Credit lacks economy's lift

By PHIL MULKINS World Action Line Editor - 9/24/2009


Dear Action Line: The economy seems to be on the mend, but I still struggle to make credit card payments, now that the minimums went from $300 to $750 per month. With $450 less to spend each month, I'm spending less at stores and not helping them stay in business. Is anything being written on this issue? — W.H., Tulsa.

This is another version of "What goes around comes around." Every action causes an equal reaction; nothing happens in a vacuum.

The banks are getting their money quicker but hurting the overall economy that their business depends on. And a factor you didn't mention is that with $450 less to spend each month, you might not be able to make your house payments.

All signs point to suffering by consumers, as default rates reported by major credit card issuers were up again in August, LowCards.com CEO Bill Hardekopf said in an e-mail to us.

Bank of America and Citigroup showed their highest default rates since the onset of the economic crisis.

The August delinquency rates were compared with July rates, by issuer, with three issuers' default rates rising and two of them falling, but not by much.

Bank of America delinquencies increased to 14.54 percent from 13.21 percent, Citigroup's increased to 12.14 percent from 10.03 percent and Discover's increased to 9.16 percent from 8.43 percent. Meanwhile, American Express delinquencies fell to 8.5 percent from 8.9 percent and Capital One's dipped to 9.32 percent from 9.83 percent.

The data total represents a 6.5 percent increase in delinquencies.

These default rates indicate that issuers are still under financial stress and that cardholders might expect rate and fee increases as well as a tightening credit market.

"These high default rates are very concerning," said Hardekopf, author of "The Credit Card Guidebook." July default rates fell slightly, "giving everyone hope that the worst of this is over, and that is what makes the August numbers so disappointing.

"These issuers can't just lose this money, shrug it off and operate as usual. They have to find ways to increase their income and that means continued changes to their cardholders. It probably means additional increases in rates, fees and reductions in rewards programs."

Last week, Bank of America announced that its new BankAmericard Basic Visa, coming in October, will make changes to the traditional credit card. It will be advertised as a simpler, straightforward card with one page of terms and conditions and a flat fee of $39 for late payments. There will be no fee for over-the-limit charges.

The card will have one fixed rate that will fluctuate with the prime rate. The annual percentage rate will be prime plus 14 percent, so at the current prime rate its interest charge would be 17.25 percent — significantly higher than the current 12.09 percent listed in LowCards Complete Credit Card Index.

"This is the 'vanilla card' suggested by President Obama? It is simpler, but a higher price is charged for it. This is a good choice only if the interest rate on your card is over 17 percent," Hardekopf said.

In November, the American Express Blue Card will increase its APR, for purchases, to the prime rate (3.25 percent) plus 11.99 percent.

At the August notification, this rate was 15.24 percent (18.49 percent) — a variable rate not regulated by the Credit CARD Act.





Submit Action Line questions by calling 699-8888 or by e-mailing phil.mulkins@TulsaWorld.com or by mailing it to Tulsa World Action Line, PO Box 1770, Tulsa OK 74102-1770.


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Tulsa World Reader Comments
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cowboyjohn, Brooklyn Park (9/27/2009 7:46:40 AM)
It has always been my recommendation to stay away from banks if you are interested in applying for a credit card like MasterCard or VISA. Bank of America, Citibank, Chase, and others like them offer some of the worst terms & conditions in the financial business. Credit unions are the way to go! They tend to be more consumer friendly. I maintain a VISA Gold care with Unity One Credit Union in Fort Worth. Their interest rate on purchases is 7.9%. The major banks don't offer anything as good. And credit unions did not have to get bailed-out like BofA, Citi, and Chase!



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