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Credit Cards: the next Aussie Subprime Lending Scandal?

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Do most Australians assume that if you're over 18 you can drive a car and operate a credit card with safety?

Neither are true as we've witnessed over and over again.

Is the lack of proactive regulatory oversight due to a clear conflict of interest for the Australian Government?

 

This information (below) comes from a US site for a Credit Card Merchant Service. The site contains a lot of good information on international trends in credit card usage and the regulatory initiatives that are being trialled for the domestic economic management in a global marketplace. 

It looks likely that Credit Card bonds will be issued at an increasing rate. My concerns are that this will:

  • Increase consumer access to relatively unregulated credit at a high rate of interest
  • Increase consumer exposure to serious debt related problems
  • Increase the pressure on consumers to participate in imprudent credit card usage through advertising and widespread availability
  • Increase the probability of financially stressed consumers using accessible credit to top up or maintain repayments on home mortgages, especially where they are unable to refinance existing non-conforming loans
  • Add another inroad for unhealthy debt practices and conducts from overseas in the absence of strong regulatory oversight in Australia
  • Full scale promotion of Credit cards is intended to assist Banks, both here and overseas, with the offset on falliing credit demand and falling interest in home mortgages.
  • Credit cards are the Lo Doc/No Doc fraud loans of this decade in the making.

According to the merchants of debt the credit card environment is good news and everything is rosy.

It begs the question "compared to what?" - the ongoing meltdown from the mortgage factory cartels? 

And "for whom?" - clearly good for banks, other issuers and their invisible chain of command, and the government through increased revenue from taxes and merchant services providers.

No doubt the banks would welcome the opportunity to increase stable consumer debt revenue, both for the issuers and all the way up the chain of debt pedigree.

This is unlikely to be good news for consumers in the medium to longer terms, by definition.

BFCSA members are "informed credit consumers" within the debt environment. 

The vast majority of Australians are considerably less informed on the true picture that can result from the "normal" use of credit cards by consumers.

There is still a lack of effective and proactive regulatory oversight in a marketplace that believes we have so many regulators that we're safe from predatory credit practices in Australia. An excess of regulators is no guarantee of anything, from what BFCSA have learned through our investigation and analysis of the Australian situation. In fact fewer regulators with a clearer idea of their job, of what Australians expect in the way of regulatory consumer protection plus vigilant application to their regulatory duty of care would result in a vastly better result. Repeatedly we witness the wash up from the very concerning fact that most Australians believe they are "safe". Look at Storm Financial, Westpoint, HIH and the extensive rogues gallery of creative financial scamming. The public ask: how did that happen? Where was ASIC, our "corporate watchdog"? Most Australians would not realise that ASIC specialises in slow and broadly based "after the horse has bolted" responses, remedies and media releases. That is not consumer protection nor is it the exercise of strict regulatory oversight in the sense that most people expect it to exist. 

It's still a free for all out there in the Australian Financial Sector, despite all the bleating about regulatory red tape.

Just because there is a media coverage over high profile cases it doesn't equate to safety in the Australian investment or credit markets.

Complaining to the regulators will have little or no real impact and certainly won't assist the individual credit card casualty.

Credit users are left to self-educate and watch out for the legal land mines.

Banks and other credit issuers depend on finding and hooking in credit users to maintain their cashflow - preferably consistent, reliable and responsible ones who will add to the banks' bottom line. So do governments who collect the taxes. Australian consumers are up against some highly motivated, cashed up peddlars of debt! Is the lack of regulatory oversight due to a clear conflict of interest for the Australian Government?

Most Australians assume that if you're over 18 you can drive a car and operate a credit card with safety. Neither are true as we've witnessed over and over again.

Yet another reason that Australia needs a ROYAL COMMISSION INTO BANKING WITH WIDE TERMS OF REFERENCE.

Leave nowhere for random bank products to hide in the corner or be talked out of contention by their learned friends.

Demand that all banking, financial, insurance and all related activities be included in the ROYAL COMMISSION.

At the very least it will be educational for all Australians and lead to the further reigning in of credit appetite.

It is long overdue.

 

Posted by UniBul on Tuesday, September 4th, 2012, 6:00 am

With Credit Card Losses at Record-Lows, Issuers Are Raking It In

 
 
 
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With Credit Card Losses at Record-Lows, Issuers Are Raking It InU.S. credit card companies have sold about $21 billion of bonds backed by credit card payments so far this year, up from $4.8 billion last year, Bloomberg is telling us. J.P. Morgan alone has sold $5.4 billion worth of such bonds, triple the amount the bank sold last year, we learn. And, as BusinessWeek’s Nick Summers says, that is a good thing.
See, today the credit card portfolios of U.S. lenders are in much better shape than they have been in years. In the first couple of years following the financial meltdown in September 2008, issuers got busy purging their portfolios of their worst performing customers. That process, coupled with much improved debt repayment patterns among the cardholders who remained active, led to continually falling credit card delinquency rates, which are now at historic lows and are still falling, dragging down charge-off rates in the process. So why wouldn’t investors be willing to buy bonds backed by high-quality collateral? Let’s take a look at the latest numbers.

Credit Card Delinquency Rate: 1.82%

The Fitch Prime Delinquency Index, which tracks the rate of credit card payments late by sixty days or more, has decreased for 30 consecutive months, the ratings agency tells us. Having peaked at 4.54 percent in January 2010, the late payment rate has since fallen to 1.82 percent, just four basis points above the record-low of 1.78 percent set in August 1994.

Credit Card Charge-off Rate: 4.45%

The Fitch Prime Chargeoff Index is currently at 4.45 percent, the first time it has fallen below the 5-percent mark since 2007 and is now lower by 60.86 percent than the all-time record of 11.37 percent set in September 2009. The charge-off rate is measured as a ratio of the number of credit card accounts with outstanding balances that the lender does not expect to be repaid by the cardholders, in relation to the total number of open accounts in the bank’s portfolio. Charged-off accounts are written off of the issuer’s books as losses, typically at 180 days after the last payment on the account has been received. The charge-off rate is far off the record-low of 3.10 percent measured in 2006, as Fitch reminds us, but the decline is still ongoing.

Monthly Payment Rate: 22.05%

And now here is my favorite indicator for future credit card performance. The credit card monthly payment rate (MPR) – the rate at which cardholders are repaying the principal on their credit card debt – now stands at 22.05 percent. That is 24 basis points below the record-high of 22.29 percent set in the previous month, but is well above the long term average of about 16.50 percent, according to Fitch.

Improved Underwriting Discipline

Looking at all these numbers, one of the analysts quoted in Summers’ piece states the obvious by saying:
You may have to go back to the 1980s to see credit losses and delinquencies as low as they are right now. It’s a sign that consumers are much more concerned about having good credit today, and a sign that the credit-card companies have been very disciplined in their underwriting.

Indeed. Credit is also given, with justification, to the CARD Act of 2009, which instilled a “forced rationality” into credit card issuers, in the words of another analyst quoted by Summers. The idea is that, by forcing issuers to be more honest with their pricing and to adopt more consumer-friendly practices in general, the legislation helped keep more credit card accounts in good standing, thus helping to improve the quality of the issuers’ portfolios.
The improved underwriting discipline, coupled with the closure of millions of underperforming accounts, has led to a significant decrease in the number of currently-active credit card accounts. As the New York Fed reported last week, at the end of the second quarter of this year, there were 383 million open credit card accounts in the U.S., down by 23 percent from the 2008 Q2 peak of 496 million.
 
 

With Credit Card Losses at Record-Lows, Issuers Are Raking It In

The Takeaway

So I agree with Summers’ assessment that, far from being a cause for distress, the “$20 billion-and-growing [credit card-backed] bonds trend… is a rare signal of a saner industry”. U.S. issuers’ credit card portfolios are now in great shape and most metrics are still improving.

Image credit: Bloomberg.com.
 
http://blog.unibulmerchantservices.com/with-credit-card-losses-at-record-lows-issuers-are-raking-it-in/

 

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  • doyla66
    doyla66 Thursday, 06 September 2012

    Privity of Contract 2

    Your blog is relevant, I felt, to that just posted by Denise to which I replied.
    Under "Privity of Contract," as many may know, a third party cannot acquire rights or incur liabilities under a contract to which it is not a party.If a debt collector buys a debt, the creditor is paid , the debtor is free and clear because the debt collector is not a party to any contract with the debtor. If Robber bank sells Joe Blow's credit card debt to Shyster Investors, then Robber bank has been paid and Joe Blow doesn't owe. Shyster Investors have no contract with Joe Blow so how can they demand payment? Comments and criticisms invited

  • doyla66
    doyla66 Friday, 07 September 2012

    Hi Geoff - what you have said is of interest to me greatly. My friend had an ANZ credit card and fell on hardtimes (death of partner etc) and was trying to pay what she could of it. Of recently she recieved a letter from LION FINANCE PARTY LIMITED who said they have been ASSIGNED the debt from ANZ and have all legal debt and beneficial rights, title and interests in and to the debt. Does this mean that ANZ has sold it - got the money and now Lion Finance are trying it on my friend? Yesterday they threatened to take her to court and send a sheriff around to take her stuff.!!

  • doyla66
    doyla66 Friday, 07 September 2012

    Hi Geoff - what you have said is of interest to me greatly. My friend had an ANZ credit card and fell on hardtimes (death of partner etc) and was trying to pay what she could of it. Of recently she recieved a letter from LION FINANCE PARTY LIMITED who said they have been ASSIGNED the debt from ANZ and have all legal debt and beneficial rights, title and interests in and to the debt. Does this mean that ANZ has sold it - got the money and now Lion Finance are trying it on my friend? Yesterday they threatened to take her to court and send a sheriff around to take her stuff.!!

  • doyla66
    doyla66 Friday, 07 September 2012

    Thanks. That would be great.:D Your help is appreciated very much.

  • doyla66
    doyla66 Friday, 07 September 2012

    Thanks. That would be great.:D Your help is appreciated very much.

  • doyla66
    doyla66 Friday, 07 September 2012

    Wow! Thanks JJ and Geoff. Timely advice for me too! I'll probably need more information to make this work and be confident enough to not back down. I'm rather reluctant to end up in a court over credit card and other debt. It's that fear that makes people give in.
    Please keep posting with any experiences you've had with this approach and all other suggestions.
    I'll work on getting my head around it and major league boosting up my courage after being almost permanently flattened by banks jumping all over me for fun, greedy creditors and now business associates bullying.
    I've had a gut full of being trashed.
    Now need to move to the next level of self-protection and fightback. Work in progress.

  • doyla66
    doyla66 Friday, 07 September 2012

    Thanks Geoff - your awesome!!

  • doyla66
    doyla66 Friday, 07 September 2012

    Re: Debit Card(Bank of Melb') - years ago it apparently also had a credit facility of $50.00 (go figure) & an unathorized transaction for $1000's was illegally processed thru the guise of Visa Card "RULES". .now I complained until blue in the face & forwarded $50 attached to letter affirming full & final settlement(years ago). .years later debt collector arrives. . sorry fully paid (copy of letter) + statute of limitations expired etc. . .I see what you saying: bank closed off account ledger as offsett concurrent to assigning/novate > any purported rights to collect on outstanding but nothing outstanding as per Bank Account Closed.

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