the Rev. Wright controversy. Canvassing in hostile areas covered in McCain-Palin signs, too scared to display an Obama bumper sticker on my car. Strangers cursing, yelling and threatening me. Hating me, a woman they didn’t know, because of Obama, a man they didn’t know.
I will never forget the time a conversation with regulars at a local diner unexpectedly devolved into a diatribe of Obama. I gamely refuted the Internet rumors and right-wing talking points. The conversation turned very ugly. My eyes burned. I couldn’t stop shaking. But I didn’t back down and I didn’t break down, until I was alone in my car. I cried so hard I didn’t think I could ever stop. I had never confronted raw hatred face-to-face.
I was afraid for Obama’s safety. I was afraid for our country. I am even more afraid today.
June 16th, 2009 at 8:45 am
Evil isn’t the stereotype we see in the movies with the sinister grin.
Evil is innocuous. Evil is neglect. Evil is slovenly. Evil seduces us with the laziness of inaction.
Evil is the entropy of the human spirit. I’m not sure I have the energy anymore for this sort of battle, but thanks for inspiring the rest of us to not give up.
June 16th, 2009 at 8:49 am
I understand how you feel ! I have faced this in my own family with my oldest sister who is a right wing Christain !
I felt as if everything I knew that was true and good had been turned inside out when I heard words coming out of my sisters mouth that were so venomous and hateful towards Obama ,Dems,immigrants and the poor in this country . I felt violated by just hearing such garbage . Needless to say we don’t even speak any more . To cry that immigrants should be deported because our country is over populated while you sit and watch 18 Children And Counting and find that acceptable because these right wing Christians are having all these babies to build up the Christian movement in this country . My sisters justification ,”BUT THIER CITIZENS,” .How hypocritical is that ?
Maybe she never thought that those whose ancestry are Europeans are immigrants to this country and not native and that there were no borders between Mexico and Canada before the Europeans came so the people roamed freely between these countries before borders were built . So who is really an immigrant here ?
This has turned into a dangerous game and its time these people took a good look at the pandora’s box they have opened !
June 16th, 2009 at 8:54 am
We in Iran are hoping for CHANGE like Mr. Obama is bringing to your country.
Pray for us.
June 16th, 2009 at 9:04 am
Iran is being help prisoner by religious tyranny. We women live under constant fear. I ask for your prayers. They are probably our only hope. The military is full of young dumb boys who are mistrustful of their own urges. The religious tyrants use that to instill mistrust of women in our male youth.
Women are to be controlled is the mindset of the uneducated male in Iran.
Shari
June 16th, 2009 at 9:05 am
Thank you for thinking of us with today’s article.
I will be pouring over it at my lunch break.
Connie
June 16th, 2009 at 9:07 am
Hi Mischa, this is disturbing but not shocking…been discussing this next smooth play on good payers since I saw it on TV (or saw it here, can’t remember after all that code 404, weeee!) but CC co’s have been cutting good payers credit limits so suddenly so if your limit was 10K and you had 5K on that card – 50% of limit (and paying it down) and they cut your limit to 6K you’re at 90% of limit, thus changing your ‘score’ quickly to a bad one. Get em’ paid off and go cash, that’s my new MO…
My father was a cop, need I say more about prejudice, unfair treatment of OTW’s, police uniform = instant machismo, and more, I’ll leave out what he often acted like at home. We squared away our personal ZL-Dad deal several years before he died, I don’t like to get into it anymore, he’s dead now. I won’t ever forget one night in high school, at a friend’s house, I was taking a hit off a bong and an older man (yeah, what, about 19-20?) was asking who I was (as if I couldn’t hear him), a friend said my first and last name, he suddenly looked PO’d and asked if so and so was my father….the room went silent, I told him to go ahead and elaborate about his dealings with my father, I won’t get lengthy, it wasn’t pretty what my own father and his men did, he was white but his two friends were black boys. And guess who’s motorcycle I rode home on the back of that night? ; ) one person my father never could control was ME…bwahahaha…
Caio, Zen Lill
June 16th, 2009 at 9:10 am
Melba
Some how I feel that you will do fine. Black men are no different than any other man. They start every relationship with their eyes. You being eye candy should make it easy for the opening conversational hit.
I would suggest that You visit restaurants in black neighborhoods that have a nice bar for it patrons to sit and drink. You could start at a sport’s bar.
Pearle
June 16th, 2009 at 9:12 am
I am a student. The police have invaded my university and are ransacking our rooms. They beat anyone they wish. They are threatening us to stay off the web.
June 16th, 2009 at 10:16 am
Q: My bank informed me that it must report to the IRS a large deposit I recently made. Is this legitimate? I feel that it’s an invasion of privacy.
A: It sounds as though your bank was responding to the Bank Secrecy Act. This 1970 law requires banks to report currency transactions of more than $10,000 to the IRS. Such transactions include deposits, withdrawals and check cashing. Banks must also keep records of bank checks, drafts, cashier’s checks, money orders and traveler’s checks of amounts of $3,000 up to and including $10,000. The document that the bank files with the IRS, known as a Currency Transaction Report (CTR), includes your name, bank account, date of birth, address, Social Security number, the type of transaction and the amount. The bank is also required to record on the form one of your official IDs, such as your driver’s license, credit card or passport to verify your identity. If you would like more details, check with the bank advisory organization National Association for Bank Security, http://www.banksecurity.com.
June 16th, 2009 at 10:31 am
We are being told to travel in groups. At the University of Tehran we are being rounded up for punishment and the instructors are being intimidated or forced out. I am scared. We could use some help from Madaline.
Pray for us.
Reza
June 16th, 2009 at 12:25 pm
Michelle
Wonderful article. ere is an interesting augment to that article. If credit card debtors want to get out of paying their full credit card debt, here is an option.
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June 16, 2009
Credit Bailout: Issuers Slashing Card Balances
By DAVID STREITFELD
The banks were bailed out last fall, the automobile companies last winter. For Edward McClelland, a writer in Chicago, deliverance finally arrived a few days ago.
Mr. McClelland’s credit card company was calling yet again, wondering when it could expect the next installment on his delinquent account. He proposed paying half of his $5,486 balance and calling the matter even.
It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.
As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.
The practice started last fall as the economy worsened. But in recent months, with unemployment topping 9 percent and more people having trouble paying their bills, experts say this approach has risen drastically.
They say many credit card issuers have revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.
“Now it’s the card company calling you and saying, ‘Let’s talk turkey,’ ” said David Robertson, publisher of the credit industry journal The Nilson Report.
Only a few creditors are willing to confirm the practice. Bank of America and American Express say they decide on a case-by-case basis whether to accept less than the full balance. Other card companies refuse to discuss the subject, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.
The shift comes as the financial services industry finds itself losing some of its legendary power. A credit card reform bill that makes it harder to raise rates on existing balances and prevents certain automatic fees flew through Congress and was signed by President Obama in late May.
Borrowers still have a crushing amount of debt to deal with, however.
Revolving credit, a close approximation of credit card debt, totaled $939.6 billion in March. The Federal Reserve reported that 6.5 percent of credit card debt was at least 30 days past due in the first quarter, the highest percentage since it began tracking the number in 1991. The amount being written off was also at peak levels.
After a balance has been delinquent for six months, regulations require the card company to reduce the value of the debt on its books to zero. If a borrower has not paid by this point, chances are he never will.
“The creditors would rather have a piece of something now instead of absolutely nothing down the road,” said Adam K. Levin, the founder of the consumer education Web site Credit.com.
Banks and credit card companies are discussing new programs that would, for the first time, allow credit counselors to invoke reductions of principal as a routine part of their strategy, said Jeffrey S. Tenenbaum, a lawyer for many counseling agencies. In the past, counselors could persuade card issuers to adjust interest rates and modify late fees, but the balance was untouchable.
An example of how quickly the card companies are shifting their approach is in the behavior of HSBC, a major issuer, toward Mr. McClelland.
He was paying fitfully on his card, which was canceled for delinquency. In April, HSBC offered him full settlement at 20 percent off. He declined. A few weeks later, it agreed to let him pay half.
Traditionally, the creditors could play tough with any accounts that became delinquent because the cardholders had assets. The creditors could sue or place a lien on a cardholder’s house.
As the recession grinds on, though, many cardholders have less to lose. Mr. McClelland, 42, is a renter. Since he is self-employed, he has no wages to garnish. But he did not want to feel like a deadbeat.
“Having this over and done with was appealing,” he said. He raised the agreed-upon $2,743 and sent it off electronically last week. He has spared himself the prospect of years of collection calls.
HSBC said it did not comment on individual cardholders and would not discuss its policy toward settlements. “Every customer situation is unique,” said a spokeswoman, Cindy Savio.
The card companies, perhaps understandably, do not want to promote the idea that settlements have become merely a matter of asking nicely. The creditors also point out that a delinquency, like a foreclosure, destroys a credit record.
And there can be a Catch-22: those with the fewest assets are the likeliest to receive a settlement offer, but they are also the least able to come up with the cash for that final negotiated payment. Some creditors, though, are helpfully letting people stretch this out over months.
Still, a line has been crossed, credit experts say.
“Even in the early stages of delinquency, settlements can be dramatic,” said Carmine Dorio, a longtime industry executive who ran collection departments for Citibank, Bank of America and Washington Mutual.
During the boom, nonpayers were treated more harshly because, paradoxically, their debt was more valuable. Collection agencies were eager to buy bundles of old debt from the card companies for as much as 15 cents on the dollar. In a healthy economy, even the hopelessly indebted can pay something.
In this recession, where collection agencies have little hope of collecting from the unemployed, that business model is suffering. Experts say 5 cents on the dollar is now the most a card company can hope to get for its past-due accounts.
Another factor undermining the card companies is the rise of debt settlement firms. These are profit-making companies that charge fees, nearly always in advance, to bargain with creditors on a consumer’s behalf.
Settlement companies are under fire from regulators, who say they promise much and deliver little. But their ubiquitous ads, which make a settlement seem not only easy but also a moral victory over shamelessly gouging card companies, have done much to spread the idea.
Although there are few independent statistics on the settlement industry, there is no doubt that some generous deals are being done.
Consider Bedros Alikcioglu, a gas station owner in Newport Beach, Calif. He owed $112,000 on four cards and was paying $3,000 a month in interest and late fees. “It was so hard to earn that money, and paying it to nowhere didn’t make sense anymore,” said Mr. Alikcioglu, 75.
He signed up with a debt settlement company named Hope Financial, which negotiated deals with his creditors to settle for about 35 percent of his balance. Hope Financial is charging Mr. Alikcioglu about 12 percent of his original debt.
“I did not want to leave the legacy of bankruptcy,” Mr. Alikcioglu said. “I am now at peace.”
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Thais
June 16th, 2009 at 12:45 pm
Forgot to mention the Iranian election, hmm, if that’s what it was, seems the overwhelming majority of voters are under 30 and clearly did not want I’m-a-dinnah-jacket again, so – the US isn’t the only country with seriously flawed voting booths, and/or voter fraud. How sad, I am sorry to read the above comments re: the situation in Iran.
Misch, where is Madaline anyway? I know annihilation is inappropriate for all males, but can’t we agree on some criteria basis for the annihilation of really bad men (or would that rid us of 98%)? I’d be OK with that, I’d even be willing to share the 2-5% of ‘real men’ left to make that happen, tee hee, small price to pay to help our sisters around the world, no? hmmm, that would also leave me (and lots of other women) in a position of maybe trying out a ‘real woman’ – yeeoowwww… : ) !
- ZL
June 16th, 2009 at 1:09 pm
Al, sorry – again, just rec’d your comment along with several others from Fri, left you a response, my Viagra/Vigorelle post from yesterday generated some heat, too…(pun intended) thanks for stopping by, it’s always good to hear from you. It takes so long bc I am still dealing with that mega-spam issue, ah well…
Hey, you aren’t offended by my Woody Allen remark, are you? I hope not, as I said, I love WA!
- ZL
June 17th, 2009 at 12:52 am
Let me go on record to say I have never considered anybody with balls bigger than mine. My father taught me to stand up for what I believe as long as I do my home work on the topic. He also taught me to respect the other person’s right to disagree.
Let the record show I yield to Mr. Ed Schultz on the Ed Shultz at 6 PM week nights on MSNBC. I have never heard anyone, black, white, green, blue, or purple take on controversial issues with more clarity, straight talk and fearlessness.
Mr. Shultz gets my vote over Obama or any other black man I know. The guys has bigger balls than I have. He backs down to know one.
Plus he knows what he is talking about because he does his homework. Yeah, I’d kiss the white boy’s ass. One has to respect anyone who is willing to call bullshit bullshit when he hears it.
Mr. Shultz doesn’t care who the bullshitter is. He will call it as he sees it. Miss his take on an controversial issue and miss getting to the meat of the issue.
He doesn’t back down to any politician no matter who the politician he is. When he cuts to the chase on an issue he lets you know what part of the other guy’s argument is designed to appeal to your emotions to avoid it being judged logically.
On the single payer issue Mr. Shultz is so far out ahead of Obama it isn’t funny. The guys got balls the size of asteroids. He suggests that we should ignore by partisanship and get it done with dems.
Obama is trying to comprise on single payer because he is looking for bipartisanship. He is allowing the republicans to continue to rip off the american people to enrich the health insurance companies.
Mr. Shultz you’re the Man. It is not about color, it is about the heart. You have heart of a lion.
Robert
April 9th, 2013 at 8:53 pm
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May 7th, 2013 at 1:05 am
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9-Keep an eye on the budget-especially until the campaign takes off and becomes profitable.
higkeit, Steuern in den Vereinigten Staaten garantiert weniger als Wertpapiere, die von keinen besonderen F.