Consumer credit dropped much further than was forecast, with the decline led by significant drop in credit card debt. Credit card delinquencies fell to their lowest rate since 2002. As Americans save more and borrow less, credit card companies are coming up with new methods to gouge customers. New credit card rules aimed at curbing the usurious behavior of credit card companies may be giving some of their consumers a false sense of security.
Consumer credit drop exceeds forecast
A Federal Reserve report that was released on Thursday showed that consumer credit dropped at an adjusted annual rate of 4.5 percent in May–the fourth consecutive month of declining credit. Revolving debt, which contains most credit card debt, dropped by 10.5 percent ($ 7.3 billion) in May, as outlined by the Fed’s report. In May, non revolving debt fell $ 1.8 billion. Business Week reports that economists’ projections in a Bloomberg survey ranged from a decrease of $ 5.2 billion to a rise of $ 2 billion in May. Consumer credit increased only twice since 2008. Consumer spending, which accounts for about 70 percent of the economy and is what The US is counting on to revive the economy, will be weak as Americans pay down their debt.
Credit card delinquencies drop as well
Right now, credit card delinquencies are declining with consumer credit. The American Bankers Association (also known as the ABA) reported that late payments for bank credit cards fell within the first quarter to the lowest level in eight years. According to Market Watch, bank card delinquencies–card payments at least 30 days overdue, fell to 3.88 percent of all credit card accounts in the first quarter, compared with 4.39 percent within the fourth quarter of 2009. Since 2002, the credit delinquency rate has been the lowest. They also said that overall consumer loan delinquencies declined, but only job creation will bring further improvement.
To be broken-new credit card rules
Revenues are declining for credit card companies. But besides new credit card rules designed to protect consumers going into effect next month, credit card companies are trying harder than ever to burn customers with creative new fees. CNNMoney.com reports that banks will be able to get around numerous of the new rules. For example, new rules cap late fees right around $ 25 and do away with inactivity fees, but now more credit card companies are charging annual fees.
Companies hope you won’t notice
When it comes to the new credit card rules, consumers think that credit card companies can’t possibly raise interest rates on existing cards anymore. But in reality, they can do anything that they really want to with new balances, as long as they give 45 days’ notice. If your credit card company sent you a letter a when back and you see your interest rate skyrocket on your latest charges, that’s what happened. Plus, credit card companies can still cut credit limits and close any of their credit cards without advance notice, which will really hurt a credit score.
Always open credit card business mail
Other credit card companies just lately hiked balance transfer fees, cash now fees and also foreign transaction fees. Gerri Detweiler told CNN that read the mail you get from your credit card business is more important now than ever. Do not automatically assume its junk mail, since you really only have the 45 days to opt out if you actually read the fine print. And as credit card companies become much more desperate, they’ll not only raise existing fees but create all kinds of new fees.
Citations:
Businessweek.com
businessweek.com/news/2010-07-08/consumer-credit-in-u-s-declined-more-than-forecast.htmlv
Marketwatch.com
marketwatch.com/story/credit-card-delinquencies-fall-to-8-year-low-aba-2010-07-07?reflink=MW_news_stmp
CNN Money.com
money.cnn.com/2010/06/30/news/economy/credit_card_act_new_rules/index.htm?postversion=2010063007
