Card Charge-Offs Fall To 16-Month Low

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The average charge-off rate on U.S. consumer credit cards in July fell to a 16-month low, while delinquency rates also were better as credit card-portfolio health continued to improve, Fitch Ratings reported this week.

Card Debt Continues To Drop, TransUnion Data Show

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The average credit card borrower debt during the second quarter ended June 30 dropped for the fifth consecutive quarter, to $4,951, down 4.1% from $5,165 the previous quarter, according to a TransUnion analysis of credit card trends.

Did Technology Kill The Bank Branch?

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“The future of financial services is outside the branch,” writes NetBanker. Is it true, that your bank branch, with its friendly human tellers and occasional coffee and snacks, will be obsolete; can your laptop and smartphone take care of all your banking needs?

Reality Check

In the rise of mobile banking and virtual banks, Netbanker’s statement has truth to it—many of our daily banking needs are shifting to more convenient and accessible technology-enabled services. Driving to a bank and waiting in line for a teller seems like an unnecessary hassle. For example, Chase is introducing a check-deposit feature that allows your phone to take a picture of your check to deposit it anywhere—even in the bathroom, the Chase commercial chimes. Bank of America and Visa are teaming up to release a
smartphone service to pay purchases via smartphone, which is a quicker and easier payment method than finding an ATM or branch. Internet-based banks like Ally, BankSimple, and INGDirect are stealing customers from brick-and-mortar banks with the promise of convenience, better rates, and simpler terms.

Solution?

So maybe branches need a makeover. One interesting suggestion from The Financial Brand is that branch layouts need revamping or else they’ll die off. The problem is that most banks don’t put their “milk in the back of the store”, i.e. put the most-wanted services, like tellers, in the back of the branch so customers must walk through additional products and services before they get what they need. It’s the same reason grocery stores put milk in the back on their store. “Putting the milk in the back of the store” guarantees bank customers are bombarded by sales reps and products, increasing the likelihood they’ll walk out of the branch with more than they bargained for. It’s just like when you walk into a grocery store for one item, but pick up bread, cookies, and soda on your way out. By designing a branch that engages customers, the bank branch can reclaim a relevant role in consumer lives.

Bye Bye Branches

Beyond practical design, Netbanker points out that bank branches still have significant changes to address before they can compete in the fast-moving pace of technology’s marriage to financial services. Despite what a branch can offer, like the comfort and added customer service of human representatives, technology-based banking may be too compelling, too convenient, and too accessible to beat. Think about what happened to the radio after the rise of television. Branches may not become extinct, but they may grow a little quieter and more discreet in the noise of technological advancement.

Bottomline: Do you think you’ll be switching your banking from branches to more online, technology-based methods like online and mobile banking?

Business Credit Cards: Are They Worth It?

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Watch your mailbox. You could be getting applications for small business credit cards – even if you aren’t a business owner. A recent Wall Street Journal article points out that card issuers appear to be increasing their marketing of business cards – even to consumers who work for someone else. Sometimes camouflaged in vague terms like “professional” cards, these cards come with a serious disadvantage for the cardholder:

That means issuers can raise rates with little advance notice (and apply them retroactively), charge higher penalty fees, play with floating due dates, and do all those fun things they used to do with consumer credit cards before those tactics were outlawed. 

So why on earth would anyone want a small business credit card? Believe it or not, there are a few good reasons:

Business Card Pros:

Protect your personal credit scores. With the notable exception of Capital One, which has chosen to report business card activity on personal credit reports, most business credit cards aren't reported on personal credit reports unless you default. That means if your business can't afford to pay the bill in full each month, the fact that you are carrying a balance won't weigh down your personal credit scores. (Speaking of credit scores, you should expect to see an inquiry on at least one of your personal credit reports, since most of these cards require a personal credit check.)

Separate your business and personal finances: If you actually do own a business, keeping your business and personal purchases separate can be crucial for tax purposes. Having a dedicated business card makes this easier, though another alternative would be to use a personal card strictly for business purchases. Again, though, the activity on a personal card affects your personal credit scores, for better or for worse. 

Rich rewards:  You may find richer rewards on some small business credit cards. American Express, for example, is well known for both catering to small businesses, as well as offering solid rewards. The CitiBusiness AAdvantage Visa card gives 30,000 AAdvantage bonus miles if you make $750 in purchases the first four months. That's not hard to do if you are funding a new business.

Business Card Cons

Open yourself to the old tricks and traps. You can read our Consumer Guide to the Credit CARD Act here if you want more details about the practices that Congress banned on consumer cards. But I'll say it again: The CARD Act does not apply to business accounts. And that includes cards marketed to non-business owners as “professional” cards – at least for the time being. (I can see the new Consumer Financial Protection Bureau having fun with this one.)

Note: Bank of America has stated they will extend many of the Credit CARD Act provisions to their business cards. A Capital One spokesperson is quoted in the WSJ article as saying that Capital One has applied many CARD Act protections to its business cards, but when I look at their web site, their card offers still list penalty fees that are now illegal on consumer cards.

We've said it before and we'll say it again. Just because the CARD Act protections are in place doesn't mean we can rest easy. There are still plenty of traps to watch out for.

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Review: BillFloat – Can’t Pay Your Bills? They Have you Covered (For A Fee)

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It’s the 1st of the month and time to pay the bills. After unexpected medical bills or some other financial emergency bungled your budget earlier this month, you realize there’s a bill or two your funds can’t cover. What do you do? You float it.

BillFloat, founded in 2009 and incubated by PayPal, has a simple, fresh solution to an old problem—what to do when you can’t pay the bills.

Instead of turning to Mom and Dad, friends, expensive payday loans, high-interest bank loans, or skipping payment altogether and risking the consequences (penalties, credit damage, getting services terminated), BillFloat pays your bill for a fee as low as $4.99 and you pay them back within 30 days. Plus, the site requires no credit checks and uses its own “decisioning engine” to determine qualified customers.

Here’s how it works:

1. Sign up as a BillFloat customer for free, where you provide basic contact information as well as social security number, banking routing, account number, and bank username and password. This information is required to verify your bank account to ensure your ability to repay. BillFloat also assures that they use the same financial security and data protection that big banks.
2. Select from over 3,000 billers in the database, such as cable providers and insurance companies, to pay your bill direct to them. Input your bill amount, date that BillFloat should pay it, and Billfloat gives you a fee depending on how high the bill is. For example, a $60 Comcast bill has a $4.99 service fee, while a $225 All-State car loan bill has a $14.06 fee.
3. Pay back Billfloat within 30 days.
4. As a bonus, when you pay back BillFloat on time, your Bill Payment Power goes up and BillFloat can extend you more credit to pay bills (up to $1,000) and lower your fees.

In a nutshell, you pay a super-low fee to float your bill for awhile, get a 30 day extension, protect your credit, avoid service termination, and use a flexible, affordable alternative to mainstream bill-payment options that otherwise cost you money (expensive loans and bank fees) and stress (borrowing from family).

So what’s the catch?

It sounds like a savvy service that is ripe for recessionary times when cash is tight for struggling consumers. What makes it dangerous is that it’s so easy and affordable to do. It can initiate a nasty habit of relying on BillFloat to float your bills if you are prone to paying late or breaking the budget. Plus, the Bill Payment Power is a clever incentive to snag repeat customers by giving an incentive to keep using BillFloat to float bigger bills for higher fees.

“We will provide consumers relief from the $32 billion in overdraft protection, non-sufficient funds, and late fees that are paid by American families every year,” said BillFloat’s CEO to TechCrunch. As a last resort when you are strapped for cash and bills are piling, BillFloat is one of the better alternatives out there to keep up with payments. But only once in a blue moon. Remember that your best, fee-free bill payment option is to budget to make sure you never have to rely on any other bill-paying option other than yourself.

Bottomline: BillFloat is a start-up with a new, low-cost bill payment service that covers your bill and gives you a 30 day extension to pay back.

Small Credit Card Charges Could Mean a Big Problem

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You see a small charge on your credit card you don’t recognize.

What do you do?

Small charges you don’t recognize can be a sign of a bigger problem. The New York Times takes a look at a lawsuit filed in March by the Federal Trade Commission, which claims that during the past four years, scammers raked in more than $10 million by putting small bogus charges – ranging from twenty cents to $9 – on consumers’ credit and debit cards. And in a scheme that apparently has dragged out for more than a year, scammers have made fake $1 purchases on iTunes customers' accounts, only to follow up with increasingly larger ones, sometimes totaling hundreds of dollars.

An unknown charge could mean your account was compromised. Or it could just be that you don’t recognize the name of the company billing you for a purchase you made. After all, merchants have a limited number of characters with which to describe their products and services on statements, and those descriptions can be cryptic.

So what should you do when you find an odd charge on your credit or debit card statement? Here’s how I would handle it:

1.    Call the merchant to find out whether the charge is for an item you actually purchased. If the phone call doesn’t clear it up,

2.    Call your credit card company and file a dispute.

3.    If you believe your card number has been compromised – especially in the case of a debit card – cancel the card and ask for a replacement with a new number.

Remember, under the federal Fair Credit Billing Act, the most you can be held liable for is $50 in unauthorized purchases, and that's only if the card was physically presented in the transaction. Most card companies won't even hold you responsible for that if you notified them of the fraud promptly.

However, you have to read your statements to identify fraudulent charges – especially the small ones that are easy to overlook.

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Delinquencies Fall As Consumers Focus On Card Relationships

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During the second quarter ended June 30, the ratio of bankcard borrowers 90 days or more delinquent on one or more of their credit cards was 0.92%, down 19 basis points from 1.11% the previous quarter and down 25 basis points from 1.17% in the second quarter of 2009, according to TransUnion.

How to Protect Your Credit After Divorce

View full post on Credit and Personal Finance Blog | Credit Karma

**Today’s guest blog is by Scott Morgan, an Austin Divorce Lawyer who is Board Certified in family law. In his practice he frequently deals with credit repair issues arising in divorce cases.**.

The end of a marriage is often associated with heartbreak and emotional upheaval, but your former soulmate could also be walking away with half of your assets and leave you in a bad credit situation.

However, there are many ways to protect and rebuild your credit after a divorce, several of which require little effort but help significantly. Here are a few tips to help you rebuild your credit score after divorce:

Review Your Credit Report

The first step to rebuilding your credit is to get a copy of your credit report (you can get a free copy at AnnualCreditReport.com) and find out your credit score (free at Credit Karma) and thoroughly review the report. You want to ensure that your ex’s debts are not showing up on your credit report. If any do, you should contact the creditor to have your name removed from the account so that the debt comes off of your credit report.

Cancel All Joint Cards and Accounts

The last thing you want after your divorce is for your ex-partner to go on a shopping spree with a credit card in your name. Therefore, make sure you cancel all joint credit card accounts after making sure that everything is paid off and cleared. While closing your account can lower your credit score it is a worthwhile tradeoff. You want your credit and your ex’s credit to be as separated as possible.

Apply for a Low Limit Credit Card

If you don’t have any credit in your name because you shared most cards and loans with your spouse, apply for a credit card with a low limit. The low limit will help you avoid temptation to spend money you don’t have, while helping you to rebuild your credit. Begin by purchasing low cost items throughout the month and pay your balance in full and on-time at the end of each month to build good credit history.

Open a Checking Account in Your Name

Opening a checking account solely in your name is a smart decision to make while you are going through a divorce. You need an account to hold funds that your spouse does not have access to, plus it can also help you protect your credit by ensuring that you have funds available to make at least the minimum payments on credit card and other debts held in your name.

Make Timely Payments on Your Accounts

This might seem obvious, but many people forget how important it is to make your payments on time. A “slow pay” credit history (one where the payor habitually fails to pay the creditor on time) can dramatically lower your credit score. When you receive a bill, have a system in place to remind you to pay it by the due date.

If Necessary, Consider Bankruptcy

If you are so deep in debt after your divorce that you cannot keep up with monthly bill payments, then you may need to consult with a bankruptcy attorney. While bankruptcy is extremely damaging to your credit in the short-term, it can be used to deal with being the situation of being so far in debt that it will be nearly impossible to recover from. Once you have had your slate wiped clean after bankruptcy, you can work on rebuilding your credit and avoiding the problems that created the excessive debt you had in the first place.

While a divorce has the potential to significantly damage your credit, it is possible to emerge from a divorce with your credit rating intact. By following these suggestions, you will be on-track to rebuilding your credit after your divorce.

Lessons from the Gilded Age, Part 3: Parties

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Today we’re going to party like it’s 1897. So, pretend you’re loaded. No, I mean with money. Though alcohol fueled many of the Gilded Age’s most deliciously decadent moments. Like the evening when former president Ulysses S. Grant was so lit up at a party in New York that he stuck the lit end of his cigar into his mouth.

No, I mean pretend you’re so loaded that you can drop $8.5 million on one big blowout ball, just to show everyone else in society that you could outdo Caroline Astor, as Cornelia Bradley-Martin did. Then, when the press denounces you for this outrageously self-indulgent abuse of privilege, you move to England. But not before throwing a farewell party at the Waldorf-Astoria for your closest friends, and spending $2,668 per plate as one last slap at your detractors. 

      Bradley-Martin Ball of 1897. Harpers image via Wikipedia

This would be an appropriate time to give another tip of my metaphorical top hat to Greg King’s magnificent chronicling of the wonderful and wacky wealthy in his book, A Season of Splendor.

And here’s our lesson: If you’re going to throw a party, realize it’s not about how much you spend on your family and friends, but how much you value them.

What people enjoy and remember most is the engaging company and conversation shared. Yes, you want a few bottles of good wine and some tasty food, but again, this can be achieved without having to close all of your off-shore bank accounts.

If nothing else, our Gilded Ones teach us that too much money can devour all rationality from your brain. By the early 1900s, much to Madam Astor’s abhorrence, her exceedingly rich colleagues had perfected their pursuit of decadence with exquisite relish.

In the here’s-your-brain-on-mad-money category, one couple threw a Circus Ball, where an elephant wandered the house solely so that guests could feed it peanuts. Then there was the acclaimed Dog Dinner. Of the 200 guests, 100 were lavishly costumed canines accessorized with jewels such as a $315,000 diamond-studded collar. Liveried servants, of course, served a three-course feast of “stewed liver and rice, fricassee of bones, and specially baked biscuits.”

Even if you are fortunate enough to earn an income in league with the Astors and the Vanderbilts, just because you make a lot of money doesn’t mean you have to spend a lot of money. Like my cousin’s husband always says, “Save till it hurts, then save some more.”

Or invest, donate, pay down debt… Just don’t go crazy on those cotillions.

After all, our Gilded Agers were so enamored of turtle soup at their constant sumptuous soirees that they are single-handedly credited with driving the terrapin to extinction.

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Christopher Johnston has written for American Theatre, Cleveland, Continental, Crain’s Cleveland Business, Editor & Publisher, The Plain Dealer, Progressive Architecture and Urban Design, and Scientific American, among other publications. He is currently writing a biography of Frederick C. Crawford, founding chairman of TRW Inc. As an avocation, he is a playwright and director, and this December, his play APORKALYPSE! will premier at convergence-continuum theatre in Cleveland.

NCLC Updates

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