Monday, March 30, 2009
Class Action Lawsuits Pile Up Against Chase

What do you get when you combine a lender hemorrhaging money, 300,000 angry consumers, an unpopular monthly "fee" and 12 law firms?  Simple, you get Chase Credit Card Services getting sued by what seems like every law firm East of the Mississippi, and some to its West.  In November 2008 Chase sent letters to a great number of their cardholders notifying them of a new $10 monthly fee that would become effective in January 2009.  They also increased the minimum monthly payment requirement from 2% of outstanding balances to 5%. 

Given the number of people we've heard from who have complained about the new fee it's no surprise that the changes caught the eyes of several law firms.  Not more than three months later Chase has announced that they have eliminated the fee and will return the gains, in excess of 4 million dollars, to their cardholders.  Unfortunately it seems to be too late after their colossal strategic mistake to levy the fee, which might very well constitute a very large-scale breach of contract violation.

One of the issues that seems to be universally missing from each of the lawsuits is a credit damage claim.  The Chase customers who received the notice of the monthly fee, which is actually a finance charge, were given the option to close their account to avoid the fee.  The consumers who opted to close the account to avoid the fee, almost at Chase's suggestion, possibly lowered their credit scores because of the loss of available credit.  This can lead to an increase in credit utilization, which is a very important component of credit scoring models.

Clearly someone at Chase made a very bad decision, which will likely cost them dearly.

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Sunday, March 29, 2009
FICO Study - Credit Limits Slashed in 2008

March 30, 2009

Today the Minnesota-based credit score developer FICO released the results of a study measuring the breadth of credit card limit reductions as well as the subsequent impact to consumer’s FICO credit scores. The study is the first of its kind since credit card issuers began to heavily ramp up their credit limit reduction activity in early 2008. Here are some highlights of the FICO study:

1.    16 percent of the U.S population had their overall available revolving credit reduced between April and October of 2008. With credit bureau databases holding 200+ million consumer credit files, this would seem to indicate that at least 32 million cardholders lost some of their credit limits during the study timeframe of April 2008 through October 2008. 
  
2.    11 percent of the U.S. population, or 22 million consumers, lost some of their credit limits for a reason other than risky credit activity such as making payments late, having accounts go to collections, or having a negative public record added to their credit report during the study time frame. Credit card inactivity or low balances likely caused the lowered credit limits for this group. The median FICO score in this group is 770, so the adverse changes to their credit limits are not a result of poor credit risk.

3.    5 percent of the population, or 10 million consumers, saw their limits reduced because of some sort of risky credit activity including late payments, accounts in collections, or a negative public record added on their credit reports.

4.    FICO scores remained relatively stable during the April–October time frame, although there was significant score movement in 10 percent of the general population that received a credit limit decrease. A score decrease of at least 40 points occurred in 4 percent of that group and a score increase of at least 40 points occurred in 6 percent of that group. The score decrease is likely due in part to an increased credit utilization percentage, while the score increase is likely due to the reduction of credit card balances.        

Credit card utilization remains a very important factor in your FICO credit scores. According to FICO, “Credit utilization rate has proven to be extremely predictive of future repayment risk, so it is often an important factor in a person’s score… Consumers who use a heavy proportion of credit available to them are substantially more likely to default on a credit obligations, compared to consumers whose accounts have low credit utilization levels.”

As always, consumers will earn better scores if they make all of their payments on time; avoid other negative occurrences such as collections; keep their credit card balances low in proportion to their credit limits; and shop for credit only when necessary. The target utilization percentage is, and has been for some time, less than 10 percent. 

Originally published at the CNBC website

 

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Wednesday, March 11, 2009
Federal Trade Commission Takes Shot at Experian

Last Tuesday the Federal Trade Commission released a pair of videos parodying the ads offering free credit reports through Experian’s site of the same name.  The videos, which appear to be fairly high budget in quality, consist of three down and out youngins who either live in an overly messy apartment, complete with girlfriend, or are working in what appears to be an Irish pub complete with shamrock covered drum set, dancing waitresses and an old couple downing a frothy pint.

The videos, which can be seen at the FTC’s website and on YouTube, appear to send several messages.  First, that claiming your free credit reports should, in fact, be completely free with no strings attached.  Second, that there is only one place where consumers can claim their Federally guaranteed credit reports. And third, that consumers shouldn’t feel intimidated when claiming their Federally mandated freebies. 

A fact that can’t be ignored is that the Federal Trade Commission is the regulatory body that governs the credit reporting agencies.  Their ads clearly parody those commissioned by Experian.  So if you connect the dots, the FTC is taking a swing at Experian…albeit through video.

In 2005 and again in 2007 Experian settled two separate lawsuits filed by the Federal Trade Commission alleging that the company didn’t adequately disclose that consumers would be automatically enrolled in a subscription credit- monitoring program complete with monthly fee.  The 2005 settlement included a $950,000 fine and the 2007 settlement included a $300,000 fine.  Fine, in this case, is synonymous with giving up ill-gotten gains.

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Monday, March 02, 2009
Credit Card Survey Results Bad News For Consumers

On February 27, Credit.com released the results of a survey designed to identify the percentage of credit card users who had suffered some sort of adverse treatment from their credit card issuer. 33.7% of those surveyed said at least one of their credit card companies had done at least one, and sometimes more, of the following less-than-friendly actions to their credit card accounts:

• Increased their interest rate

• Increased their minimum payment requirement

• Changed their payment due date

• Lowered their credit limit

• Reduced their rewards program benefits or

• Closed their accounts

That percentage is likely to be higher than 33.7% because many of the others weren’t certain one way or the other. This survey, the first of its kind, quantifies just how many consumers are seeing their access to capital dry up. In many of the cases the action taken by the credit card company had nothing to do with negative performance by the cardholder.

Many consumers have stated that they’ve received letters or other communication from their credit card issuer stating that the actions were taken for the following reasons:

• Not enough usage

• Lack of any activity

• Negative credit reporting

• A decrease in their credit scores

Many of the actions taken by credit card companies will result in lower credit scores and the results underscore the importance of having other options readily available. I’ve always told people that you should have several credit cards as options. And, to ensure that they are not closed for inactivity, you should use them all periodically. This will help to insure you from credit damage caused by unexpected closures. 

Originally posted at CNBC.com

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