Since the beginning of our recession in the United States in 2008, the use of credit cards and the way consumers spend has changed to adapt to our new temporary means of living. While credit scoring in the 1990’s helped boom the industry of lending, total debt also increased significantly. A crash a decade later has left Americans crippled and being more cautious about their spending and how they do it.
Consumer credit card debt is down about 17% since 2008, totaling $860 billion during the summer of 2012. Many consumers have turned to more practical ways of spending – not spending if they can’t afford it. If consumers have more money, it’s common to either spend it via cash or use another method like a debit card.
Debit cards are usually linked to bank accounts, debiting money from a checking account immediately after the transaction happens. Many banks have imposed greater fees if per say one doesn’t have direct deposit from place of employment. Last year, Bank of America tried to recover some losses by placing a $5 a month fee if the debit card was used any place other than the Bank of America ATMs. The unpopular idea caused customers to close accounts and go elsewhere and the fee was later removed from the bank’s fee schedule.
Other forms of payment consumers are using instead of credit cards are prepaid debit cards. They work much like a credit card with a Visa or Mastercard logo, but resemble more of a debit card linked to a bank account. These are helpful when shopping or paying bills online and not having to worry about interest charges but still have benefits of spending on the internet. Several retailers now offer low load rates or wave fees for cashing checks such as Walmart. When cashing a check, the check fee will be waived if the money is loaded to their prepaid card. These debit prepaid cards also offer the functionality of using a PIN to take cash off the card when needed.
Many of the prepaid cards though have monthly service fees. One company stepping it up is American Express. They offer all the same benefits of being a card member to prepaid customers as they do credit card users. They also do not charge a monthly fee. American Express’ new BlueBird service is available at Walmart and is the alternative to banking accounts. It costs nothing to load the card with money and can cash checks by taking a picture within the smartphone app. These prepaid and debit cards help consumers know exactly what they can afford without piling on the debt and interest of credit cards.
With the collapse of the economy and better money management when it comes to credit cards, many consumers are simply just not using their cards and trying to pay down the debt so they no longer have to be charged interest for not paying off balances each month. In this rough economy, every penny counts.
As a result of the credit crisis, the Federal Government put new laws in place that make companies more transparent, including issuers not being able to raise rates on existing balances unless it is the end of a promotion. If cardholders default longer than 60 days, once they make six months worth of on time payments, the rate must be dropped back to the former. Subprime cardholders also have new laws to protect them. In the first year of having an open account, fees cannot be more than 25% of the initial credit limit. This prevents issuers from taking advantage of customers with weak credit.
To better serve financial protection of consumers, Senate-elect Elizabeth Warren helped set up the Consumer Financial Protection Bureau which is designed to regulate financial institutions that deal with loans, banking and credit cards. It also deals with other finances including mortgages and foreclosure relief services.