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NEW YORK: Consumers struggling with credit card debt will start to see some relief Thursday as the first steps of the Obama administration’s industry overhaul go into effect. Beginning Aug. 20, credit card issuers will be required to give customers 45 days advance notice before making any significant changes to a contract and will be required to mail bills 21 days before the due date. Under current laws, issuers are required to give 30 days notice before changing a contract and mail bills at least 14 days in advance. Consumers will also have the right to reject changes to their contracts, including interest rate increases, and they will have the option of paying off their balances at their existing rates within five years. The changes are the first to come under the Obama administration’s credit card reform act, which was singed into law in May. “The new rules of the road established by the Credit CARD Act will shield credit cardholders from widespread abusive practices,” Senate Banking Committee Chairman Chris Dodd, D-Conn., the bill’s author, said in a Wednesday statement.But the more substantial changes are expected in February, when the second half of the Act is implemented. 0:00
/3:03New credit card rules take effectThursday’s reforms are “a good thing” for consumers, said Linda Sherry, director of national priorities at Consumer Action, a non-profit consumer advocacy group. “But they are just the icing on cake. The cake is coming in February.”In February, credit card companies will be prohibited from raising interest rates on existing balances unless the borrower is more than 60 days delinquent or the increase is stated in the contract. “That’s a very big deal for household budgets,” said Gail Hillebrand, senior attorney at Consumers Union. “It means the rate can’t go up on money they’ve already borrowed.” Among other measures to come in February: Consumers under the age of 21 will be required to have a cosigner and will have restricted credit limits; credit card issuers will not be able to raise interest rates in the first year unless specified in the contract; and issuers will be required to give more advance notice before raising rates on future purchases. Thursday’s changes. Requiring companies to mail bills seven more days in advance is expected to make it easier for consumers to pay their monthly installments on time and avoid penalties for being late. But rejecting changes to the terms of a contract could come at a price.While consumers will now have the right to reject an interest rate increase and cancel their cards, the new rules stipulate that the cardholder will have five years to repay their balance at the current interest rate. That could result in a much higher minimum payment, since the time-frame to repay the debt will be condensed. Under the new rules, the minimum balance cannot go up by more than double. In cases where the balance is too large to be repaid within five years without more than doubling the minimum payment, it’s up to the credit card company to extend the time frame or determine a new rate.

Source:CNN

NEW YORK: Banks continue to write off credit card debt as consumers hurt by record high unemployment default at an increasing rate. Regulatory forms filed this week by some of the nation’s largest banks showed default rates on credit cards rose in May. The default rate is a measure of loans that the bank does not expect to be repaid. “Data from May showed continued signs of stress for card issuers, reflective of worsening unemployment trends and deteriorating macro [economic] conditions,” analysts at Bernstein Research said in a report Tuesday.Bank of America (BAC, Fortune 500), the nation’s largest bank, said its default rate jumped to 12.5% in May from 10.5% the month before. Other major banks, including Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Capital One (COF, Fortune 500), also reported increases in May default rates. However, delinquency rates, which reflect the number of borrowers who are at least 30 days late on a payment, decreases slightly in May. According to Bernstein Research, the average 30-day delinquency rate decreased in May to 1.57% from 1.71% the month before. It was the second month in a row that 30-day delinquency rates declined. 0:00
/2:12Don’t be fooled by teaser ratesDelinquency rates are considered an indicator of future credit losses, but analysts say default rates will probably remain high until a recovery in the labor market takes hold. “While this could clearly be a positive development, as we should now be past the typical seasonal improvements, it’s too early to call it a sustainable trend, particularly in light of the deteriorating unemployment picture,” Bernstein analysts wrote. The unemployment rate rose to a 26-year high in May, even as the number of jobs lost in the month decreased significantly, and analysts say the job market will remain weak for some time after the overall economy recovers.At the same time, analysts said the decrease in May delinquencies could be due to consumers taking advantage of one-time economic stimulus benefits, such as income tax cuts, to pay down debt. “The wild card is really unemployment, which is the main driver of delinquencies and defaults,” said Chris Deritis, an economist at Moody’s Economy.com.

Source:CNN

NEW YORK: Credit card delinquency rates jumped 11% in the first quarter, possibly indicating that consumers are using tax refunds to pay day-to-day expenses, according to a credit reporting agency report released Monday.The delinquency rate — which is the ratio of borrowers 90 days or more delinquent on one or more of their credit cards — increased to 1.32% in the first quarter of 2009. That’s up 9.1% over the previous quarter, and 11% over the previous year, according to the report from credit reporting agency TransUnion.The average borrower debt rose 4.09% from the previous year to 5,729, TransUnion said. The agency uses data from 27 million anonymous, individual credit files.”This increase could be an indication that tax refund checks, typically used to pay down balances in during the first quarter in years past, are now being used to cover daily living expenses,” said Ezra Becker, of TransUnion’s financial services group, in a written statement.The economy is losing jobs by the thousands, and mass layoffs and pay cuts have continued the credit crunch. Banks have tightened lending standards because of a heightened default risk, providing less credit to consumers.0:00
/2:12Don’t be fooled by teaser ratesState by state: Delinquency rates were highest in Nevada, at 2.44%; Florida, with 1.9%; and Arizona, 1.68%. Rates were lowest in North Dakota, at 0.73%; South Dakota, at 0.77%; and Alaska, at 0.77%. Alaska has the highest average bankcard debt, at 7,476, while the lowest is West Virginia with 4,640.Outlook: TransUnion said it expects the 90-day delinquency rate will continue rising, nearing 1.7% by the end of 2009.Depending on the effects of stimulus programs and unemployment, the rate’s upward climb could hit a peak in late 2010 or early 2011, the report said.TransUnion expects Nevada will have the highest delinquency rate by the end of 2009, at 2.95%, while Alaska will have the lowest at 0.96%. But outside influences could have unforeseen effects, the report cautioned.”The impact the changes to credit card regulations and associated legislation, and the response of card lenders to those changes, will have on consumer behavior and hence delinquency rates is still unknown,” the report said.

Source:CNN

NEW YORK: When the Senate passed its credit-card reform bill on Tuesday, Senator Christopher Dodd called it “a great day for consumers.” But what will it mean for small business owners who’ve been struggling with inflated rates and unexpected fees on their credit cards?That depends on how your small business is incorporated, and what kind of card you have.The Credit Card Accountability Responsibility and Disclosure Act that Obama will sign Friday outlaws several card policies that have provoked public outrage in recent months, including retroactive rate increases on existing balances for cardholders in good standing; hiking rates for new charges without at least 45 days’ notice; “double-cycle billing,” which allows fees to be charged for balances that were already paid off; and “universal default,” which applies rate hikes if a customer is late with payments on unrelated bills.While some of these provisions were already put in place by the Federal Reserve last December, they weren’t scheduled to kick in until July 2010. Instead, the 45-day notice will now go into effect in mid-August of this year, with the rest of the changes being implemented next February.For small businesses, however, there’s a catch. Because the new law amends the Truth in Lending Act, which only governs consumer loans, it doesn’t apply to corporate cards.What this means is if you use your personal card to make business purchases, you’ll be covered by the new protections. Likewise, business cards based on your personal credit – as is often the case for sole proprietors – should be covered as well.But for limited liability corporations and other companies that use traditional corporate cards, the same old rules will continue to apply. An amendment proposed by Senators Mary Landrieu, D-La., and Olympia Snowe, R-Maine, to extend protections to any businesses with 50 or fewer employees was defeated in the Senate last week; instead, the final bill directs the Federal Reserve to conduct a study of credit-card use by small businesses.As a result, no one is sure exactly how many small business owners will be affected by the new legislation. According to Chris Walters, manager of legislative affairs at the National Federation of Independent Businesses, 74% of small employers have business credit cards, but many of those “business” cards are based on the owner’s personal credit – in which case, they’re covered. Even some of those with business cards may still put some expenses on their personal plastic: 39% of those the NFIB surveyed said they use a personal credit card for business purposes.Talk back: What do you think of the credit-card reform act?The new law could result in “a couple of unintended effects,” says Nolan Newman, a partner in a Seattle accounting firm that specializes in owner-operated businesses. While he doesn’t expect business owners to start shifting to sole proprietorships just to avoid corporate cards, he does wonder if individuals may end up increasingly using personal cards to incur business expenses and having their incorporated companies reimburse them.Regardless of the limitations, passage of the new law was applauded by many aggrieved cardholders. “Carolyn Maloney is my new hero,” says Frank Duran, a dentist in El Cajon, Calif., of the New York Representative who has fought for years for credit-card reform. Duran saw his rate hiked by Advanta from 7.99% to 30% despite having never missed a payment. Like most Advanta cardholders, Duran has an account based on his personal credit, and would be covered by the new restrictions.Under current law, he notes, “they only have to give a 15-day notice that they’re changing your terms, and they admit that it takes 10 days to get to you. So if you don’t open your letter right away, read it, decide that you want to opt out and mail it right away, it’s not going to make it in time.”Less sanguine is Reed Smith, who runs a deck-cleaning service in St. Peter’s, Mo. Smith’s Advanta card rate leapt from 10.9% to 39% just last month, while his Discover went from 8.9% to 18.9%. He noted that nothing in the new law will restrict the rates or fees charged by card companies. The credit card industry successfully lobbied to kill proposals to set rate caps on credit cards and other loans.”I don’t think it’s going to stop the credit card companies from arbitrarily raising an interest rate,” says Smith. “What Congress really needs to do is pick an interest rate, lock all these credit cards in on that one interest rate, and if you qualify, you get the interest rate same as your neighbor across the street.”

Source:CNN

WASHINGTON: President Obama signed a bill on Friday that makes it tougher for credit card issuers to raise fees and interest rates.During a bill-signing ceremony at the White House, President Obama praised the new law, which was the culmination of several years of work by consumer groups and Democrats to rein in what they say are abusive practices that prey on consumers.”We’re here today for a bill that will make a big difference,” said Obama.Obama was joined by, among others, the bill’s Democratic sponsors: Sen. Chris Dodd of Connecticut and Rep. Carolyn Maloney of New York. Sen. Richard Shelby of Alabama, a top Senate Republican who negotiated a final deal to pass the bill, also attended.The House and Senate passed the legislation by overwhelming bipartisan margins earlier this week, despite strong objections by banking industry advocates who say it could result in tightened credit to Americans.Shares of American Express (AXP, Fortune 500), Capital One (COF, Fortune 500) and Discover Financial (DFS, Fortune 500) traded lower on Friday.The law also includes an unrelated measure allowing people to carry guns into national parks. The credit card rules would take effect in February 2010 and are not retroactive, meaning consumers could still face rate hikes until then. The rules makes it harder for people under age 21 to get credit cards. It would also ban rate hikes unless a consumer is more than 60 days late — and then restore the previous rate after six months if minimum payments are made.The bill marks a major loss for the banking industry.Financial services representatives have decried the bill, saying it would exacerbate the credit crisis and force banks to drop some risky credit card holders. The American Bankers Association said the legislation would prompt banks to reinstate annual fees and higher interest rates for all card holders, an outcome that would penalize those with good credit who pay their bills on time.President Obama said the bill was not designed to protect those who have been fiscally irresponsible, and that credit card companies deserve to make a profit.”We do not excuse those, and do not condone folks who have acted irresponsibly,” he said.The credit card legislation has been a long work in progress. The House passed a bill in 2008 and again earlier this year. The legislation, which stalled in past years, was propelled by public outrage and pressure by President Obama. For example, President Obama held a special town hall meeting in New Mexico last week to highlight the problems of high fees and interest rates.Nearly 80% of American families have a credit card, and 44% of families carry a balance on their credit cards, according to the White House. In recent months, credit card companies have been raising fees and interest rates. From November 2008 to February 2009, rates increased from an average to 13.08% from 12.02%, according to a Federal Reserve Board report. At the same time, more people are not able to make their credit cards payments and are walking away from debt, according to a Federal Reserve report.During the speech, President Obama gave a special “shout-out” to Sen. Dodd and pointed out several times how Republicans had worked with Democrats on the bill.