On Tuesday, The Pew Health Group published the latest research from its Safe Credit Cards Project. It examined the impact of credit card regulation (in the form of the Credit CARD Act of 2009) on consumers, and the conclusion reached by the project’s director, Nick Bourke, was summed up in a press release:

“Pew’s research shows that predictions that the legislation would spark new charges and long-term interest rate growth have not materialized. Whatever increases in advertised interest rates we saw going into 2010 have not continued into 2011. The Act created a new equilibrium where interest rates have flattened, penalty charges have declined and a number of practices deemed “unfair or deceptive” have disappeared. Consumers are enjoying safer, more transparently priced credit cards – and banks and credit unions are able to compete on a more level playing field.”

Credit card regulation can be helpful

That’s quite an endorsement of the new law, and it seems to be backed up by at least two of the report’s findings for credit cards issued by banks (as opposed to credit unions):

1. Credit card rates now stable–At the start of 2011, advertised credit card rates for purchases remained in the 12.99 percent to 20.99 percent range, just as they’d been in 2010.
2. Lower penalty charges –Only 11 percent of credit cards now charge overlimit penalty fees, while late fees have dropped from a median $39 each before the act was implemented to a capped $25 this year. However, the new law allows credit card companies to charge consumers $35 for subsequent tardiness if they’re late more than once within any six-month period.

Credit card companies still have a point

When the Credit CARD Act was still being written, credit card companies spent millions on lobbyists who argued vociferously that any interference in their marketplace would likely have unintended consequences that could harm consumers’ interests. Although the Pew data (along with numerous other reports from consumer advocates) suggest that the most dire of those lobbyists’ predictions proved unfounded, they haven’t all turned out to be wrong.

Pew itself acknowledges that the number of bank credit cards that charge annual fees shot up from 14 percent to 21 percent between 2010 and 2011. And uncharitable folk could accuse it of somewhat skating over what happened to advertised credit card rates. It’s true that on average they didn’t change during that one year. However, they did tend to rise in 2009. That was in the run-up to the act’s implementation, when the banks were desperately rejigging their business models to accommodate the new rules.

Credit card regulation’s winners and losers

When this credit card news blog last took a detailed look at regulation (Media split on CARD Act reform) at the end of February, it quoted a report from USA Today that suggested that new annual fees and higher credit card rates were generally targeted at those with lower credit scores; in other words, those who are least able to afford them.

So not everyone necessarily benefits from credit card regulation, and sometimes it’s those whom consumer advocates most wish to protect who suffer most. However, perhaps the final word should go to Peter Garuccio of the American Bankers Association. The February blog quoted him as telling USA Today, “when you look at the regulations, it’s a net positive for consumers. But there have been some trade-offs.”

A local Fox affiliate yesterday broadcast an entertaining report that included a list of six purchases generally unwise to charge to your credit cards.

Credit card use that can be dumb

The six were:

1. Gambling spree–if you want to go on one, set a limit, take cash and leave your cards at home.
2. College tuition–usually a bad idea unless you know you can pay it off quickly.
3. Lavish wedding–save up; you don’t want to begin your marriage in debt, especially with credit card rates the way they are.
4. Plastic surgery–unless your ambition is to make out with a debt collector.
5. Tax bills–negotiate a payment plan with the IRS if you can’t settle a big tax bill immediately.
6. Luxury vacations–will those memories be as sweet when you’re sleeping in your car?

Credit card debt and changing times

It wasn’t that long ago that charging many of these to your credit cards would have raised few eyebrows. But things have changed recently in two important ways. First, credit card rates tend to be much higher now, and card debt can quickly cripple your personal finances. The second reason was summed up by Ruth Mata, a credit counselor, who told Fox:

“No job is secure right now…Do you have enough money in a savings so that if you lost your job you could take care of the important things like your house, your living expenses, and make that payment?”

Credit card use becoming more restrained

Of course, most Americans recognized these realities years ago, and adjusted their credit card use accordingly. In the last eight days, all three of the big credit bureaus have issued reports confirming continuing improvements in consumer debt.

The first of these came from Equifax. In a May 4 press release, one of the company’s senior executives observed: “Consumer behavior is now fueling much of this improved loan performance as borrowers are more aggressively paying off their outstanding debts, which is positively impacting their credit risk scores.”

The next day, TransUnion published its consumer Credit Risk Index for for the first quarter of 2011, which it described as improving at the best rate since 2008. One of its top analysts remarked: “The broad and steady decline in the Credit Risk Index, coupled with a moderate decrease in the demand for credit over the previous year suggests that consumers continue to live within their means.”

Fitch Ratings completed the trio yesterday, with its Credit Card Performance Indices for April. In a statement, Managing Director Michael Dean commented:

“Despite high jobless claims and unemployment, U.S. consumers are whittling away their debt levels while credit quality measures continue to improve. Tighter underwriting and otherwise benign economic conditions will likely spur further improvements for credit card ABS [asset-backed securities: when credit card companies package up and sell on debt to third-party investors] performance metrics through the second half of 2011.”

If you plan to model your wedding on the Royal Wedding of Prince William and Catherine Middleton, you’d better start saving now.

Credit card trends (actually, come to think of it, most trends) often take a while to become identifiable and those surrounding card debt look as if they may be in a state of flux. So what’s been happening since the Great Recession?

Last December, after 26 consecutive months of falls, credit card debt rose by $2 billion. Some people were surprised, but–especially after it fell again in January and February–many put it down to holiday spending. It was just a blip.

Credit card debt up again… but only a bit

But, on Friday, the Federal Reserve issued its seasonally-adjusted monthly analysis of outstanding consumer credit, and it showed that revolving credit (which is nearly all credit card debt) rose again, this time by $1.9 billion. It’s important to get this into perspective.

If you compare the Fed’s figures for revolving credit in the last quarter of 2010 ($800.7 billion) with those for the first quarter of 2011 ($796.1 billion), you’ll see that this form of debt has actually fallen $4.6 billion. So the small rises in December and March have been more than wiped out by the bigger credit card trends of consumers paying down balances, and using plastic more responsibly.

Blips and trends

But trends tend to reverse, and, if you get enough blips they eventually form a trend. So it’s not necessarily sensible to ignore the fact that in two of the last four months for which data are available, credit card debt has increased. Think of it as a yo-yo. If your yo-yo had been slowly unwinding downwards for two years and suddenly began jerking upwards, you’d think something was changing.

And there’s certainly enough expert opinion to support the view that change could be happening. Back on March 10, when this blog reported on these trends (Credit card debt resumes fall), it quoted IHS Global Insight economist Gregory Dacoof:

“The rebound in non-revolving credit is likely to spread to credit cards as consumers’ animal spirits return,” according to a Wall Street Journal report. Dacoof added, “we might see a few more drops in revolving credit over the coming months, but there is evidence that we’re at a turning point.”

An economist who may have got something right. How refreshing.

Credit scores improving; consumers braver

Mr. Dacoof isn’t alone.

Last week, Equifax, one of the big credit bureaus, published its National Credit Trends Report for March. In a press release, Michael Koukounas, one of the company’s senior vice presidents, remarked:

“Across multiple loan products, we are clearly seeing indicators of sustained credit growth – most notably within automobile finance and bankcard origination. Consumer behavior is now fueling much of this improved loan performance as borrowers are more aggressively paying off their outstanding debts, which is positively impacting their credit risk scores and making them more attractive to lenders. If this trend continues, I would expect to see a further loosening of available credit.”

Credit card companies must take responsibility

Unmanageable credit card debt can cause households horrific stress and misery, and it’s not surprising that millions of Americans reacted to the sight of their families, friends and neighbors in distress by vowing to avoid using their cards. However, sensible credit card use can be a real boon as well as financially smart.

If the country is to avoid another credit bubble, credit card companies are going to have to be more responsible in their lending policies. Yes, cardholders should be more responsible in their borrowing too. But they’re just people, vulnerable to ignorance, unreasonable optimism and human frailties. It’s the issuers who are supposed to be the experts. And it’s their and their shareholders’ money at stake.

It’s not easy being a stay-at-home mom or dad. Childcare, homemaking, cooking… the list of chores and tasks is seemingly endless, and the hours are often punishingly long. These stresses can place such serious strains on relationships that they sometimes end in a break up.

At the moment, such strains can be alleviated by a sense of financial independence. The stay-at-home spouse or partner can have his or her own credit cards and functioning credit score, which can make the person feel less trapped and unhappy. And, if the worst does occur and the relationship ends, the process of breaking up is, in practical terms, made much easier by this financial independence.

Credit card regulation sometimes bonkers

All that could change this October if the Federal Reserve goes ahead and implements new rules that would see credit cards denied to those who cannot show that they have their own pay checks or other independent sources of income. On the face of it, this is a perfectly sensible move: keeping credit away from those who aren’t creditworthy is a good idea.

However, keeping it away from dependents who can manage the responsibility well is a bad one. Surely, it’s not beyond the wit of man (or woman) to come up with a rule that punishes the irresponsible without harming the responsible.

Credit card regulation sometimes good

Back on February 18, this blog posed the question: Is credit card regulation working? In answering, it referred to a report, then just published, from the Center for Responsible Lending that concluded that the Credit CARD act of 2009 had had few bad consequences and many good ones. And, earlier this week, it turned out (Credit card companies full of the joys of spring) that even card issuers themselves were pleasantly surprised by how little the 2009 law had affected their businesses.

That isn’t, however, stopping them from waging a quiet war in Congress over the powers of their new regulator, the Consumer Financial Protection Bureau (CFPB). Credit card companies‘ lobbyists are currently crawling all over the Hill, seeking to persuade legislators to extract the canines from the watchdog, which has so far scarcely barked, and is yet to gain the ability to bite.

Credit card companies’ lobbying paying off?

Some legislators have gone further, introducing bills that would neuter as well as defang the bureau. Writing on Tuesday on CNN Money, Abigail Field criticized these initiatives, saying:

“Consumers need the help. When two businesses cut a deal, they negotiate a contract. When consumers buy products, they agree to a fine print contract they rarely read, much less have the power to negotiate. If the Consumer Bureau has the power to write tough rules, consumers will in effect have someone negotiating for them.”

The Fed’s proposed rules that might deprive stay-at-home parents of their credit cards and credit scores show that regulation can have unforeseen consequences. However, there’s evidence that it can also have very positive outcomes. The question is: Will legislators give the CFPB the chance to prove which it will deliver?

Two of this week’s credit card news blogs have explored the world of plastic using the excellent comScore® Online Credit Card Report, which was published on Apr. 19. Today, we wind up that exploration with a look at rewards programs.

Credit card rewards important

People are pretty smart when it comes to choosing their credit cards. Or, at least, they give pretty smart answers when researchers ask them to list the criteria they use to pick their plastic.

When comScore asked a sample of consumers who already had at least one card to rank card features, their top-three responses were:

1. Low credit card rates–40 percent


2. No annual fee–28 percent


3. Rewards or points–13 percent

Low credit card rates often more important

So far, so good. But a more detailed analysis of comScore’s data reveals a less smart attitude on the part of many consumers. A whopping 71 percent of people who keep a balance on their credit cards also have a rewards program on their primary card.

Suddenly, that whole “something for nothing” view of rewards looks less savvy. Today, according to this website’s credit card rates monitor, the average annual percentage rate (APR) charged on balances on consumer rewards cards is 17.48 percent. The same APR for consumer non-rewards cards is 15.27 percent.

Now, it may be possible for those who carry forward only a small amount of credit card debt each month to come out ahead if they take full advantage of a particularly generous rewards program. Indeed, if you have the Simmons First Visa Platinum Travel Rewards card (and you’re only likely to if your credit report is excellent), you could be receiving travel rewards, and still be paying only 9.25 percent APR on balances.

However, generally speaking, many consumers with continuing credit card debt are better off switching to one of the many low interest credit cards available. Use this site’s credit card calculators to see whether you should switch or stay.

Credit card rewards: the different flavors

People who say that credit card rewards are important to them are very clear about the sorts of rewards they like best. When comScore asked them to rank (on a 1-6 scale) the most important types, they said:

1. Cash back–57 percent


2. Merchant rewards–13 percent


3. Flexible points–13 percent


4. Airlines–10 percent


5. Gas–5 percent


6. Charitable donations–3 percent

Household income plays a big part in these preferences. Cash back remains by far the most popular choice across all levels, but those with higher incomes are significantly more likely to value airlines rewards than the less well-off. Only 6 percent of those with household incomes in the $40,000-$74,000 range favor these, compared with 15 percent of those who earn $75,000 or more.

Intriguingly, it is those in the middle income range ($40,000-$74,000) who are stingiest over charitable donations. Only 1 percent of respondents in this group ranked the charity category highly, compared with 3 percent of those with higher incomes. Amazingly, a full 5 percent of those earning less than $40,000 prioritized donations. Make of that what you will.

This time last week, this blog ran a story (Credit card offers that tempt) about how credit card companies are engaged in stiff competition, and are coming up with increasingly attractive offers to win new customers. With summer looming ever closer, now could be a good time to check out a couple of cards that could make your vacations more comfortable, more enjoyable and less expensive.

Credit card deals for the poolside

Arguably, two of the strongest credit card rewards programs for travelers have resulted from an alliance between Chase and Marriott, the global hotel people. These are the Marriott Rewards Credit Card and the Marriott Rewards Premier Credit Card, both from Chase.

In many respects, including credit card rates and most fees, these are very similar products. Balance transfers, cash advances and foreign transactions all attract the same 3 percent fee across the two cards. For both, expect to pay between 14.24 percent and 19.24 percent variable annual percentage rate (APR) on any balances you carry forward, depending on your credit score.

And, speaking of credit scores, it’s unlikely that an application for either card would be successful unless yours is toward the Excellent end of the spectrum.

Credit card rewards for the traveler

The real differences between these credit cards become apparent when you compare their bonus rewards and their annual fees:

The Marriott Rewards Credit Card from Chase

1. Annual fee: $30 (waived in the first year)
2. Earn 22,500 bonus points with your first purchase
3. Receive an e-certificate worth two free nights’ stay on approval of your application
4. Those bonus points and the e-certificate can be worth up to five nights at Marriott locations
5. Get 10 nights’ credit toward earning Marriott’s “Elite” VIP travel perks every year
6. Earn three points for every dollar you spend at a Marriott location
7. Earn one point for every dollar you spend on other purchases

The Marriott Rewards Premier Credit Card from Chase

1. Annual fee: $65 (waived in the first year)
2. Earn 30,000 bonus points with your first purchase
3. Annual free night’s stay
4. Those bonus points and e-certificate can be worth up to five nights at Marriott locations
5. Get 15 nights’ credit toward earning Marriott’s “Elite” VIP travel perks every year
6. Earn five points for every dollar you spend at a Marriott location
7. Earn three points for every dollar you spend on airfares, dining and car rentals
8. Earn one point for every dollar you spend on other purchases
9. Receive 15,000 bonus points when you redeem a seven-night stay

Choosing the best credit card deals for you

If you’re a keen traveler who enjoys vacationing in luxury, and if you’ve a good credit score and rarely carry forward significant balances, then these two credit cards should almost certainly make your short list. How should you choose which to apply for?

Well, that’s simple. You should use the same process that you do when choosing any card: sit down and realistically assess what your spending patterns are, what your needs are, and how the different credit cards perform in meeting those needs. In this case, you just have to work out whether the higher annual fee of the Premier product is worth to you the extra rewards it can bring.

Last Tuesday, comScore®, a company that describes itself as a “global leader in measuring the digital world”, published its latest Online Credit Card Report. Although some of the document focuses exclusively on credit card use on the Internet, much of it takes a broader view. And among its most interesting insights are those concerning how consumers think when they’re applying for a new card.

Credit card applications: the selection criteria

In December 2010, comScore conducted a survey of almost 2,000 Americans who use the Internet and have at least one credit card. Purists should note that not all credit card users are also Internet users, so the results may not reflect the general population entirely accurately. However, given the near ubiquity of online usage in this country, any skewing of outcomes is likely to be tiny.

Anyway, the survey asked those respondents who had shopped for a new credit card in the previous 12 months about the factors that were most important in choosing the product they ultimately applied for. The results were:

1. Low annual percentage rate (APR)/interest rate–38 percent
2. No annual fee–25 percent
3. Rewards program–16 percent
4. Introductory offer for new account–13 percent
5. Low APR for balance transfers–8 percent

Researchers then asked all respondents (not just those who’d shopped for a new card over the previous year) to score the importance to them of certain credit card features. The resulting ranking was:          

1. Low APR/interest rates–40 percent
2. No annual fee–28 percent
3. Rewards or points–13 percent
4. Card accepted as most merchants–8 percent
5. High credit limit–5 percent
6. Reputation of the issuer–3 percent
7. Customer service–2 percent
8. Low APR for balance transfers–1 percent

People who write about credit cards come across a whole lot of stories about consumers who’ve made dumb choices. And this may lead them (your blogger included) to believe that people in general pick their plastic using poor criteria. But the comScore research suggests that this belief may be mistaken, or, at least, exaggerated.

The study breaks down results between people who perceive their credit scores to be excellent or good and those who think they’re fair or poor. And, to a large extent, both groups value selection criteria in ways that suit their needs.

For example, those with excellent/good credit scores worry less (34 percent) about having a low APR than those with fair or poor credit reports (53 percent). And that makes perfect sense. Those in the first category are less likely to carry forward balances than those in the second. That means that they should be less concerned about credit card rates; they’re less likely ever to have to pay any interest.

Credit card rewards

The same applies to credit card rewards or points. Those who believe they have excellent or good credit rank these higher (17 percent) than those who identify themselves as having fair or poor scores (6 percent). And, again, that suggests an informed and self-interested awareness. APRs tend to be higher for plastic with rewards programs, and those who are likely to carry forward balances frequently are often better off prioritizing low credit card rates. Those who never pay any interest should often seek out the most generous rewards program.

Credit cards & lifestyle

The trick to choosing a new credit card is first to sit down and make a realistic appraisal of how you’re likely to use the product. If you’re struggling to cope under the burden of high credit card rates on significant debt, then you should prioritize finding great deals on balance transfer credit cards. If you never carry forward balances, focus on rewards. If you frequently carry forward significant balances, look for low interest credit cards.

This isn’t rocket science, and the comScore study suggests that there’s a good chance you’re already making intelligent choices–and that’s especially likely to be true given that you’re an Index Credit Cards visitor. However, another part of the study could be read as meaning that most consumers don’t invest enough time in carefully comparing all the available offers. So make sure you’re not one of them.

Tomorrow, this blog will dig further into the comScore research to find more useful information.

A bombshell CNNMoney.com report says JPMorgan Chase has a contingency plan under development for a $100 or even $50 spending limit on individual debit card transactions.

Why on earth would any bank deter debit card use? Simple. The Federal Reserve is drafting regulations to lower “swipe fees” (the cut of the transaction value that merchants have to pay every time a card is swiped), and the financial services industry is in panic as it sees a key source of revenue heading for the exit. Chase alone could see income from swipe fees drop $1 billion a year if the Fed moves forward.

Credit card use set for resurgence?

When Congress passed the Dodd-Frank Act, requiring the Fed to act on swipe fees (they’re also called “interchange fees”), it chose to regulate only debit cards. So now the banks are thinking of steering customers away from what’s about to become a low-profit product, and towards one that still attracts maximum swipe fees – credit cards.

Dedicated readers (Hi, Mom), may not be surprised to learn that around here that’s regarded as good news. Back in December, Index Credit Cards published a column (7 ways in which credit cards beat debit cards) that pointed out credit cards are better than debit cards. Of course, credit cards can be toxic for those who can’t manage them well, but they’re excellent for the self-disciplined consumer.

Credit card applications now?

If you’re about to increase credit card use, now would be an excellent time to make sure you have the right plastic in your wallet. And, if you find you haven’t the appropriate credit cards, don’t hesitate to make a credit card application right away.

When choosing a new card, you have to make a realistic appraisal of how you’re likely to use the product. Only then can you decide what’s most important. For example, if you pay down your balance in full every month, then ignore credit card rates; you’ll never pay interest anyway. If, on the other hand, you always or sometimes carry balances, then you need to explore low interest credit cards.

You also have to be realistic about your likelihood of qualifying for a particular card. Generally speaking, the very best deals are available only to those with stellar credit scores. But you may still get approved for a first-class mainstream card even if your credit score doesn’t currently make you vertiginous.

Best cash-back low interest credit cards?

If your credit score is excellent, then you might consider the True Earnings Card from Costco and American Express, which CBS MoneyWatch describes as among the industry’s top cash-back credit cards. It has no annual fee, your Costco membership is paid and it offers generous rewards, especially on gas and dining out.

Other highly recommended products include the Discover More Card – $100 Cashback Bonus, and the Citi Platinum Select MasterCard.

Experian, one of the big credit bureaus, unveiled its latest credit card use study yesterday, which revealed three particularly interesting figures:

1. At the end of 2010, the average consumer owed $4,200 in credit card debt.
2. That was down just four percent from 2009.
3. Each consumer has an average of 1.97 credit cards, a 23 percent decline from 2007.

Credit scores under threat

Credit card reductions have an unexpected side effect. With fewer cards to spread debt, consumers tend to have higher balances on cards they’ve retained. Those higher balances can have a detrimental impact on credit scores.

Experian says 23 percent of its credit score is based on a consumer’s “credit utilization ratio,” which is the percentage of available credit on a card. Anything above 30 percent is likely to set off alarm bells, and Experian says many more credit card users are falling into this category.

“We want consumers to understand that overspending at the holidays or at any other time of year can often have broader implications to their overall fiscal fitness,” said Experian vice president of public education Maxine Sweet in a statement. “By carrying over credit card balances and utilizing a significant portion of their available balance, they can potentially negatively affect their credit scores, which can in turn, hurt them when it comes to applying for other types of credit down the line including mortgages and car loans. It’s important for consumers to get that debt under control before it has a lasting impact on their credit scores.”

Credit card use differs by group

According to The New York Times, detailed reading of the Experian data reveals a dichotomy in the way people were putting on credit card debt during the 2010 holiday season. Some consumers, confident of an economic recovery, were comfortable spending on treats and luxuries. Others, especially the unemployed or those with medical issues, were using credit cards as lifelines to help keep their heads above water.

Credit card applications up

Meanwhile, a New York Federal Reserve study shows that the number of successful credit card applications has risen for the first time in nearly three years. In the first quarter of 2008, there were nearly 500 million credit card accounts open in the U.S., but by the third quarter of 2010 that figure plummeted to 378 million. In the fourth quarter of 2010, the number inched up to 380 million. Of course, that’s a very small increase over a very short period, and it’s way too soon to start calling it a trend. But it may just be another sign of renewed confidence in economic recovery. And that would be good news for all of us.

On Saturday, the Forbes website included a paean of praise to the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act) of 2009. It said legislation was “a complete success in its yet young life.”

And it went on to claim that trecent research, including Center for Responsible Lending that was covered here on this credit card news blog last week, “definitively proved that the rise in interest costs and the decline in credit availability during the past year occurred as a result of economic pressures, not the CARD Act, and thereby confirmed the most prevalent criticisms regarding the law’s performance to be baseless.”

Credit card regulation not a complete success–absent stellar credit score

Not everyone agrees with the Forbes analysis. USA Today certainly saw things differently in a piece it ran yesterday. That accused the credit card regulation that flowed from the law of forcing issuers to target new annual fees and higher interest rates at those with less than perfect credit scores. However, it acknowledges that those with spotless credit reports are now getting some excellent deals.

Peter Garuccio of the American Bankers Association told USA Today, “when you look at the regulations, it’s a net positive for consumers. But there have been some trade-offs.”

Balance transfer credit cards–a resurgence

Meanwhile, Fox Business looked at the resurgence of balance transfer credit cards. Of course, these fall into the “excellent deals” category highlighted by USA Today, so applicants are likely to need respectable credit reports to get approved.

One of the balance transfer credit cards that Fox singled out was the Discover® More Card, which has been featured more than once here on this blog. Right now, you have to pay a 5-percent fee on the balance you transfer, but after that you get a full 24-month zero percent introductory rate on that balance. Fox says that that’s the longest interest-free period currently on offer anywhere.

Credit cards keeping Target on target

And finally, Bloomberg is reporting remarks made by Doug Scovanner, chief financial officer of Target, in a conference call with investors last Thursday. Apparently, Mr. Scovanner ascribed much of the company’s 10.5 percent growth in revenues during the fourth quarter of 2010 to its branded credit cards, which include the Target Visa® Credit Card.

This is hardly surprising as Bloomberg says that the company gives a 5-percent discount when customers pay using one of its debit or credit cards.