Credit cards get friendlier after recession and reforms
Sunday, January 17, 2010
The newest budgeting tools help you track where money goes, pay off debt faster and even help avoid interest charges.
The only thing you need to access them? A credit card.
The credit card industry has long been maligned for encouraging consumers to spend beyond their means -- and then profiting from their excess. Now, new legislation is forcing the industry to change the way it does business. And some issuers are trying to change their image as well by aligning themselves on the side of consumers with new programs to help them manage their money.
"In the past, your credit card was your ticket to freedom. You could buy whatever you wanted on the spot," said Adam Jusko, founder of Index CreditCards (http:/
Card issuers say they are merely responding to customer demand in the aftermath of the recession. Americans are no longer in the mood for retail therapy but instead are focused on stretching their dollars. The personal savings rate reached more than 5 percent in 2009 -- the highest rate in at least a decade -- after hovering at just over 1 percent at the start of the recession.
"We've seen that people are really focused now on getting control of their finances," said Robin Korn, senior vice president of the consumer charge group at American Express.
The programs come in the midst of a massive overhaul of the credit card indusry sparked by the landmark federal Credit Card Act. The bulk of the provisions will take effect Feb. 22 and target "unfair and deceptive" practices, such as double-cycle billing and certain interest rate increases.
The legislation reflected the growing resentment toward the credit card industry as the recession drove a sharp rise in the number of late payments. Bank credit card delinquencies reached a record 5 percent of all accounts during the second quarter before moderating slightly in the third, according to the American Bankers Association, a trade group. Meanwhile, the number of charge-offs -- debts unlikely to ever be paid -- for prime credit cards jumped to 10.7 percent in December from 7.5 percent in January 2009, according to Fitch Ratings.
That has proved costly for card issuers, which Fitch estimated lost about $20 billion in the third quarter from charge-offs alone. Credit card companies would rather consumers remain financially solvent so that they can continue to shop and issuers can keep charging interest, experts said.
"They're not doing it strictly out of the kindness of their heart," said Curtis Arnold, founder of CardRatings.com. "You do have to wonder the motivation of the issuers given the really unprecedented change and spotlight on this industry."
It seems counterintuitive: Take financial advice from your credit card company? But some of the programs could help you save money and untangle your debt if used correctly.
One of the most buzzed-about tools is the Chase Blueprint, which was launched in the fall and is available online to the roughly 20 million holders of Chase Freedom, Sapphire, Slate and Ink cards. Users can choose a list of everyday expenses such as groceries or medications to pay in full each month. In return, Chase waives the interest on those charges -- even if the customer carries a balance from other purchases.