Credit card trends downward

Over the last month or so, this blog has explored how debit card transactions have been growing at the expense of credit card use. Many consumers are actively closing accounts while others are simply leaving their credit cards, untouched, in their wallets.

These credit card trends are understandable. A whole lot of Americans associate the country’s (and the world’s) recent economic pain with subprime mortgages and excessive credit card use, and they see paying by debit card as a badge of financial honor and responsibility.

Credit card debt down again

That they may be cutting off their noses to spite their faces seems not to have sunk in. Credit cards generally provide better consumer protections and (providing you pay off your balance in full and on time every month) make better financial sense than debit cards.

If you take advantage of credit card rewards programs, introductory zero-percent APRs, and the interest-free period between when you execute a transaction and when the statement on which it appears falls due, then there’s no comparison between the two types of plastic. However, that’s not enough to persuade those who believe that responsibility can’t work without a hair shirt. And so, according to the Federal Reserve’s consumer credit figures for November 2010, which were published Friday, credit card debt is down yet again.

At $796.5 billion, revolving credit (which is mostly credit card debt) is at its lowest since at least 2005, when the Fed’s release begins. In 2008, that figure averaged $957.5 billion.

Prepaid kard killed

On the same day the Fed was publishing its figures, The Fresno Bee was running a story about one of the shortest-lived financial products in the history of banking. Back in November, Kim, Kourtney and Khloe Kardashian, stars of the reality television show “Keeping Up With the Kardashians,” launched a prepaid credit card (yes that’s an oxymoron; technically, prepaids are debit cards, but the term hasn’t caught on) designed to appeal to their young fan base. Soon after, Connecticut Attorney General Richard Blumenthal described the Kardashian Kard as “predatory” and threatened to investigate it.

Following a storm of adverse publicity, the sisters withdrew their names from the product just three weeks after its launch. But now the company with which they partnered, Revenue Resource Group LLC (RRG), is suing them, their mother and their company for $75 million.

The Bee quoted one of RRG’s executives complaining: “The [Kardashian Kard’s] fees are not egregious. They were average to low.” And, oddly, that’s arguably true. There are many prepaid credit cards with more and higher fees.

Prepaid credit cards set to become huge?

If new proposals published by the Federal Reserve Dec. 16 come into force this year, it looks as if the revenues that banks receive every time a debit card is swiped could be cut overall by 80 percent or 90 percent. That’s many billions of dollars each year.

However, financial lobbyists managed to get prepaids specifically excluded from the Credit CARD Act of 2009, which gives big banks a loophole. If they can persuade you to switch from your debit card to a prepaid card, they can continue to charge merchants whatever “swipe fees” (a.k.a. “interchange fees”) they like. So stand by for a deluge of marketing materials to lure you into signing up for a prepaid.

It could be that the new products will be genuinely worthwhile. But, there again, you could just go back to using your credit cards.

Published 01/10/11 (Modified 04/23/12)