For the fourth straight month in a row, the rate of credit card delinquencies saw a dip in the month of April as well. Despite these positive changes in the industry, financial analysts believe that it will take time for the banks and other financial institutions to emerge from the financial losses they incurred during the recession period.

Six major credit card lenders in the United States saw the lowest default rate of the year in April. The only bank among these six that reported an increase in the write-offs was Bank of America which was the only exception.

The most recent results are beyond the expectations of the banks and the financial experts. However, industry professionals are still apprehensive and predict that the write-offs and default rates will still continue to remain high because of the 10% unemployment rate prevailing in the job sector.

Some analysts are also concerned about the revenue prospects for the industry considering the huge losses incurred by the financial institutions during recession and also the new credit card regulations that were proposed to amend card fees.

RCB Capital Markets analyst, Jason Arnold, said “Charge-offs are going to come down much more slowly than they went up”, adding that these were signs of very slow recovery in the financial market.

Vendors at Orlando’s Expo in Florida and Card Forum, in addition to analysts and bankers, did not want to read much into the changing default rates which have always seen a decline in the early part of every year because this is when customers get their tax refunds.

The Chief Operating Officer of Barclay’s card in the United States, Joe Purzycki, said that their bank would not consider it to be a consistent trend until the unemployment rate begins to show a fall. On Monday, in Orlando, attending an interview, he said “You’d think growth would mean more jobs, people back to work, and we’d be able to worry less about our loss picture. But we’re not at that point yet.”

Gains were posted by Bank of America and American Express shares posted gains propelled by the data that revealed positive signs of change.

The shares of American Express rose by 1.43% on Monday and stood at $41.22 and the shares of Bank of America rose by 1 cent to close at $16.35.

The other banks whose shares saw an increase were Citigroup, Discover Financial Services, Capital One Financial Services and JPMorgan Chase & Co.

US Democrat Senator, representing Illinois, Richard Durbin said that MasterCard and Visa Inc can face serious antitrust concerns if these two majors penalize banks that use their network for payments.

The democrat, who authored the bill that limits the debit card fees, on Thursday, sent a letter to the Chief Executive Officers of these two banks accusing them of frightening smaller banks to oppose his regulation that proposes to also reduce the interchangeable fees which the merchants pay to the banks when the customers uses a debit or credit card for paying for the purchases made.

Durbin’s letter says “I would caution you not to collude with your largest member banks to change your fees and rules in an effort to protect the big banks against competition from smaller card-issuing banks. Such steps would also raise serious antitrust concerns.”

The amendment limiting the amount of interchangeable fees is applicable only for banks that have over $10 billion worth of assets. Despite this condition, smaller banks are opposing this move since they feel that in the near future they would also have to comply with this policy if a few changes were made to it.

US banks’ primary trade group, Independent Community Bankers of America, on Thursday, requested the Members of the House of Representatives to veto the Durbin amendment.

In a letter to the House of Representatives in the US, this group mentioned, “The amendment would dramatically alter the electronic payments system and make it very difficult for card-issuing credit unions and community banks to continue to provide a wide array of products and services to consumers,”

The spokesperson for MasterCard clearly expressed the objection from smaller banks was not a result of pressure from any group or company.

Jim Issokson, the spokesperson for MasterCard, said “This opposition appears to be based on community banks’ and credit unions’ recognition that the Durbin amendment would turn the economics of the entire payment system on its head with negative consequences for all participants, including consumers.”

The spokesperson for Visa Inc could not be reached to comment on this issue.

What does the Durbin proposal actually recommend?

The Durbin proposal recommends that the Federal Reserve authorize and regulate the amount being charged as interchangeable fees which are the fees paid by the merchant to either MasterCard or Visa when customers use either credit or debit card to make purchases. These banks, that have a large network for payments, makes a lot of revenue each year through these interchangeable fees.

For the fourth month in a row, the rate of credit card delinquencies continued to drop throughout the month of April. This clearly indicates that despite unemployment being a concern, there is a stability being seen in consumer finances. The change for better was noticed by five out of the six major credit card companies in the United States.

The measure of the number of customers holding credit cards but not made payments in the last 30 days is called credit card delinquency. This measure is an early indication of the number of loans that may have to be written off by the bank in the near future.

Despite the falling rate of credit card defaults and delinquencies, financial analysts have expressed concern that the growing rate of unemployment will still lead to higher credit card defaults. Some experts also point out that the reason for the reduction in credit card delinquencies could be due to the tax refunds that most customers get in the month of April.

The only bank that reported an increase in the credit card delinquencies was Bank of America where the write-off number stood at 12.71% in April as compared to 12.54% in March. The second on the list was Citigroup that reported the credit card charge-off rate of 11.23% which was actually a decrease as compared to the 11.55% reported in the month of March.

One bank that took pride in the steepest fall of credit card defaults is Capital One. The bank reported a record low default rate of 9.68% in April as compared to the 10.87% in the month of March. The delinquency rate of the bank also fell to 5.07% in April from 5.30% in March.

Another bank that saw a drop in the delinquency rate was JP Morgan Chase. This bank reported a write-off rate of 9.03% in the month of April as compared to the 9.51% in March. The delinquency rate for the bank, which stood at 4.51% in March, fell to 4.4% in April. Discover Card also saw a marginal drop in the delinquency rates. The write-offs stood at 8.42% in April, down from 8.51% in March and the delinquency rate for this bank was reported to be 5.20% in April which is again a drop from the 5.39% reported in March.

The best performer though was American Express that revealed the delinquency rate that was half the rate posted by the Bank of America. A 10% in the write-offs was reported by the bank. The write-off rate that stood at 7.5% in the month on March fell to 6.7 % in the month of April.

The United States Senate passed the amended version of the federal financial reform. Many companies, unions and groups have raised concerns to the passing of the bill. The banking and credit card industries are also raising concerns to the bill.

The bill gives provision to create a Consumer Financial Protection Bureau which would watch over the working of credit cards and loans. The new amendments to the bill by Dick Durbin, Democrat of Illinois will give retailers the control of fees charged by credit card companies. The bill gives retailers the option to give customers who pay by cash, special discounts. “Passage of this amendment is a win for the public on both fronts.” He said.

“(The bill) will prevent the giant credit card companies from using anti-competitive practices, allow merchants to offer discounts to their customers and restore common sense and fairness to this broken system.” Durbin added.

Credit Card companies like MasterCard and Visa have said the bill reduces their income, thereby reducing rewards customers get for credit card transactions. “The amendment is a shrewd but cynical approach to getting American consumers to pay big-box merchants’ fair share for the benefits these merchants get from electronic payments,” said Noah Hanft of MasterCard.

Durbin’s version of the bill gives retailers the ability to fix the minimum price a transaction must reach to purchase with a credit card. The current agreement between credit card companies and retailers does not allow retailers to choose that price. Merchant organizations have appealed to congress saying small transaction with credit cards take away the profit margin of retailers.

Visa said that the bill would be a hindrance to consumers who purchase low priced items with credit cards. “This could be especially devastating for those on a fixed income who rely on prepaid cards for government disbursements such as social security,” Visa said.

“By requiring debit card fees to be reasonable, and by cleaning up Visa’s and MasterCard’s worst abuses, small businesses and their customers will be able to keep more of their own money. Making sure small businesses can grow and prosper is vital to putting our country back on solid economic footing.” Dick Durbin stated after the Senate approved his bill.

The American Bankers Association has said the new bill will affect credit reports and credit scores and will prevent customers from getting ample credit. The President of the ABA, Edward Yingling supported change in the system but said the conditions under the new bill will harm consumers.

Jack Dorsey, creator of Twitter is all set to release the new application to process credit card transactions on you mobile phone. The application, Square works with a device, the credit card reader which allows the user to use their credit cards with their iPad. The software for the iPad was released last month with the iPhone and iPod Touch Versions being released soon. The application is said to be compatible with Android devices as well. “Square intends to bring immediacy, transparency, and approachability to the financial world. We want to enable all people to accept payments instantly, with access to all the information they need, in a way that feels amazing and engaging” he said.

The freeware is available for download but the application does not work without the credit card reader. The credit card reader is a small device which is attached to the iPhone through the 2.5mm headphone jack. The device and the application are well made, user friendly and has many features like tracking sales online, making tax calculations, and SMS receipts etc. he only criticism with the application has been the inability to refund and delete transactions.

The application is considered useless without the device but Dorsey said on the Square blog, “Today, in addition to releasing clients for the iPhone, iPod touch, iPad, and Android devices, we are opening up our first cut at activating card processing and pricing, and sending out our first production batch of free card readers. All represent just the beginning of what Square is striving to become: a simple payment utility for everyone.”

Square works with any bank account for credit card transactions but these transactions involve special merchant banks which need to be paid. The application is free and the card reader is $1. Square will cost 2.9% of each transaction to use and they have said they would donate a penny to charity from their 2.9% cut in each transaction.

“I knew the concept was huge. The hardest part of any idea is getting started.” he said.

The square is yet to be tested on a larger scale and is complex process as Jack said, opening a merchant account is a difficult task and the maker is still not sure how many people will actually use the application.

The CARD Act which was passed earlier this year changed the working of the credit card industry. Prior to the act credit card companies made up for low interest rates by charging customers with specific payments which cove their expenses.   If consumers had a balance of $5000 with a 0% annual percentage rate for a year and if they had a $500, balance with 15% annual percentage rate, they would be forced to pay the $5000 before paying off the $500 which has a higher APR. “They would lock in your highest A.P.R. for the longest period they could,” said Odysseas Papadimitriou CEO of cardhub.com, a credit card comparison website. 

A bill passed by Senator Christopher Dodd of the Senate Banking Committee said consumers had to pay their entire balance with the highest APR. After discussion the bill was changed to have credit card companies’ work the same way they would but the balance in payments were based on the lowest APR.

The legislation was finally released saying that payments beyond a certain limit will be charged with the highest APR. “Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted.”

The rule makes credit card companies force consumers to apply minimum payments to even low interest rates. Consumers who pay their minimum payment and more and even those who can only pay the minimum payment and no more, still struggle to repay their loans. Bank of America and Discovery said they are also following this process according to Bankoholic’s Jen Stryker. “Consumers are far better off than they used to be but still not as well off as if this minimum balance compromise hadn’t materialized,” said Norman Silber, a law professor at the Hofstra University School of Law and a consumer law expert, who answer questions on the topic  in a recent Ask an Expert series. “I can’t think of a principled defense for allowing the minimum balance to be applied at the discretion of the card company.”

CardHub’s Papadimitriou encouraged consumers who can pay 15% of their loans to pay little more than 15% of their loans monthly in the order they choose and not by the credit card companies bidding. “Don’t mix and match. If you don’t have more than one type of balance on your credit card, you’re not affected by this.”

Credit Card rates dropped to their lowest ever this year. Six major credit card companies saw all time low interest rates with Bank of America Corp the only company seeing an increase.

Experts in the industry said the United States unemployment rate was at 10% and that rates were to stay high. Credit card companies are at a loss after the recent credit losses were followed by a regulation by the Congress to limit debit card transaction fees. The new regulation puts a stump on industry profits. “Charge-offs are going to come down much more slowly than they went up.” Jason Arnold of RBC Capital Markets said.

Credit card industry experts said the improving rates were only temporary and ahd the habit of falling after consumers get tax refunds. “For us, until unemployment gets back to … (levels of) significant improvement, we cannot expect to get out of this morass,” Joe Purzycki of Barclaycard US. “You’d think (economic) growth would mean more jobs, people back to work, and we’d be able to worry less about our loss picture. But we’re not at that point yet.” He added at a conference in Orlando.

Bank of America Corp shares closed at $16.35, a 1% increase and American Express Co saw its shares increase by 1.43% to close at $41.22, being the only companies who saw profits i the industry during this phase.

JPMorgan Chase & Co, Discover Financial Services and Capital One Financial Services saw a drop in their shares with Citi seeing the largest fall of 3.02% to end at $3.86.

Loans which American Express deemed uncollectible saw a drop from 7.5% to 6.7%, including their 30-day delinquency rate which dropped to 3.1%. Bank of America’s delinquencies dropped to 12.71% and its 30-day delinquency closing at 6.73. Capital One’s net charge off was at 9.86% with its 30-day delinquency at 5.07%.

Bank of America, the largest U.S. card issuer, had the highest level of net charge-offs at 12.71 percent, up from 12.54 percent, but its 30-day delinquencies dropped to 6.73 percent from 7.07 percent. Citi’s net charge off rate was at 11.23, JPMorgan Chase Co. was at 9.03% , Discover Financial’s net charge off as 8.42%.

The U.S. Senate passed a bill limiting the limit consumers pay on debit card transactions. The rules will decrease the revenue credit card companies make and bring about questions of further amendments to the industry.

Henk Vermeulen of FNB who is their fraud specialist for credit card fraud said cards can be skimmed in three ways. The first is when the card is taken out of the consumer’s sight for transactions the card is skimmed then. The second is when con men place a device on the ATM machine to copy the card during while it is being used or the third being distracting them and getting their PIN. “When these statistics are taken into consideration, consumers have to be empowered with the knowledge to recognize fraudulent activities,” FNB said.

FNB said after March 2007, the estimated fraud was Rs8.5 million when compared with the March 2008 figure of Rs15.63 million. This large increase in fraud has caused companies come down hard on regulations.

“Fraudsters can also place micro cameras and PIN-pad overlays at ATMs to obtain the consumer’s PIN,” Vermeulen said. “Once in position, these devices can be remotely accessed from a nearby secure location to obtain the card and pin numbers. “

Vermeulen says consumers who have been a victimized by credit card fraud should contact their banks immediately to prevent losses and to take the right course of action on the issue.

Banks have said that changing the magnetic strip type cards with newer chip and PIN based cards will reduce credit card skimming.

“The newer chip and PIN cards function with a PIN, not a signature, which makes all transactions significantly more secure,” Vermeulen said. Chip based cards cannot be accessed in many countries as the new type of credit card is not is use as much as the magnetic strip type. “To avoid inconveniencing our clients, FNB’s chip-enabled cards still have fully functional magnetic stripes to enable consumers to transact across the globe,” he continued “By proactively reporting suspected fraudulent activity, consumers can help to create a greater awareness around card crime, with the result that lower levels of card skimming may be reached. And, remember, treat your credit card as you would cash or your car keys.”

The Congress has been coming down hard on Wall Street and most of the legislations the Senate has passed in the recent past have been to curb Wall Street and help consumers. The 200 proposed amendments reached the senate out of which dozens were to solve issues consumers had in the past. From bills to give other people less access to credit reports to control over debit card transactions. 

CREDIT REPORTS FREE

The amendment that was passed to give consumers free credit reports from each of the three credit bureaus along with their free credit scores annually is one of the biggest amendments this year. 

COVERAGE LIMIT PRICE TO BE MADE PERMANENT

In response to the financial crisis in the U.S. the government raised individual coverage from Federal Deposit Insurance Corp. to $250,000 from $100,000. The bill is supposed to be in existence till January 2014. The government is planning to make the limit permanent. 

CREDIT REPORT CHECK FOR EMPLOYMENT TO BE STOPPED

Employers can no longer check the credit scores and credit report of potential employees even if the individual allows the process. Only certain jobs which make it absolutely vital for employers to see credit reports like jobs related to national security etc can check reports. 

MERCHANTS TO BE COVERED

Bills which have been passed now make it easier for money lenders who are not banks or credit unions. The bills passed also gives an exception to retailers of smaller car dealer companies. Only one business can be cover by the law. Auto mobile or money lenders 

CREDIT CARD RATES

The bill which was passed to limit credit card interest, limits the interest by 15% more than the current rate. Banks cannot make changes on the interest rates and other factors will effect it to a maximum of 15%. All costs which are not considered part of the finance charges cannot be charged. 

DEBIT CARD TRANSACTION FEE LIMIT

 The bill says the banks must bear the cost of transaction through debit card which are consider insignificant to charge in order to make sure they stay within the 15% cap. Banks must “bear a reasonable relation to the cost of processing the transaction,’’ at ATMs and will be covering 50 cents per transaction. This would lead banks into losses but will help consumers.

US Senator Dick Durbin, on Sunday, stated that small businesses were squeezing out too much in order to pay the high interchange fees charged by the banks for accepting credit cards. This, in turn, had a negative bearing on the customers since they have to pay high in order for the small business to cover these charges. Durbin, concerned about this burgeoning problem, offered to take up this matter at the legislation and get it fixed.

Durbin said “Higher interchange fees for businesses mean higher costs for retailers and consumers. Every time you make a purchase with plastic, the bank that issued your credit card gets a cut of the sale amount. American businesses and consumers are getting nickled and dimed by the big banks, who end up making billions from these hidden fees. Interchange fees need to be fairly and transparently negotiated between the merchants and the credit card companies who represent the banks’ interests so working Americans don’t get shortchanged.”

There is an interchange fee in the range of 1% to 3% per transaction that is levied by Mastercard and Visa for merchants who accept payments through credit or debit cards. The money that these two financial giants accumulate in this process is distributed among their network on banks to ensure the banks continue issuing credit cards to newer applicants. In 2008 alone, there was over $50M collected in the form of interchange fees. 80% of the $50M was divided among just ten major banks that issue most cards.

Durbin mentioned, “Banks love that money and they love the current interchange system.”

A part of the transaction amount comprises these interchange fees. For example, if a customer buys a product worth $100, a part of that amount goes as interchange fees to the banks that issue the card. The remaining amount, approximately $98 for a $100 transaction, is what the business gets. Hence, businesses have now begun to opt for one of the two approaches to make up for the money they lose in the form of these fees. They either increase the price of their products or they cut back on hiring new staff.

Durbin went on to say “The setting of non-negotiable rates by companies with overwhelming market power not only represents a failure of the market, it pinches the pocketbook of every American. Congress needs to pass meaningful and comprehensive reform of interchange fees. American consumers and businesses deserve a fair shake from the credit card companies.”

The amendments proposed by Durbin to the Wall Street Reform Bill would ensure that interchange fees on cards would be more affordable than it is currently.

While most people consider effective money management as a skill, there are others who feel that proper usage of credit cards is a virtue. Credit card usage is considered to be the most difficult to curb because of the number of temptations that come with the territory. These cards are loaded with various offers which included discounts, cash backs, loyalty programs, raffles, movie tickets, dining vouchers, memberships at various clubs, airport lounge access, reward points and many more.

Without a doubt, it can be safely assumed that using these cards wisely and effectively will enable a better lifestyle. The perks added onto the card get consumers to spend more on their cards in order to accumulate points that can enable them to make use of these add-ons. The higher you spend on the card, the higher the points awarded to you. These points can then be redeemed for various purposes. This helps you save those precious dollars you would have to spend buying them.

However, using the credit card liberally just to get points without giving a thought to repayment can be the biggest blunder ever. These cards, which are like quicksand, will pull you into a grasp of debt if you do not use them wisely. In order to ensure higher reward points, people end up spending more than they are able to repay. This impulsive buying using credit card can lead to insurmountable debts and ultimately in a tarnished credit history.

To add to the woes, many people end up applying for various cards that offer varied privileges. They end up doing so since all benefits are not offered by just one card. According to experts, people end up spending on all cards at the same time to avail the rewards on the card. This leads to unmanageable debts which will need years to be paid off.

Richard Shepherd, who heads the credit card wing of UAE’s Standard Chartered Bank, said “Credit cards can be very advantageous when you use them well. However, if not used properly, they can turn counterproductive. So you must make sure when you’re going to pay your credit card bills.” 

The good news is that there are various ways in which people can avail the rewards that come with the card without putting their credit report at stake. By ensuring thorough review of the terms and conditions that come with the card and not going overboard with the spending, one can easily get the most of any credit card.

Just a few months ago, there were new credit cards rules that came into play. However, consumers holding credit cards have already begun to take charge of their credit card debts and bring it under control.

As per the new rules that came into play, every credit card statement sent out to the customers should outline the time for repayment if the consumer continues to pay off just the minimum amount and the monthly payments to be made if the consumer wants to clear off his entire debt in just three years. Every statement should also have a toll free number mentioned on their statement which can help consumers reach out and opt for certified debt counseling in case they need help in taking charge of their finances.

National Foundation for Credit Counseling, a non-profit organization, conducted a survey in the month of April and discovered that the new rules are inspiring customers to pay off their debts and reduce their credit card balances in a shorter span of time. A few of them are also opting for credit card counseling to help sort their financial situation.

25% pay more due to new disclosures

The new disclosures made have brought about changes to the Credit Card Accountability Responsibility and Disclosure Act of 2009. The new rules came into effect with the credit card statements that were sent out to customers starting March. The spokeswoman for National Foundation for Credit Counseling, Gail Cunnigham said that the new disclosures were aimed at helping people understand and control their debt levels better. She also said that the objective of the new rules was being met with more people willing to pay off their dues on time.

Cunnigham said “This disclosure aspect of the CARD Act appears to have had the intended result, in that 25 percent of more than 2,000 respondents said it inspired them to pay more each month.” She also went on to add that a further 12% felt that the new rules encouraged them to call the toll free number of credit counseling listed on their statements.

However, 62% of the people felt that the new changes that were brought about really didn’t matter much. The reasons cited by them were wide and varied. While 55% of the people felt they were already paying as much as possible on their account, 7% of them felt that their balances are so high that they cannot pay it off in a month.

Vermont governor Jim Douglas was urged by the National Retail Federation to sign legislation that was passed last week. The legislation was to make it easier for c-stores and other merchants to give a discount to the customers that pay by cash, check or debit card, instead of the credit card.

Tuesday witnessed a voice vote, wherein the Senate collectively agreed to the amendments that were made in the house. The bill initially passed the Senate with a 30-0 majority on March 31, clearing the House 139-0 and is now at the hands of the governor for approval.

The NRF president testified that this bill has been approved by the card industry and the legislation will not have any negative impact on the issuance of credit card in Vermont, and will not come in the way of the state residents or visitors from making use of their cards while in Vermont.

If made into a law, this bill would facilitate the Vermont retailers to put into effect a minimum credit card purchase of up to $10, without any problem from Visa and MasterCard, which explicitly prohibit minimum purchase amounts. But, retailers are in favor of the minimum purchase amounts since the swipe fees can overtake the merchant’s profit on small transactions.

Card companies will also be denies from enforcing rules on merchant about pricing items or even blocking a merchant from giving out discounts for cash, checks, debit cards or ever credit cards with low swipe fees. Since swipe fees vary across all these different forms of transactions, retailers tend to favor the ones with the lower amount. Additionally, Visa and MasterCard cannot force a retailer to accept cards at all store locations, if the retailer does not want to accept them at certain locations.

Without doubt, the legislation was strongly supported by the NRF on behalf of retailers across the country, but the fight for the passage of this measure was headed by the Vermont Retail Association as well as the Vermont Grocers Association.

Part of the bill has been derived from the Credit Card Interchange Fees Act, federal legislation fees charged to merchants sponsored by the U.S. Representative Peter Welch, D-Vt., who is awaiting action in Washington.

The NRF president reiterated the need for the bill by explaining that Visa and MasterCard rules successfully compel merchants to push the charge on to customers by encouraging them to be incorporated in the marketed cost of products and making price reductions challenging.