Tag: Consumers

Credit Card Crisis–Part 1

Banks have gotten more money than God has and still the credit that was promised to loosen up, is still ceased up with little hope of relaxation anytime soon.

A crisis in credit card debt is likely to be one of the next major shocks to the US banking system. Many large institutions, such as Bank of America and Citigroup, already effectively insolvent but for billions of dollars of bailout money from the federal government, will now see their financial positions deteriorate even further.

Personal debt, primarily in the form of home equity loans and credit cards, has been one of the principal mechanisms whereby working class families have attempted to counteract the decline in real income since the 1970s. Indeed, much of the consumer spending that has buoyed the US economy over the last few decades was facilitated by credit cards and other forms of personal debt. At the same time, the provision of “credit” has become one of the most substantial sources of income for banks in the face of an increasingly frenzied drive to raise profitability. However, this situation is now undergoing rapid change.

As banks have suffered major losses in mortgages and other “toxic assets,” they have continued to make money on credit card debt by increasing interest rates and fees and through a range of deceptive practices that are being imposed on card holders abruptly and with little or no justification. The growing anger over these practices, which affect working class and also more well off middle class people, has been receiving increasing attention in the media; so much so that bills have been introduced in both the House and Senate to address the issue.

One such bill is the Credit Cardholder’s Bill of Rights:

Ends Unfair, Arbitrary Interest Rate Increases
•    Prevents card companies from unfairly increasing interest rates on existing card balances – retroactive increases are permitted only if a cardholder is more than 30 days late, if a promotional rate expires, if the rate adjusts as part of a variable rate, or if the cardholder fails to comply with a workout agreement.
•    Requires card companies to give 45 days notice of all interest rate increases or significant contract changes (e.g. fees).

Lets Consumers Set Hard Credit Limits, Stops Excessive “Over-the-Limit” Fees
•    Requires companies to let consumers set their own fixed credit limit that cannot be exceeded.
•    Prevents companies from charging “over-the-limit” fees when a cardholder has set a limit, or when a preauthorized credit “hold” pushes a consumer over their limit.
•    Limits (to 3) the number of over-the-limit fees companies can charge for the same transaction – some issuers now charge virtually unlimited fees for a single violation.

Ends Unfair Penalties for Cardholders Who Pay on Time
•    Ends unfair “double cycle” billing – card companies couldn’t charge interest on debt consumers have already paid on time.
•    If a cardholder pays on time and in full, the bill prevents card companies from piling additional fees on balances consisting solely of left-over interest.
•    Prohibits card companies from charging a fee when customers pay their bill.

Requires Fair Allocation of Consumer Payments
•    Many companies credit payments to a cardholder’s lowest interest rate balances first, making it impossible for the consumer to pay off high-rate debt.  The bill bans this practice, requiring payments made in excess of the minimum to be allocated proportionally or to the balance with the highest interest rate.

Protects Cardholders from Due Date Gimmicks
•    Requires card companies to mail billing statements 21 calendar days before the due date (up from the current 14 days), and to credit as “on time” payments made before 5 p.m. local time on the due date.
•    Extends due date to next business day for mailed payments when the due date falls on a day a card company does not accept or receive mail (i.e. Sundays and holidays).
Prevents Companies from Using Misleading Terms and Damaging Consumers’ Credit Ratings
•    Establishes standard definitions of terms like “fixed rate” and “prime rate” so companies can’t mislead or deceive consumers in marketing and advertising.
•    Gives consumers who are pre-approved for a card the right to reject that card prior to activation without negatively affecting their credit scores.
Protects Vulnerable Consumers from High-Fee Subprime Credit Cards
•    Prohibits issuers of subprime cards (where total yearly fixed fees exceed 25 percent of the credit limit) from charging those fees to the card itself. These cards are generally targeted to low-income consumers with weak credit histories.

Bars Issuing Credit Cards to Vulnerable Minors
•    Prohibits card companies from knowingly issuing cards to individuals under 18 who are not emancipated.
Requires Better Data Collection from Credit Card Industry
•    Requires reports to Congress by the Federal Reserve on credit card industry practices to enhance congressional oversight.
Swift Implementation of 45-Day Notice Requirement
•    Requires card companies to send out 45-day notice of interest rate increases 90-days after the bill is signed into law; the remainder of the bill takes effect 12 months after enactment.

But will this be enough to protect the credit consumer from the predatory practices of the credit companies?

Where Is The Upside?

Tuesday, April 28, 2009, I was told by the media that the consumer confidence was on the rise and that could show the beginnings of the recovery are finally here.

Consumers assessment of present-day conditions improved moderately, with those claiming business conditions are “bad” easing to 45.7 percent from 51.0 percent, while those claiming business conditions are “good” rose to 7.6 percent from 6.9 percent.

Consumers expecting business conditions to worsen over the next six months declined to 25.3 percent from 37.8 percent, while those expecting conditions to improve rose to 15.6 percent from 9.6 percent in March.

This is a good thing right?  God knows I want the recession to end and end soon, but who did these people talk with?  There is about 13.5 million unemployed and countless others waiting for the hammer to fall on their jobs.  What consumers are confident?

Then on Wednesday, 29 April 2009 the news of the GDP hit airwaves.

The U.S. economy plunged again in the first quarter, making this the worst recession in at least half a century.

Gross domestic product dropped at a 6.1 percent annual pace, weaker than forecast, after contracting at a 6.3 percent rate in the last three months of 2008, the Commerce Department said today in Washington. The report, which reflected a record slump in inventories and further declines in housing, comes hours before Federal Reserve officials decide how much money to pump into the economy.

Gross Domestic Product–value of production within a country’s borders.  This fell and now is as low as it was 50 years ago……what part of that breeds confidence?

What Is The Real Truth Of The Crisis?

I have asked this on many occassions.  People hear lots of fact and fiction in the news and it is all too confusing.  So, what is the real reason of the tanking economy.

I have said it all before…over and over……the consumer is the answer…both good and bad.

The February consumer confidence index fell to 25 from a downwardly revised 37.4 in January. Economists surveyed by MarketWatch had expected a February reading of 35.

Consumers’ view of current conditions fell, with the proportion of respondents saying that jobs are “hard to get” rising to 47.8% in February from 41.1% in January, and those saying that business conditions are “bad” rising to 51.1% from 47.9%.

The reading on consumers’ expectations fell to a record low, with those anticipating there to be fewer jobs in coming months rising to 47.3% from 36.9%. Those expecting “worse” business conditions also increased, hitting 40.5% from 31.1%, and those expecting more income fell to 7.6% from 10.3%

Those with plans to purchase cars within six months fell to 4.7% from 5.3%. Those with plans to buy homes also dropped, to 2.3% from 2.5%, while those with plans to make purchases of major appliances rose to 24.5% from, 23.6%.
Consumers’ 12-month inflation expectations rose to 5.9% from 5.6%.

Also on the data front Tuesday, the Case-Shiller home price index published by Standard & Poor’s showed that home prices in 20 major cities dropped by 2.5% in December from the prior month and by a record 18.5% from the final month of 2007.

I wrote back in November of 08…Demand must be found if the economy is to recovery.  So far all the best laid plans of mice and politicians have not helped create demand….and the crisis goes on….and on….and……

Who Else Is Going Down The Toilet?

While industry executives and shoppers will remember 2008 as the year the party ended, figure 2009 to be the year of the hangover. Already, Circuit City, Linens ‘N Things and Mervyn’s stores are going away. Sharper Image is too, though the company will continue to sell some of its high-end gadgets through license agreements with other retailers.

Expect closings and bankruptcies to rattle the likes of Lane Bryant, Gap, and Starbucks. It’s the inevitable counterpunch to the days of retailers fighting hand over fist for market share during an era of loose credit and minuscule interest rates.

Retailers at risk in 2009 include outerwear specialist Eddie Bauer and teen-apparel-seller Pacific Sunwear, along with Zales, the big jewelry chain. All three shuttered at least 8% of their U.S. stores last year, with many more closings expected. The same is largely true of Charming Shoppes, the owner of Lane Bryant, which closed 150 stores last year. With a mountain of debt and losses totaling over $260 million over the most recent 12-month reporting period, the company will close another 100 locations this year.

Another possible casualty: Sears Holdings, operator of Sears and Kmart stores. A key to hedge fund manager Eddie Lampert’s 2005 merger of the two chains was in the underlying real estate. But with those values down 30% or so since then, slumping sales hit even worse.

The coming year looks like a sucking year for retailers and many will not survive.  Maybe now Americans will go back to saving and stop the addiction to credit.

New Rules

Cash-strapped consumers might get some welcome news on Thursday when regulators vote to rein in controversial credit card practices.

The proposed rules, which have received overwhelming consumer support, prohibit banks from practices like raising the interest rates on pre-existing credit card balances unless a payment is over 30 days late, and applying payments in a way that maximizes interest penalties.

The Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration, are all expected to approve the regulation. The rules are expected to take effect by 2010.

If approved, the Fed’s rules will mean an end to double-cycle billing, which averages out the balance from two previous bills. That means that consumers who carry a balance can get hit with retroactive interest on their previous month’s bill – even if they’ve already paid that off.

Consumers would also be given a reasonable amount of time to make payments, and payments would be applied to higher-rate balances first, to reduce interest penalties and fees.

Credit card statements would clearly list the time of day that a payment is due, and any changes to accounts would be in bold or listed separately.

And, finally, no more universal defaults – policy which allows credit card issuers to increase the interest rate on one card if a customer misses a payment on another card.

Consumer advocacy groups say credit-card reform couldn’t come soon enough. Travis Plunkett, the legislative director for the Consumer Federation of America said new rules are “essential” at a time when “so many Americans are falling behind on their loans.”

In the midst of a credit crunch, Americans have about $976.3 billion in revolving credit and 4.9% of all credit cards were delinquent in the third quarter, according to the latest data from the Federal Reserve.

Will The Addict Return?

If you can remember back to the 70’s when there was an energy addiction that made for an energy crisis.  We all started to think of ways to kick our oil habit like alt energy, wind, solar and other energy saving measures and for awhile we were moving in the right direction and were kicking the monkey on our backs.  But unfortunately we fell off our wagon.  The pushers, the oil companies, in the 80’s made the price of gas and oil cheaper and we stated thinking that we were not all that bad for the addiction.  It was something that we could live with.  We wanted our 4 gallon to the mile Hummers.  We began feeding our need heavier than before.

Then one day we awoke from of addict induced haze toi find that our drug of choice was now $4+ a gallon.  Once again, we realized that we were sick and needed to find a way to eliminate the joneses.  We were once again JUNKIES.  We sat down and decided we were gonna do something about our addiction this time, that we would break our dependence on the drug.  Everyone one started thinking sbout alt energy, solar, wind, and energy saving measures.  Smaller cars, better gas mileage, even nukes.  we even got the two major parties thinking along those lines and were gonna be there to help us break our addiction.  Once again we were feeling good about our choice to end our addiction.

One morning the pushers awoke to find that they would be in deep financial trouble if they lost their Johns.  Their user base was shrinking, ever so slowly, but shrinking nonetheless.  The market manipulation started again, drop the price to ridiculous low price and the junkies would not be able to resist.  Slowly the price started down not to appear too eager, but enough for the addicts to get a whiff of the “good stuff”.

Looks like the addiction will build again.  The worsening economy will slow the roll of the addicts.  No money–No drug.  There is a bright spot for the pushers–the credit markets, but first they have to have help to ge tthem to loosen up so that the junkies can get the drug more readily.

The addict is returning.  How long will this drug induced haze last this time?  The saga goes full circle, never a lesson learned from the last bout of addiction.  An addict will always remain an addict.

It’s The Economy, Stupid–Part……?

Gee in the last week everybody and his brother has made a major speech on the economy.  Finally, they are noticing.  But one is a pep rally, with few specifics and the few that are given are so vague that they can be adjusted to anything and still be within the lame promises.  then there is another candidate that has the position of just wait and see what will happen.  Now there is a plan that we all can get behind.  And the last one was a pretty good speech that outlined several ways to try a repair a failing economy and it was about the first time that the word “recession” has been used in a major speech by a major candidate.  That part was refreshing.

Everyone still embraces the corporate line, where if business is doing good then the people will do good.  I am not going to say that.  If the consumer cannot buy then the economy will stay weak.  If they are only concerned with the investors and speculators then the economy will be good.  At least through their eyes, but the American taxpayer will remain in the crapper.

I want to hear specifics on how these candidates are going to put more money in the hands of consumers.  Until that happens nothing they do, promise or think will help this sagging economy.