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The Guardian        p. 15        7 November 2008
















credit        USA






credit and debit cards        USA






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The Credit Card Accountability,

Responsibility and Disclosure Act        USA        May 2009






credit card














credit card weakness






credit card provider        UK






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cardholder        USA






buy now, pay later






store card

payment card for kids        UK




















Oliver Munday


Totally Spent        NYT        13.2.2008
















The great credit card scandal

Companies defy ministers

by increasing charges

despite plunging interest rates


Tuesday, 9 December 2008
The Independent
By Kate Hughes,
Deputy Personal Finance Editor,
and Andrew Grice


Credit card companies are facing an investigation by competition watchdogs after defying government warnings to improve their lending practices.

An analysis by The Independent has found that the cost of card borrowing has risen over the past three months despite three cuts to the Bank of England base rate. Cardholders are now facing average interest rates of 17.7 per cent on credit cards, up from 16.6 per cent 12 months ago.

The Business Secretary, Lord Mandelson, had given providers two weeks to come up with fair principles to help cardholders manage their debts following a summit with card providers in November. By Thursday, the Government is expecting proposals from the industry on how it will implement fair principles on existing debt, responsibly provide credit and support households in difficulty.

Failing to do so could see the card companies facing investigation by the Office of Fair Trading (OFT), but so far card providers have made no move to reduce the expensive lending rates which so often plunge debtors into further financial hardship.

One government source said last night: "We are not backing off. If the companies don't move, if necessary, we will go down the OFT route."

Only two cards, those designed to track the base rate, have reduced rates since Lord Mandelson's ultimatum and Yorkshire Bank and Clydesdale Bank have gone ahead with increases to the rates and fees they charge their Gold Mastercard customers. Halifax and the Bank of Scotland have also increased balance transfer fees.

A spokesman for Clydesdale Bank said: "The changes in our rates were announced in October and our rates remain very competitive. We fully support the Government's initiatives for helping people in difficulties."

Store card debtors are facing even higher rates despite cheaper borrowing for lenders. The average cost of borrowing is now 25 per cent a year, up from 23.9 per cent this time last year, with no sign of a cut in rates even though the base rate has dropped from 5.25 per cent to 2 per cent over the same period.

But based on the industry's response this week, Lord Mandelson and the Consumer Affairs minister Gareth Thomas are expecting to produce a plan to address the dramatic increases in some cardholders' bills.

A spokeswoman for the Department for Business, Enterprise and Regulatory Reform said: "We've asked lenders to report back by the end of this week and have been in continuing talks with industry following our summit [on 26 November]. We have every expectation that industry will come back with proposals to stop the pockets of bad behaviour that we have identified in risk-based repricing and will continue to work with them to ensure borrowers are treated fairly, responsibly and consistently."

Vince Cable, the Liberal Democrats' Treasury spokesman, said: "The Government has got to get tough with credit card companies determined to make a quick buck out the millions of people struggling to make ends meet. Tough words are worthless unless they are backed up with real action."

Alan Duncan, the Conservatives' business spokesman, accused ministers of pumping out "hot air". He said: "The Government's policy after the banks' bailout has clearly not reached the credit card sector. It has done nothing to clamp down on credit card ownership – particularly by the most vulnerable people."

Industry leaders have been summoned to another meeting with Mr Thomas on Thursday.

Apacs, the UK payments association, denied interest-rate rises were the problem. "Risk-based pricing is not about the base rate at all," said a spokeswoman. "This is about a customer with a card whose APR may go up as a consequence of changes to their circumstances. It is a feature of credit cards that the interest on this unsecured borrowing may be adjusted. If the customer can't pay, the provider has no security on getting the money back and may decide to re-price the cost of using the card. The agreements that were made [at the summit] were about breathing space for customers in difficulty."

Critics of the move believe a half-hearted approach will make little difference to consumers. Martin Lewis, of Moneysavingexpert.com, said: "This ultimatum is absolute nonsense, and shows that Lord Mandelson has never had any connection to credit cards in his life. Is he saying that credit card companies should drop their interest rates in line with the base rate drop, from an average of 18 per cent to one of 15 per cent? To make this work they would actually have to cut their interest rates by 60 per cent to mirror the real changes in the base rate, so if even if every credit card on the market took 3 per cent off their interest rates it would mean nothing."

Credit and store card companies have long been accused of employing dirty tricks to boost income. The order of payments is regularly skewed so that the most expensive debt, with the highest interest rate, is paid off last.

Companies defy ministers by increasing charges despite plunging interest rates,







Fed launches

$200 billion consumer credit facility


Tue Nov 25, 2008
11:42am EST


WASHINGTON (Reuters) - The Federal Reserve, with the backing of the Treasury, launched a $200 billion lending facility to support the market for consumer debt securities.

Following are details of the plan, called the Term Asset-backed Securities Loan Facility (TALF):

* Federal Reserve Bank of New York will lend up to $200 billion on non-recourse basis to holders of certain triple-A rated asset backed securities backed by newly originated and recently originated consumer and small business loans.

* ABS issuance in consumer categories such as auto loans, student loans and credit cards were roughly $240 billion in 2007 but essentially ground to a halt in October, according to the U.S. Treasury Department.

* The new Fed facility is intended to assist credit markets by facilitating issuance of ABS and improving ABS market conditions.

* The Treasury will provide $20 billion in credit protection to the New York Fed for the program. The Treasury will purchase subordinated debt issued by a New York Fed special purpose vehicle to finance the first $20 billion of asset purchases. The New York Fed will fund any purchases above that amount by lending additional funds to the vehicle up to $200 billion.

*The Treasury funds will come from the unallocated portion of the first tranche of its $700 billion financial rescue fund, known as the Troubled Asset Relief Program (TARP). The action leaves the Treasury just $20 billion in unallocated funds before it must seek Congressional approval to access the TARP's second $350 billion.

* All cash flows from assets in the program will be used to first repay principal and interest to the New York Fed, and second, to repay principal and interest on the $20 billion from the Treasury TARP fund. Any residual returns will be shared between the New York Fed and the Treasury.

* The New York Fed will apply a "haircut" to the value of the securities used as collateral for loans under the program, based on the rpice volatility of each class of eligible collateral.

* The New York Fed will offer a fixed amount of loans from the facility on a monthly basis. These loans will be awarded to borrowers each month based on a competitive, sealed bid auction process and the bank will set minimum interest rate spreads for bidding.


(Reporting by David Lawder, Editing by Chizu Nomiyama)

    FACTBOX: Fed launches $200 billion consumer credit facility, R, 25.11.2008,






Retailers and credit card lenders

at odds in crunch


Fri Nov 21, 2008
11:18am EST
By Alexandria Sage - Analysis


SAN FRANCISCO (Reuters) - The need by U.S. retailers' to sell in hard times has put them at odds with the lenders backing their credit cards. While stores aggressively promote use of their cards, lenders are increasingly wary of consumer defaults.

That conflict of interest, a direct result of the global credit crunch, could fuel escalated risk in 2009 following a holiday season in which more consumers are offered store credit cards that they may be less likely to repay.

"From the retailers' point of view, the more people who open up cards, the better it is for sales," said Laura Nishikawa, an analyst with Innovest Strategic Value Advisors.

But in the midst of the economic downturn, banks are working hard to protect themselves against defaults from existing cardholders, not to mention weeding out consumers with bad credit and maxed out accounts who seek new cards.

"As a bank right now, you're afraid you're picking up the bad apples," Nishikawa added. "That's one of the reasons a lot of the banks are tightening their standards."

The tug-of-war between retailers and lenders is accelerating, particularly as store chains pull out all the stops to ring up holiday sales in what is expected to be the worst shopping season in nearly two decades.

Stores from Home Depot Inc (HD.N: Quote, Profile, Research, Stock Buzz) to online jeweler Blue Nile Inc (NILE.O: Quote, Profile, Research, Stock Buzz) have seen potential sales evaporate due to their customers' inability to access credit to pay for big-ticket items, whether a diamond ring or a kitchen remodel.

"Large consumer durables are extremely credit sensitive," said Citigroup analyst Steven Wieting, citing autos, furniture and electronics as vulnerable sectors. "People simply do not buy a new car without credit."

Blue Nile Chief Executive Diane Irvine said recently the credit freeze had hurt "purchases of high-ticket items, as traditional avenues of financing have now closed."


One solution for retailers is to offer shoppers yet another credit card. These private label cards, backed by lenders such as GE Money (GE.N: Quote, Profile, Research, Stock Buzz), Citi (C.N: Quote, Profile, Research, Stock Buzz) or HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz), carry varying interest rates and limits set by the lenders themselves based on credit worthiness.

"The retailer has no interest in the card being repaid. They just want the loan to be made in the first place so they can get the sale," said Nishikawa.

At stores from Cost Plus (CPWM.O: Quote, Profile, Research, Stock Buzz) to Ann Taylor (ANN.N: Quote, Profile, Research, Stock Buzz), salespeople ask shoppers if they want to apply for a card, offering discounts if they do.

Retailers, desperate for revenue in a dismal selling environment, "are trying to sell anything at any price," said David Bassuk, managing director in the retail practice of Alix Partners, a business advisory firm.

"They are pushing the credit card down your throat because they find when you go into a store and they offer you 10 percent off if you open a credit card today, it creates a motivation to buy more stuff," Bassuk said.

Red Gillen, senior analyst with Celent, a financial research and consulting firm, said retailers are "stuck between a rock and hard place."

"On the one hand they want the shoppers to buy more, and on the other hand they don't want their shoppers' applications to be denied," he said. "That leaves a very bad taste in their mouths."

But ultimately, it's the underwriters who hold the (proverbial) cards, experts say. To protect themselves, applications can be rejected, credit limits or higher interest rates can be imposed, and all lenders have the right to tinker with terms after they've signed up someone new.

"The underlying issue is the credit underwriters bear the risk so their position holds sway," Gillen said.


Home Depot has been scaling back its programs to offer no payments and no interest for 12 months. This week, an offer on the company's website advertised a six-month, no payment, no interest credit card on purchases over $299.

Some 30 percent of new account applications for Home Depot credit cards are rejected, executives said. Its average approval limit has decreased 5 percent from last year.

"As we look out, continuing pressure on credit availability could potentially impact sales," said Chief Financial Officer Carol Tome in a quarterly conference call with analysts.

Best Buy Co Inc (BBY.N: Quote, Profile, Research, Stock Buzz), aware that people can't charge new televisions, computers or stereo systems without financing, advertises an HSBC credit card with no interest for 18 months for purchases over $499.

A holiday marketing program by Kohl's Corp (KSS.N: Quote, Profile, Research, Stock Buzz) to get shoppers into stores includes charge card promotions like a two-day shopping pass with additional discounts.

A spokesman for Macy's Inc (M.N: Quote, Profile, Research, Stock Buzz) said its card was not being promoted any more than usual in the new environment. Still, even as write-offs increase, use of the Macy's credit card is rising.

But after consumers sign up for cards to get a discount on purchases, they often let their new cards lapse. Lenders are keeping an eye on these inactive store credit cards, worried that a sudden flurry of activity means that the cardholder is "in a tight spot," said Nishikawa.

And with the approach of the holidays, a time when a large chunk of sales are purchased on credit cards, banks are increasingly wary, experts say.

Alix Partner's Bassuk said he sees "more risk and more downside" as retailers promote cards and lenders raise rates.

"The holiday season is going to be (about) retailers pushing these bargains, people taking out high-rate credit cards, more and more defaults, and we'll see an escalation of the economic problems we're facing."

(Reporting by Alexandria Sage, editing by Richard Chang)

Retailers and credit card lenders at odds in crunch, R, 21.11.2008,






Consumers Feel the Next Crisis:

It’s Credit Cards


October 29, 2008

The New York Times



First came the mortgage crisis. Now comes the credit card crisis.

After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.

The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.

Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.

“If unemployment continues to increase, credit card net charge-offs could exceed historical norms,” Gary L. Crittenden, Citigroup’s chief financial officer, said.

Faced with sobering conditions, companies that issue MasterCard, Visa and other cards are rushing to stanch the bleeding, even as options once easily tapped by borrowers to pay off credit card obligations, like home equity lines or the ability to transfer balances to a new card, dry up.

Big lenders — like American Express, Bank of America, Citigroup and even the retailer Target — have begun tightening standards for applicants and are culling their portfolios of the riskiest customers. Capital One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines by 4.5 percent in the second quarter from the previous period, according to regulatory filings.

Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries. In some cases, lenders are even reining in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.

While such changes protect lenders, some can come back to haunt consumers. The result can be a lower credit score, which forces a borrower to pay higher interest rates and makes it harder to obtain loans. A reduced line of credit can also make it harder for consumers to manage their budgets, because lenders have 30 days to notify their customers, and they often wait to do so after taking action.

The depth of the financial crisis has shocked a credit-hooked nation into rethinking its habits. Many families once content to buy now and pay later are eager to trim their reliance on credit cards. The Treasury Department, which is spending billions of dollars in taxpayer money to clean up an economic mess brought on in part by all sorts of easy credit, recently started an advertising campaign inviting consumers to check into the “Bad Credit Hotel,” an online game that teaches the basics of maintaining good credit.

At the same time, the fear factor among lenders has deepened just as the crisis makes it harder for some financially stretched consumers to wean themselves from credit cards for even basic needs, like gas and food.

“We are not going to say, ‘Yahoo, this is over,’ and extend credit like we did without fear,” Jamie Dimon, JPMorgan Chase’s chief executive, said in a recent conference call. “If you’re not fearful, you’re crazy.”

Even those with good credit ratings are not excepted. American Express, which traditionally catered to more upscale cardholders, said it would be increasing effective interest rates by 2 or 3 percentage points for some of its credit card holders — a move that could, for example, push a 15 percent rate up to 18 percent.

“We think it’s prudent given the nature of those products and the economic environment we face,” Daniel Henry, its chief financial officer, said in a recent conference call.

Some reward programs have also gotten stingier as lenders cut corners to save money. Card companies, for example, have taken to substituting cheaper brands for a Sony big-screen television as a way of lowering the cost of their redemption prizes.

For less creditworthy customers, issuers are pulling back on promotional offers that allowed borrowers to pay no interest for months as they try to get ahead of stiffer lending rules that have been proposed by federal banking regulators and Congress.

The regulations, while beneficial to consumers, will curb profits on card issuers’ riskiest customers. JPMorgan said that it was withdrawing some teaser-rate loans that were only marginally profitable. Discover Financial shortened the duration of its zero-balance offers.

And lenders, over all, are slowing the flood of mail offers to a trickle with moves that would translate for the average American household into about 13 fewer pieces of credit card junk mail a year than its peak in 2005. Mail offers to new and existing customers are on pace to drop below 8.4 billion pieces, the lowest level since 2004, according to Mintel Comperemedia, a direct marketing research firm.

Online credit card applications have fallen for the first time in five quarters, in part because customers are receiving fewer mail offers that drive them to the Web, according to data from comScore, an Internet marketing research firm.

“We used to get a couple of offers a week, but I haven’t seen a credit card offer in over a year,” said Brett Barry, who owns a real estate agency outside Phoenix and described his credit record as strong. “What blows me away is these companies are in the business of extending credit, but they don’t want to do it for me.”

Mr. Barry said that, without any notice, American Express had reduced the credit limit on his business and personal credit card at least four times in the last year, which he said had lowered his credit score. The moves have also made it difficult for him to manage his payroll and budget, he said.

“Credit card issuers have realized their market is shrinking and that there is no room for extra credit cards, so they have to scale back,” said Lisa Hronek, a research analyst at Mintel. “People are completely maxed out with mortgages, home equity lines and credit card debt.”

At the same time, credit card profit margins have been narrowing, largely because lenders’ own financing costs remain elevated as investors spurn credit card bonds, just as they did mortgages. Another factor is that the interest rates banks charge even creditworthy borrowers have come down after the emergency actions taken by the Federal Reserve to ease the credit crisis.

Meanwhile, bank executives say consumers are starting to curb their spending, to an extent that may become clearer Wednesday when Visa reports its third-quarter results.

In previous downturns, banks could make up the missing profits by raising fees. This time, there may be less room to maneuver.

“The last time credit costs spiked, the late fees were much lower, so card issuers could turn to that and reprice more nimbly,” a Morgan Stanley analyst, Betsy Graseck, said. “There is just more scrutiny now, and coming after the subprime mortgage crisis, the world is more sensitive to the way lenders behave.”

Consumers Feel the Next Crisis: It’s Credit Cards,










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