Category: Credit & Debit Cards

  • UK Conservatives Speak Out Against Consumer Debt

    Posted by

    Bob Lawless

    Ukandusdebtlevels_1
    Last week, the UK’s Conservative Party held a Debt Summit in London to tout its new measures aimed to curb consumer spending. Shadow chancellor George Osborne advocated for restrictions on Individual Voluntary Arrangements (IVAs), which are roughly the UK equivalent of a U.S.-style chapter 13 bankruptcy, and for increased money-management education for 11- to 18-year olds. So far, that will all sound familiar to those of who suffered through the 2005 amendments in the US, but the next proposal will not. Osborne also suggested that there be a seven-day cooling off period on retail cards. In other words, a consumer would be prohibited from using a new retail card for seven days after issuance. Not surprisingly, the  British Chamber of Commerce thinks the cooling-off period is a bad idea, which the London Daily Telegraph quoted as saying "People have got to take responsibility for managing their own affairs." There is one thing that merchants fear more than consumers running up massive debts on their credit cards and that is consumers not running up massive debts on their credit cards.

    The UK is one of several countries where consumer debt has been increasing. We here in the U.S. tend to think of ourselves as Consumer Debt Central, but that is becoming increasingly less true. The Daily Telegraph story made me curious to go dig up statistics on UK consumer debt to compare them to the United States. The graph to the right is the result with the top line representing the US and the bottom line the UK. As the graph shows, the UK has caught up to the US when considering the amount of consumer credit outstanding expressed as a percentage of gross domestic product. Outstanding consumer credit represents 16.6% of the total annual GDP for both countries. Stated differently, either country would have to devote one-sixth of all its goods and services produced in one year to pay off its outstanding consumer debt.

    (more…)

  • Old Holiday Favorites

    Posted by

    Bob Lawless

    With the aroma of oven-roasted turkey and fresh-baked pumpkin pies hanging in the air, it reminds me that the holiday shopping seasons is almost upon us, and we’ll soon be enjoying seasonal music. One song that never fails to bring tears to my eyes is "It’s Always Christmas Time for Visa." Thanks to the folks at Consumers Union and their Financial Privacy Now blog for sponsoring and reminding us about this great tune.

    In a similar vein, Credit Slips contributors who shop at Wal-Mart will enjoy JibJab’s "Big Box Mart" video. Our readers who haven’t seen it will probably like it also. This is a Lawless family favorite. My 12-year old son could not sing the words to "O Susanna" if his life depended on it, but he can be heard to walk around the house crooning, "O Big Box-Mart, look what you’ve done to me . . . ."

  • Layaway is Laid Away

    Posted by

    Katie Porter

    Okay, don’t flame me, but I shop at Wal-Mart sometimes. On a recent trip, I noticed large signs at each entrance announcing that Holiday 2006 is the official end of Wal-Mart’s layaway program. The sign explained that Wal-Mart’s decision was based on declining customer demand for layaway and said that consumers are instead using "gift cards and no-cost credit alternatives." I found the reference to gift cards completely puzzling. If you have the money to buy a gift card, why would you need layaway? The no-cost credit alternatives suggest zero percent teaser rates on plastic are financing Santa’s shopping. The credit card industry admits that it makes loads of money off seemingly "no cost credit" and that teaser rates are one of its greatest marketing inventions (Watch the Frontline special The Secret History of the Credit Card if you haven’t seen it and hear the man who invented teaser rates talk about why they are incredibly profitable). Is the end of layaway something we should mourn? Did layaway offer a valuable "savings" program for people that ensured they didn’t end up making purchases they could not afford? Or does the availability of enough credit to kill layaway signal a positive development–Santa’s helpers don’t have to worry before the holidays about paying for gifts. With "no cost credit," they can ring in the New Year with new debt.

  • Credit Card Debt Goes Top 40

    Posted by

    Angie Littwin

    Now we know credit card debt has truly arrived.  There’s a new way to win money on the radio.  In addition to the usual cash prizes and concert tickets, Boston’s local Top 40 station, Kiss 108, has started paying listeners’ credit card bills.  Contestants send in a copy of their credit card bill and an explanation of why they can’t pay it themselves.  The radio station then announces the lucky debtors in much the same way that it would announce the winners of Justin Timberlake tickets.

    (more…)

  • Small Business Financing

    Posted by

    Katie Porter

    The Federal Reserve Board recently released its report on the financial services and practices of small businesses, which comes from its 2003 Survey of Small Businesses. The data were collected from surveys given to a sample of businesses with fewer than 500 employees.

    The report measured the extent to which small businesses use credit cards. It reports that 47% of firms used personal credit cards for business purposes. This number was higher among the smallest companies, but even among the largest firms, 33%  of companies used personal credit cards to finance their business purchases.  Given the relative ease with which companies could get business cards, it seems very risky to me to ask employees to use personal charge cards for business purposes. As many employees of failed Silicon Valley companies learned a few years ago, this is an unhappy story for the employees–who are now out a job and loaded up with business debt for which they are personally liable.

    (more…)

  • Bloodsuckers, Godless, or Both?

    Posted by

    Bob Lawless

    In "Arbitration and the Godless Bloodsuckers," Richard Neely relates his experience as an arbitrator for the National Arbitration Forum:

    [T]he bank asks for substantial costs related to the arbitration itself, and those costs are significantly higher than court filing fees. . . . In one case that I handled, the fees alone amounted to $450. Furthermore, the arbitration company sends the arbitrator a judgment form already filled out so that all the arbitrator need do is check the appropriate box. . . .
       In my case I did not award the bank the litigation-related fees. . . . I never got another case!

    In addition to writing this article, Richard Neely also happens to be a retired chief justice of the West Virginia Supreme Court. Katie Porter had previously posted about arbitration actions in credit card collection. The National Arbitration Forum seems a particular concern and appears to be nothing but a huge debt collection operation. Mr. Neely’s comments are illuminating about the NAF’s business practices. The article is a quick read (only two pages long) and appears in the September/October issue of the West Virginia Lawyer, which is available online here. (Note to readers: it is a huge file (9 Mb). Note to West Virginia Bar Association: thanks for making this content available online, but there are ways to do it without making a huge file.)

  • Peterson on Federal Preemption

    Posted by

    Bob Lawless

    A while back, I posted on the upcoming Supreme Court case of Watters v. Wachovia Bank, where the court will decide whether the OCC had the power to preempt state consumer laws. For those Credit Slips readers who are interested in this topic . . . . well, wait a second, all Credit Slips readers should be interested in this topic. Federal preemption of state commercial law is quickly becoming (if it not already has become) the big issue in consumer credit regulation. Chris Peterson of the University of Florida has a new essay exploring the issues–"Preemption, Agency Cost Theory, and Predatory Lending by Banking Agents: Are Federal Regulators Biting Off More than They Can Chew?" From the first paragraph of his conclusion:

    By attempting to extend preemption to the agents of depository institutions, banking regulators have removed from state regulation complex, unpredictable, and potentially harmful relationships. The shifting incentives of agents have confounded scholars, regulators, and judges—not to mention economists—in a tremendous cross section of legal relationships. Even with the most carefully devised monitoring and bonding expenditures, independent agents cannot be expected to always act in the interests of the depository institutions they represent. It is less likely that independent agent’s interests, even when constrained by monitoring and bonding, will happen to coincide with the welfare of the American people.

    The paper is available on SSRN at http://ssrn.com/abstract=932698. The essay is a quick read and provides a great introduction to the issues involved.

  • A Pretextual Post

    Posted by

    Bob Lawless

    "Pretexting" is the use of using false information or misrepresentations to gain access to another person’s confidential phone or financial records. The word was barely in the public consciousness until a few weeks ago, until it was alleged that Heweltt-Packard used pretexting to obtain access to the personal phone records of its directors in an attempt to learn the source of a leak. Yesterday. the FTC announced that it had reached a settlement with an Internet firm that was using pretexting to obtain access to consumers’ telephone and credit card records. Under the settlement, the malefactor has to disgorge its ill-gotten gains–all $2,700 of them.

  • New Twist on Arbitrating Credit Card Debts

    Posted by

    Katie Porter

    Arbitration clauses are now standard in credit card agreements. The credit card companies sometimes use arbitration to collect debts, turning these awards into default judgments that allow them to levy on a debtor’s assets or garnish her wages. I’m working on a study to examine this trend, and the National Consumer Law Center has flagged potential problems with the practice.

    Apparently, banks are finding it much less fun when consumers use arbitration against them. Although the practices are not analogous, the banks’ complaints ring true to the problems that plague consumers when banks use arbitration to collect debt.

    (more…)

  • OCC Preemption at Supreme Court

    Posted by

    Bob Lawless

    Here is one that sounds like a yawner but actually is not. The Supreme Court has on its docket a case called Watters v. Wachovia Bank, NA, in which the Court has been asked to decide, "Is interpretation of the Comptroller of the Currency that 12 C.F.R. 7.4006 preempts
    Michigan’s laws regulating mortgage lending as applied to State chartered,
    nonbank, operating subsidiaries entitled to judicial deference under
    Chevron USA Inc. v. Natural Resources Defense
    Council    , 467 U.S. 837 (1984)?"

    Although the case may appear to present only a narrow question of federal banking law, Credit Slips readers may want to keep an eye on this one. It has not yet scheduled oral argument, but the Supreme Court’s decision could have important effects on the ability of the states to enforce consumer protection laws related to credit and perhaps in other areas as well. Not unlike the Court’s 1978 Marquette National Bank decision, which also involved a federalism issue under the National Bank Act leading to an effective deregulation of consumer interest rates, the Watters case could have vast unintended consequences.

    (more…)