Credit card delinquencies and debts declined over the last quarter of 2010. Image: MoneyBlogNewz/Flickr/CC-BY

Fewer credit card delinquencies are being reported, and the level of credit card debt is declining as well. Data released by credit bureau TransUnion indicates that more people are paying off debt and more credit cards are being issued. Falling delinquencies indicate many people are paying off holiday shopping sprees.

2010 the year of debt relief for many consumers

During the last three months of 2010, the number of delinquencies for credit cards declined considerably, according to ABC. Credit score bureau TransUnion released a report that indicated credit card delinquencies fell to just 0.82 percent in the last three months of 2010, compared with 1.21 percent in the last three months of 2009. The third quarter of 2010 had a delinquency rate of 0.83 percent. Delinquencies normally rise during the last three months of the year and the holiday shopping season, but now it appears more people are relying on themselves to avoid debt settlement relief, rather than having to get a loan to pay off toys for the tots.

Balances rise and fall

The national average balance carried by credit card holders has also declined. The combined average balance for all major cardholders — all people that hold a Visa, MasterCard, Discover or American Express — declined to $4,965 for the last three months of 2010, which is a reduction of 8.6 percent from the same period in 2009. However, according to the Washington Post, the average balance rose in 33 states. Mississippi, Iowa and Washington D.C. had the highest balances in the nation.

Rise in new issued cards

Despite recent caterwauling from credit card companies that their businesses will be hampered and lose lots of advance cash because of the CARD Act, new cards are being issued at a considerable pace. The last quarter of 2010 had the number of new credit cards rise by 19.1 percent. That was the first time since 2007 that the number of newly issued credit cards rose for two consecutive quarters.

Sources

ABC

Washington Post

Credit card issuers, such as Bank of America, have been affected by new laws regarding credit cards. Image: MoneyBlogNewz/Flickr.com/CC-BY

New regulations for credit cards on how interest rates and fees can be assessed are working. However, some loan lenders are lamenting the new rules that require greater disclosure when changing terms with customers. Outlawing guerrilla-style fee and interest raises has led Bank of America and other companies to lose value from credit card units.

Bank of America realizes loss from credit card unit

The largest loan lender in the nation, Bank of America, recently announced that it would be adjusting previously filed financial statements regarding the banks’ credit card unit, according to Bloomberg. B of A announced that it was adjusting a write down of FIA Card services, its credit card unit, for late 2009 from $10.4 billion to $20.3 billion, meaning the credit card unit is worth $20.3 billion less thank it was in 2008. In other words, the company adjusted previous filings to reflect a greater loss of value than previously thought. The write down is not a true cash loss, but an adjustment of the “goodwill” value, or the value of an asset above market value, due to the prestige of the holder of the asset. The bank cited regulatory conditions and “deteriorating credit quality” for FIA Card Services being worth $10 billion less than estimated in 2009.

CARD Act cited for losses

Some credit card loan lenders, such as Bank of America, are claiming that they are being hampered by new regulations, specifically the CARD Act, or Credit Card Accountability Responsibility and Disclosure Act. It is posited that the act means less access to advance cash for further lending, though this means that the law is working. Since the CARD Act was enacted, fewer people have been hit with late fees and stung with sudden interest rate raises, according to CNN.

New card law a smashing success

The CARD Act has yielded some great results. Since the law was passed, studies show that about 2 percent of card holders had interest rates raised, compared to 15 percent before the CARD Act was passed. Late fees, which accounted for $901 million in instant cash for card issuers in January 2010 — before the Act took effect in February 2010 — had dropped to $427 million by November 2010. That means companies from Scottsdale to Birmingham and all over the U.S. that look to seemingly surreptitious practices for revenue are having a harder time, which is what the CARD Act is supposed to do.

Sources

Bloomberg

CNN

Use of credit cards has risen for the past three months, after two consecutive years of decline. Image: MoneyBlogNewz/Flickr.com/CC-BY

The use of credit cards by consumers has started to rise again after a two-year decline. During the recent recession, fewer consumers have been making as many purchases on credit, and more people have been paying off debts. The credit card industry recently began booming again.

Three straight months of increasing use of credit cards

For three consecutive months, there has been a marked increase in the use of credit cards by consumers, according to USA Today. A new report by the Federal Reserve disclosed that consumer use of credit cards had risen by 3 percent in December. The rise in borrowing amounted to $6.1 billion in personal loans from card companies being utilized by consumers over the last month of 2010. The seasonally adjusted rate for credit card borrowing rose to $2.41 trillion in advance cash, which is likely to grow over the year. Consumer borrowing has increased by 3.5 percent after a 27-month period of decline, including use of credit cards and an increase of 2.8 percent for people taking out auto loans. Fewer people were willing to start borrowing money during the recession.

Years of decline despite rising profits

During the past few months, major credit card companies have begun posting major profits. Visa and MasterCard both posted large gains, despite new fee rules imposed by the CARD Act. The CARD Act, or the Credit Card Accountability Responsibility and Disclosure Act, mandated that credit card companies not raise interest rates on cardholders without notifying them in advance. This has led to the base interest rates of credit cards being raised so the rates higher when people sign up. Buying an Alabama Crimson Tide jersey online could get that much more expensive.

Merchant fees also contribute

Credit card companies are also enjoying the benefits of merchant fees, according to the Washington Post. Some credit card companies have raised fees charged to merchants for swiping the card, which could lead to prices being raised in stores to counter the fees. Customers who made purchases with credit cards rather than with cash also have to pay more in interest thanks to higher prices.

Sources

USA Today

Washington Post

A recent Department of Education study found that students who attend for-profit colleges default on student loans the most. Image from Wikimedia Commons.

The rate of default on student loans is higher for students who attended a private, for-profit university. New data from the U.S. Department of Education indicates 25 percent of students who attended for-profit schools defaulted on their student loans. Public school attendees had a default rate of less than 11 percent.

Nonprofit school students default the least on student loans

Students who attend institutions of higher education often get saddled with a lot of debt. The huge loans students have to borrow to finance education means some are going to default on repayment. Those who attend a private, for-profit university are most likely to default on the unsecured loans needed to cover tuition, according to Reuters. A recent report by the Department of Education examined default rates from the year 2008 and found students who were borrowing money to fund an education at a private, for-profit college defaulted 25 percent of the time. Students at public universities had a default rate of 10.8 percent.  Students from private, non-profit universities defaulted least, defaulting 7.6 percent of the time.

Government could pull funding

Pending legislation could yank the rug out from under private, for-profit colleges when it comes to federal funding. A new proposed rule would cancel any federal advance cash to any university with a loan default rate of 30 percent or more. Numerous for-profit universities already fit that criteria. A trade group of for-profit universities, the Association of Private Sector Colleges and Universities, protested the proposed ruling and the DOE report, saying that the dismal economy contributed to those figures. The APSCU also contends that data from 2008 doesn’t apply to 2011.

Students under growing strain

Worries about post-education employment and debt, among other factors, has led to far more students having a negative view of their own mental health, according to the New York Times. Whether someone is off to be an Arizona Wildcat or to roll with the tide in Alabama, having to take out larger loans and come out of college needing debt consolidation is not the most pleasant prospect.

Sources

Reuters

New York Times

People are going to have to pay advance cash to banks more often to use their checking accounts. Image from Wikimedia Commons.

People who bank with the nation’s largest banks are going to have to start paying advance cash for having a checking account. Free checking accounts are all but gone at major banks, now that U.S. Bank is rumored to be jumping on the account fee bandwagon. Increasing bank fees are a trend unlikely to cease.

Banks charging advance cash

Free checking accounts, from the customer’s standpoint, were far preferable to checking accounts with fees. It used to be an account holder simply had to pay for blank checks, they didn’t have to pay the bank advance cash to keep the account open for another month. Account holders at the nation’s largest banks can bid goodbye to those days, as free checking accounts are becoming a thing of the past. Bank of America, Wells Fargo and JP Morgan Chase all introduced new fees on checking accounts, and U.S. Bank is likely going to hop on the bandwagon, according to CNN. More people can expect to have to part with some instant cash to use their own money.

Get around fees

Avoiding bank fees is one of the more common reasons people take out a payday loan, but there are other ways around bank fees as well. Consumers should check with their banks to find out what loopholes they might be able to use to get around fees. For instance, check to see if a minimum balance can get any maintenance fees waived and whether monthly direct deposits can get fees waived. Some banks will waive account fees after a minimum number of purchases with a debit card.

Free checking will not die

Just because major banks are instituting fees does not mean free checking is going extinct. For instance, many community banks and credit unions offer free checking accounts and lower fees than major banks. Fees at those institutions go back into the community, not toward funding an executive ski chalet in Scottsdale, Arizona.

Source

CNN

A debt settlement relief company that offers the end of debt for pennies on the dollar is likely a scam. Image: MoneyBlogNewz/Flickr.com/CC-BY

In the last few years, there has been a growing number of debt settlement relief companies offering to get people out debt. Some of these companies are on the level, but many are not and the government put rules in place to prevent dishonest practices. Many of these companies have not gotten the memo.

Debt settlement relief companies grow like weeds

The last few years have seen a growing number of debt settlement relief companies that promise to get people out of debt quickly, and ask for upfront fees that would send most people running for payday loans. Often the fee is a percentage of the total debts. Not all of these companies are created equal, according to CNN. A lot of people have given a lot of instant cash to these companies, never hearing a peep on the progress of their debt consolidation, only to find debt levels had remained the same if not worse than before. That is why the Federal Trade Commission put new rules in place that prevent firms from doing so. However, a lot of companies haven’t gotten the memo.

Too good to be true

If a company can wipe some away for an upfront payment that doesn’t make a person desperate for loans for bad credit to stay afloat, it seems like a good idea. However, a lot of these companies don’t do a thing, and pocket the fee. One company, Elite Financial Services in Missouri, was caught absconding with huge amounts of advance cash from customers and doing nothing about their debts, according to the St. Louis Business Journal, and had to refund all customers in Missouri.

Be careful

Another practice is for a company to add a lawyer to its staff, and claim the company is then a law firm. Still others will move corporate charters to foreign countries to avoid U.S. jurisdiction. Consumers that get offers for debt relief should research the company the offer comes from thoroughly.

Sources

CNN

St. Louis Business Journal

Some people think the installment loans lent in the bailouts weren't worth it, but Treasury Secretary Tim Geithner disagrees. Image from Wikimedia Commons.

In the financial crisis of the last few years, billions of dollars in installment loans to huge firms were lent in bailouts. Many have preached loudly about the waste involved and corporate favoritism. However, it may not cost as much as some think.

Rage at installment loans to big business

In 2008, the financial world was in turmoil, and the government moved to get some installment loans out to head off a collapse. Billions were lent to banks and investment houses from New York, New York, to Kansas City, Missouri, and the largest domestic auto manufacturers were given some enormous advance cash bundles to keep them afloat. Conservatives and liberals alike have raged about the bailout loans, but Treasury Secretary Timothy Geithner thinks the outrage is unfairly directed his way, according to the New York Times. Though officials, of course, don’t go out of their way to agree with their critics, he has a point.

Emergency loans could turn a profit

The emergency loans made to huge businesses could be justified. Geithner has maintained that the $25 billion estimated as losses by the Congressional Budget Office are estimates. He also has maintained losses will only come from bank loans and mortgages gone bad, but everything else will turn out. For instance, if the Treasury holds onto shares in GM and sells them over time, the loans GM received could eventually turn a profit on the long term. Citigroup, which received more than $45 billion in aid, turned a profit of more than $10 billion for the taxpayers already.

Proof will be in the pudding

Though it certainly seems ridiculous to only aid to the parties that created the economic problems in the first place when the people that have been hurt could use the help more, there may be an upside after the fact. If the profits realized from bailing out huge firms are more than the losses of bailing out Fannie and Freddie, then a rational basis for bailouts in dire straits will have appeared.

Sources

New York Times

Chase wants more instant cash from customers who are audacious enough to be poor and bank with them. Image from Wikimedia Commons.

Chase banking customers will soon start to see more cash going out the door in bank fees. Major banks are raising account fees left and right, as apparently even the biggest banking organizations are hard up for money. Regulations have made covert bank fees harder to institute.

Bank fees rise for least wealthy of Chase customers

JP Morgan Chase is raising the fees on some checking accounts that receive direct deposits that will cost the least wealthy of Chase customers more instant cash for the egregious act of simply banking with one of the nations’ largest banks, according to USA Today. Chase will be assessing a $6 fee on accounts that receive direct deposits if a deposit is less than $500. Say a person gets one $495 direct deposit and a $1,000 deposit of pay day cash into a Chase account every month. That person will end up with a $6 account fee because one of the deposits is less than $1,000 and that person had the audacity to not be rich while banking with JPMorgan Chase. The fees take effect in February of 2011.

Punishment of the poor

The people who will end up getting hit with the fees and having to advance cash to Chase for having an account that receives deposits with them are the most vulnerable. Mostly, it will be retirees and the unemployed. Many people receive unemployment benefits that total less than $500 per check, and about 7 percent of people living off of Social Security benefits receive $500 or less as well. Apparently, if a multi-billion dollar corporation needs money now, the best source for it is people who really do need money now.

Even the largest banks need money

Major banks, such as Chase and Bank of America are thought of as virtuous bastions of capitalism but have begun notoriously raising bank fees in the open as regulations make it harder for them to do so covertly. For instance, a bank cannot automatically enroll a person in overdraft protection without asking them first. Overdraft fees are one of the largest sources of revenue for banking institutions.

Sources

USA Today

To keep an agricultural disaster like the Dust Bowl from happening, the USDA is lending emergency loans to farmers. Image from Wikimedia Commons.

The weather this summer has been detrimental to farmers in the lower Midwest. Areas in and around Kansas City were officially declared a disaster area after flash flood damage, and the U.S.D.A. has announced it will do all it can to help. Emergency loans will be made available for any farmers in certain areas that need some advance cash because of damaged crops. They will have several months to file for the loans. The loans will be incredibly low interest loans. Excessive rainfall and a brutal tornado season have caused extensive damage throughout the Midwest.

Heavy summer

Extensive rainfall has occurred throughout the Midwest. Many stormfronts from the Gulf region to the Great Lakes have wreaked havoc, such as the Oklahoma tornadoes and the Milwaukee floods. Areas around Kansas City have been heavily damaged as well. The U.S. Department of Agriculture declared six of seven counties in the Kansas City, Mo., metro area natural disaster areas, and those counties could use some cash now to help rebuild.

Farms experience extensive damage

Farmers in the region had the summer crops were severely affected by weather throughout the year. According to the Kansas City Business Journal, wind, rain, and flash flood damage has wrecked a good portion of this summer’s crops, and emergency loans will be made available. Farmers who wish to take out these low cost loans can file for loans through the Department of Agriculture. The interest rate will be set at 3.75 percent, and the amount can be up to 100 percent of losses. People can borrow money in amounts up to $500,000. Aside from the six counties around Kansas City, there are 55 counties in Missouri and 47 counties in Oklahoma that have been declared disaster areas due to extreme weather in that area.

Mother Nature can take a toll

It has been said more than once that Mother Nature can be a cruel mistress. Too much rain and wind can wreak havoc in agricultural areas, and that can leave farmers — the people who make sure we all can eat — in need of quick cash that is harder to come by these days.

Further Reading

Kansas City Business Journal

Jonathan Goldsmith, the man behind Dos Equis' brand power. (Photo Credit: CC BY-SA/Toglenn/Wikipedia)

Brand power can be defined in a number of ways, but ultimately each definition will mean very little if it does not translate into sales growth for the product. Fast Company writes that Dos Equis beer and Old Spice men’s deodorant products both have extremely popular spokesmen who have gone viral online, but only one of the products has experienced consistent sales growth. While Old Spice’s “The Man Your Man Could Smell Like” (Isaiah Mustafa) has attracted more than 94 million views on YouTube and more than 630,000 Facebook fans, retail market intelligence organization a SymphonyIRI found that sales of Old Spice Red Zone body wash recently fell 7 percent. On the other hand, Dos Equis’ equally viral “The Most Interesting Man in the World” (Jonathan Goldsmith) has translated into consistent sales growth over the length of the two-year campaign.

Procter & Gamble did experience greater brand power overall

According to the SymphonyIRI study, Old Spice parent company Procter & Gamble did experience sales growth for men’s products overall. Yet it does not attribute the growth to the presence of the sculpted Mustafa. Rather, the company claims that an aggressive, high-value coupon campaign helped its brand power. Over a four-week period ending June 13, Procter & Gamble experienced sales increases of 277 percent for Gillette and 63 percent for Nivea Men. Old Spice increased 106 percent but quickly fell in the months following the study period.

Experience that moves units

Enter “The Most Interesting Man in the World.” He is a man of the world who has experienced life. He is smooth and confident. Rather than being a slick, sculpted young man like Mustafa’s Old Spice Guy, Goldsmith’s character extols the value of experience that only time can bring. And this has helped Dos Equis’ brand power a great deal. Brand manager Ryan Thompson told Fast Company that sales of Dos Equis rose by 26 percent since January 2010 alone. Keep in mind that this campaign isn’t just getting off the ground; it’s been around in earnest for two years. Goldsmith first began his association with Dos Equis in 2006. “We’re now the fastest growing beer import in the country,” says Thompson.

Infinite experience versus fleeting promise

“The Most Interesting Man in the World” brings infinite experience, never jaded. His simple wisdom speaks to both sexes. “The Man Your Man Could Smell Like,” who is likely directed at female shoppers and homosexual men, purrs the fleeting promise of pleasurable experience, perhaps through fantasy wish fulfillment. A pleasurable moment does not in itself translate into a life well-lived. Goldsmith, a veteran television actor, showed some simple wisdom of his own when he told Fast Company that when it comes to Dos Equis, “I think the campaign is so successful because every man, including me, would like to be like him.” Experience has proven to be a huge cash advance for Dos Equis. Men choose the “Most Interesting Man” not merely for a moment, but for all time. To have truly lived is to be a master of the game.

Sources:

Fast Company

Saving money, thanks to the Least Interesting Man in the World

Many senior citizens are taking out reverse mortgages. Image from Flickr.

A relatively new mortgage product, known as a “reverse mortgage” is gaining popularity. Reverse mortgages are usually targeted to senior citizens. These mortgage products essentially allow a homeowner to get fast cash out of their home, while still living in it for a period of time. Consumer advocates, though, are warning that reverse mortgages may be putting senior citizens into difficult situations.

The basics of reverse mortgage

A reverse mortgage, at its base, is a way for seniors to use the equity they have built up in their home. The bank or reverse-mortgage financier gives the senior a lump sum or several smaller payments in all advance cash. Over time, the debt on the house increases. Once the senior no longer lives in the house, the loan comes due — usually paid by selling the house.

The cost of reverse mortgage

The cost of a reverse mortgage is usually paid in a few different ways. First, the origination and loan fees can often add up to 30 percent or more of the value of the loan. Second, the lien that is placed on the house is usually for much more than the loan amount. For example, one reverse mortgage of $80,000 in cash today required an additional $25,000 in fees. A lien was then placed on the property for $470,000. That full sum must be paid when the senior moves out or dies.

Hidden requirements of reverse mortgages

Many times, individuals who get reverse mortgages end up getting lost in some of the fine print. Most reverse mortgages require that a home be maintained in “selling condition” from the time the fast loan is taken out until the home is returned to the bank. The interest on reverse mortgages is usually also calculated as compounding. In other words, incredibly difficult to pay back.

Upcoming reverse mortgage bust

Some consumer advocates have taken a long look at reverse mortgages, and the conclusions are not promising. The National Consumer Law Center pointed out that reverse mortgages are “eerily similar” to the subprime mortgages that headed up the financial downturn. With more than 100,000 reverse-mortgage homes set to go on the market in the next 10 years, home prices will likely stay extremely low. Reverse mortgages can be incredibly useful for seniors with no other options — but for most, it’s a step in the wrong direction.