Quote of the Month:
"The September Fitch Credit Card Performance Indexes began to signal a warning to card issuers and other creditors that credit quality may be worsening."
| Forecasts & Statistics |
| Product Trends |
| Industry Trends |
| Issue Archive |
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| Fed Pleased with Slowdown, Leaves Rates Unchanged |
| The Federal Reserve Board left interest rates unchanged at its October Open Market Committee meeting, saying that "the expansion of aggregate demand has moderated to a pace closer. . . to the economy's potential." The official statement indicated that the committee still believes "risks to the economy are weighted mainly toward heightened inflation." |
| Consumer Confidence Slipped in September |
| One of the key ingredients to the U.S. economy's strength has been consumers' persistent optimism about short and long term economic prospects. Through September, consumers remained more positive than the average level for any prior year, but confidence has been slowly declining since the first of the year. |
| Credit Quality Warning |
| The September Fitch Credit Card Performance Indexes began to signal a warning to card issuers and other creditors that credit quality may be worsening. Although chargeoffs established a new four-year low for the third consecutive month, delinquencies began rising for the first time in five months and payment rates slowed. |
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| Consumer Attitudes Toward Credit Cards and Card Issuers |
| Few industries in recent years have been the object of sharper love-hate feelings by their customers than the credit card business. A large majority of Americans own credit cards and use them regularly. At the same time, the public image of card issuers has taken a beating over issues such as excessive late fees, deceptive advertising, encouraging too much debt, marketing to college students, contributing to personal bankruptcy, etc. |
| Online Credit Card Fraud |
| Because online retailers cannot obtain the signature of a consumer paying by credit card, they face a significant problem of fraud losses by individuals using stolen credit-card numbers. Take the case cited recently in the Wall Street Journal. |
| Chase Issues Gift Cards |
| CardTrak reports that the Chase Manhattan Bank has become the first of the big banks to issue gift cards. In September the bank issued the Chase MasterCard Gift Card. |
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| Rising Debt Burden |
| The latest data available show that households' payments on their consumer and mortgage debts amounted to 13.61 percent of their after-tax incomes, the highest level since the first quarter of 1998, when it was 13.62 percent. We observed in a previous issue of Spotlight that the "year-over-year decline in bankruptcy filings has been slowing for the past three quarters, despite continued strong growth in personal incomes and generally remarkable business conditions." |
| Finance Companies Adjust to Rising Risk |
| It is worth noting that finance companies appear to have anticipated the danger of the rising debt levels. In his article in the most recent RMA Journal, Brian J. Charles documents a shift over the past three years "in product mix toward lower-risk secured and real estate loans with less emphasis on higher-risk unsecured lending." |
| Debt Collection |
| If you think collecting debts in the U.S. is difficult, you might take a leaf from the manual of debt collectors in China. One debt collector, Li Qiuzhong, has had an 80 percent success rate. |
| Payments on Debts vs. 401(k) |
| Recent studies suggest an increasing tension between employees' payments on their personal debts and their contributions to 401(k) plans. One firm's survey revealed that payments on their debts by its employees were their top concern. |
| Loan Performance and Race |
| Robert E. Martin and R. Carter Hill address the issue of discrimination in lending to consumers in an article with the above title published in the respected economics journal Economic Inquiry. In a detailed study of used-car loans they found evidence that, although prohibited under ECOA, "the foundation for statistical discrimination against minority borrowers appears to exist." |
| Causes of Consumer Bankruptcies |
| Jon P. Nelson, Department of Economics, Penn State University, has provided an intense statistical analysis of the rise in consumer bankruptcies from 1960 through 1998. In particular, he quantifies the impact of theBankruptcy Reform Act of 1978. |
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| Restrictions on Internet Sales of Autos |
| The CATO Institute has published an analysis by Solveig Singleton of the effects of restrictions by states on the sales of autos online: Will the Net Turn Car Dealers into Dinosaurs?" There are important implications from the study for banks and finance companies that finance automobile sales. |
| Card Disclosure Bill Vetoed in California |
| A bill that would have required credit card issuers to notify customers each month how long it would take to pay off their balance if they made only the minimum monthly payment was vetoed by California Governor Gray Davis (D) at the end of September. The disclosure provision resembles language contained in federal bankruptcy reform legislation, which has been stalled in a House-Senate conference committee since last summer. |
| Chase Settles for $22 Million |
| Bloomberg News reports that the Chase Manhattan Corporation will pay at least $22 million to settle consumer lawsuits regarding the bank's billing practices. The agreement was reached in the federal court in Los Angeles. |
| Legal Action against Visa in London, Brussels |
| Morgan Stanley Dean Witter & Co. (MSDW) has filed suit in the High Court in London against Visa International. There appear to be two main issues. |
| Privacy Suit Settled |
| U.S. Bancorp has settled two complaints involving violations of consumers' privacy. One suit was a consolidated class action suit, and the other was brought by a multi-state task force of attorneys general. |