Smartphones to replace credit cards in U.S. this year

 

Imagine a world without credit cards.  Instead of pulling out those pesty plastic cards, consumers make purchases simply by waving their smartphone near a receiver. 

For example, say you want a Coca-Cola from a high-tech vending machine.  You simply order what you want, take out your cell phone, and wave it to summon forth your refreshment. It’s almost as simple as waving a magic wand.

This is no futuristic scenario. In fact, it is reality in Japan and South Korea, two of the most technically advanced countries in the world.  The United States is behind, but not for long. 

This new technology called Near Field Communication (NFC) is coming this year.  It will make electronic payments effortless and those plastic cards relics of the past.  An expert familiar with NFC’s debut in the States says that smartphones that support NFC are just now hitting the market.  Likewise, thousands of merchants are installing receivers to accept this new payment form. 

So, what’s been the hold up?  In short, companies are working to establish a uniform platform and determine what merchant fees will be.  Despite these challenges, tremendous progress is being made. The tipping point is near. 

While there are certainly some advantages to NFC—efficiency seems to be the most touted—what do you think are the drawbacks? 

Read more at Inc. Technology.

Banks begin to extend consumer credit, target those with balances

 
Today all across the country thousands of consumers are receiving a flattering letter, a billet-doux of sorts, that makes them feel accepted and loved by their charming credit card company. The letter, which reeks of enthralling affectation characteristic of a no-good ex hoping to reconnect, informs them that their credit line has been increased, that because of their improved credit or on time payments they can now spend more money they don’t have. The exciting moment causes giddy consumers to forget how bad the relationship was just a few years ago. They begin to daydream about how they will spend this new money—perhaps a trip to Disney, a dinner for two, or simply bills. So begins the sad story of mass recidivism, the return to American overconsumption enabled by those god-awful credit cards.

My hunch just a few weeks ago served me right and was verified by The Wall Street Journal this week: For the first time since the Great Recession started in 2008, banks are beginning to make many more loans to consumers.  In general, this isn’t a bad thing, but the extension of credit to consumers who haven’t quite learned the lesson of good credit management will pick up old habits and overextend their obligations.  This is likely the case with those who carry balances.  These revolvers are the target of credit card companies looking to increase profits quickly. Thus, as revolvers spend more and creditors increase loans, we could see a return to the unhealthy credit card debt levels of early 2009.

Here are a few important statistics from The Wall Street Journal article:

- Bankcard loan originations increased 17% in the third quarter of 2010 as compared to the third quarter of 2009. 

- Bank of America CEO Brian Moynihan told analysts last month that industrywide, credit-card holders who carry balances "have actually started to borrow just a little bit more: not a lot, but 3% or 5%."

- At Discover, customers who revolve their credit-card balances increased their spending in September, October and November.

Read the entire article at The Wall Street Journal. 

One good reason you should walk away from your mortgage

One of the most common questions or requests for help that I receive goes something like this:  “Kevin, my home is severely underwater?  Should I walk away?  If so, how will a mortgage default affect my credit score?”

Many people who seek my advice on this matter aren’t in dire financial straits.  They neither have taken on too much debt nor have been reckless in their finances.  Contrarily, they have been reasonably good stewards, but worry that they are in a terrible deal, one that won’t get better anytime soon. 

I never answer this question directly, giving only information to help people make an informed decision.  Everyone’s situation and values are different.  However, new information published today strengthens the decision to walk away from a mortgage in cases where homes are underwater.

Almost two years ago, I wrote a prophetic article “Fair Isaac Corporation (FICO) increasingly irrelevant” in which I posited that banks would rely less on credit scores and more on other subjective factors to assess creditworthiness.  It appears that this prediction is a reality, as consultants have created new categories to help banks focus on potential customers who, based on a credit score alone, would be too risky. 

As reported today in The New York Times, these new categories (in order of most to least creditworthy) are “strategic defaulters”, “first-time defaulters”, and “sloppy payers”.  They help creditors distinguish between consumers who have the same or similar FICO scores.  

What does this mean? It means that those who walk away from a mortgage a.k.a. “strategic defaulters” have newfound hope of ascending from the depths of credit purgatory sooner than seven years. According to The New York Times article, strategic defaulters are those “whose credit scores were damaged because they walked away from a home when its value dropped below what was owed on the mortgage. These borrowers made a bad bet on real estate but may otherwise be prudent risks because they make a good living.”

So, in short, this new information will help people solve their moral conundrum of whether or not to walk away from their mortgage.  But, as I often say, this game is always changing. What seems like hope today could be horror tomorrow. Make sure you consider all the possibilities and consequences of such a crucial financial decision.

Think twice before you ‘Like’: Social media are credit card companies’ newest weapon

Better risk management: That was the biggest and hardest lesson learned by credit card companies during the credit crunch, which started in fall of 2008.  Ever since that frightening period—some call it 'The Great Recession’—consumers and businesses alike have experienced tighter risk management through closed accounts, reduced credit lines, higher interest rates, and more stringent guidelines for credit applicants. 

In an unprecedented effort to minimize their risk, credit card companies and banks have sought every possible resource at their disposal to capture and to store more information about customers—and that includes using social media. While many consumers understand that companies have access to their transaction histories and credit reports, most overlook the tremendous metadata available via social media companies like Facebook.  With the help of such new media, credit card companies have almost a 360 degree look at their customers. 

Obama says Republican Congress may repeal credit card protections

For the past few weeks, President Barack Obama has been stumping for Democratic congressional candidates all across the country. He has warned consumers the many reforms his party has passed in the last two years could be repealed if Republicans recapture Capitol Hill. President Barack Obama has focused his ...

Read more about this as reported by Creditnet.

Bitter sweet victory for consumers: The Credit CARD Act becomes law today

Today, consumers can celebrate a major victory: The Credit CARD Act becomes law, meaning increased consumer protection for credit cardholders. After a year of heightened consumer outrage against banks and legislative wrangling to craft a consumer-friendly bill, cardholders finally receive much needed relief and protection—the most sweeping in history.  However, the victory is more bitter than sweet. It is like winning the silver medal in an Olympic competition that you think you have won.

As evinced by credit card companies raising interest rates and changing terms to preempt the enactment of today’s new law, the victory will be short-lived.  In other words, consumers will end up paying more money through new fees and “legal” changes. If anything, this victory is one of principal more than one of net savings.     

Credit card predictions 2010

 

Recently, I received this great press release from Bill Hardekopf, CEO of LowCards.com and an expert on the credit card industry. It is right on the money. (Pun intended.) 

While some experts predict the beginning of credit card anarchy or Armageddon on Feb. 22 (when the entire Credit CARD Act is law), Mr. Hardekopf gives a realistic summation of what you can expect this year with solid examples. Below are his seven predictions.      

* * * * * * * * * * * * *

The LowCards.com credit card prediction for 2010 is no surprise: cardholders will pay more for credit card loans. The cost of credit cards will continue to increase for consumers even though the major provisions of the CARD Act go into effect on  February 22. Cardholders could see increases in both their interest rates and existing fees, as well as the introduction of new credit card fees.

"Credit card issuers have lost billions of dollars in credit card loans during this economic downturn. Now they are staring at these new provisions of the CARD Act that will limit their ability to make revenue. They are coming up with ways to generate additional revenue and it obviously comes at the expense of the cardholder," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "This means that cardholders will continue to pay more for credit card loans. Cardholders who pay their balance in full every month may eventually see the end of 'free' credit card loans as we know them."

Here are some 2010 predictions for the credit card industry: 

1) More Cards with Annual Fees

According to the LowCards Complete Credit Card Index ( http://www.lowcards.com/CreditCardIndex.aspx ) which tracks the rates and fees of 1000+ credit cards, only about 20% of the credit cards in the United States currently have an annual fee. But that number should increase in 2010. Some credit card issuers have already made the first moves to test annual fees on a small percentage of cardholders or offer cards with annual fees that build customer loyalty.