July 21, 2010

The Credit Card Crisis


The Credit Card Crisis

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The provisions will also assist with consumers getting their debt consolidated faster and prevent people from getting into as much debt as they are now. because they will not want to spend all of the money on fees. Also the statements for the consumers will be able to see exactly how much money they are spending in fees and interest rates on the money they have spent on credit cards. Consumers are spending money that they do not have on things that they do not really need.This has become a major issue within America and other places. 2010 The Credit Card Crisis EXECUTIVE SUMMARY Name There are several aspects within the credit card crisis that need to be addressed. the problems that Americans are facing due to the economic downfall are turning them to use to their credit cards. The Credit Card Reform Act. because people are having trouble distinguishing between their needs and their wants. in which President Obama put in place. This is more than likely because of the Attribution theory.The attribution theory is a theory that proposes that consumers look or the cause of particular consumption experiences when arriving at satisfaction judgments. This has brought up an issue with the economy because interest rates from credit cards are at an all-time high. will help with the issues that are being faced presently. 2 . There is also a domino effect that results in all of the debt that has been accrued.In essence. Now that the debts have increased it is getting harder for banks to lend money and refinance mortgages. There will be more regulations and provisions put in order for the credit card companies to follow. Within the Credit Card Reform Act that President Obama enforced there are many provisions available to correct some of the issues faced by consumers. Within this paper we will be discussing the problems and opportunities regarding the crisis and also discussing the Credit Card Reform Act of 2009-2010. This will help for people to pay their credit cards off faster.July 21.

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the total outstanding credit card debt carried by Americans reached a record high of $951 billion in 2008. but they are still experiencing losses.But the problem still exists and Americans are going deeper and deeper in debt. ³Geff Rapp. This is said to be one of the best things that Obama has done for consumers in this country. After all of the rules and regulations are put into place it will be easier for people to look into debt consolidation plans and debt settlement options to east their financial struggles.When Americans are not able to pay the minimum amounts on their credit cards. in turn. the minimum age for acquiring a credit card is the age 21.The researchers then found the Credit Card Reform Act of 2009-2010. It also requires credit card companies to be transparent in regards to exactly what interest rates and fees they are charging consumers. they are hit with higher penalties and higher interest rates making it harder for Americans to pay off their credit card balances. 2010 The Credit Card Crisis BRIEF INTRODUCTION Name Most Americans receive anywhere from one to five credit card solicitations in the mail each month. and a former senior manager for Fleet Bank's credit card division. untapped markets to sell their credit services. These standards are designed. it stated that on average Americans carry around six credit cards with them.The Credit Card Reform Act is designed to hold credit card companies to higher standards. Studies have shown that the first credit card a consumer owns is the one they will keep the longest. Overall.This has led them to find new.College students often need credit cards for emergency situations because most are moving out on their own and financially and need the extra financial boost. Arminster. SEGMENTATION INFO ABOUT THE TYPES OF CONSUMERS AFFECTED BY THE ISSUE 4 .Now.Credit card companies are losing a lot of money from the consumers with bad credit ratings and have taken action to counteract these losses.According to the Federal Reserve.Primary targets have included people new to credit cards.Americans have gotten into the habit of throwing these new credit card offers in the garbage. to protect consumers from getting themselves into excessive trouble with credit card debt.They are charging tremendous amounts in fees to cover these costs.The new Act of 20092010 is said to more easily allow consumers to avoid some of the major issues with credit cards. Another thing that triggers these rising credit card debts is the nation¶s urgency to encourage Americans to continue spending in order to keep the economy rolling and to potentially get the economy back in order.July 21. and often times individuals will receive one perday when including other sources such as email or telephone solicitations. PA. Upon reading the harsh aspects of the credit card crisis.´ (The Direct Magazine) This quote demonstrates the amount of people not only keeping their first credit card. (The Credit Card Reform Act 2010) The Act makes the credit card companies keep their interest rates fair by prohibiting credit card companies from raising rates in the first year and putting strict rules in place on rate increases. the researcher examined ways that people are staying away from debt and ways that people are helping. This is number has grown throughout the past few years with the economic downturn. estimates between 20% and 25% keep and still use their first card. This number is projected to climb higher during the next few years. which is beneficial because many younger consumers experience financial trouble due to excessive credit card use. a senior managing partner at Group G Direct. this is a vicious economic circle and is occurring every day when Americans are being faced with the economic hardships such as layoffs. but also then people who continue to use them throughout the years becoming valuable lifelong customers. In a recent article in Direct Magazine. like the college undergraduate. This Act also makes it easier for Americans to pay down their debts.

Cultural groups within the United States hold different beliefs and this impacts their views on credit card usage and spending. At least 35% of African-American consumers report having at least two credit cards and of those 51% admit to not making timely payments. which can differ greatly due to commonly held beliefs in the generational subcultures.African Americans with a low income are also more likely to be affected by the credit card crisis.Younger members of the population under the age of 35 tend to view credit much less seriously. it is not wonder that they are the demographic group holding the most cards with the highest levels of spending. seem to play a meaningful role in credit card ownership and usage. Age The demographic of age.S. consumers are most affected by the credit card crisis? It is necessary to take a closer look at which consumers are excessively using credit cards. (³Demographics´) These statistics show that the younger segment of the population is more likely being affected by the credit card crisis than the older generations. A 2004 survey shows that of those with credit cards. HOW THE ISSUES AFFECT THE CONSUMERS 5 .Approximately 65% of Asian-Americans own at least two credit cards and only 19% of Asian-Americans report having no credit card at all. Also.000 and $24.999 had credit card debt.Credit card debt is also extensive in white households. But which U.This group is more financially savvy and less likely to burden themselves with high balances and pay their accounts late. In fact.At least 44% of Hispanic consumers living in the United States own at least two credit cards.S. but not as much in Hispanic or Asian-American households. Ethnic subcultures The subcultures of different racial groups in the U.also greatly impacts credit card spending habits.This group is being extensively targeted by credit card companies who are wishing to snag customers early and hold onto them for life. (³Demographics´) These statistics show that African American consumers are more likely to hold a credit card than other ethnic groups and to make untimely payments which could be punished with higher interest rates or penalty fees. Only 2% of undergraduate students have no credit history and over 84% of undergraduates in 2009 hold credit cards. a number up by 11% in 2004.July 21. 84% of African-American households carried credit card debt compared with 54% of white households. 90% of African-American families earning household income between $10. Even though the elderly population holds the most credit cards with 80% of the over 65 group having used a credit card in the past year.Over half of college undergraduates had more than four credit cards in 2008 and this number is also on the rise. American consumers own over 609 million credit cards collectively (³Card ownership´). they tend to have much higher credit scores and hold lower balances than younger consumers. With so many credit card offers being targeted towards college students. 2010 The Credit Card Crisis Name It seems that everyone these days has at least one credit card. but this group is less likely to use their credit cards evidenced by the fact that 58% of credit card holders have not used their cards in the past 30 days and 31% of Hispanic consumers prefer to pay only in cash.

the Credit Card Reform Act of 2009-2010 is going to help out.Most Americans are switching to online bill pay due to ease of transaction and consolidation in bill pay.The fourth provision establishes regular practices related to payment due date and processing. The fifth provision eliminates fees for payments made online. the provisions listed will truly help Americans with their credit card debts and allow them to get back on track and payoff their debt. This provision will alleviate any confusion a customer has and/or help out the consumers by extending their payment due date. 6 .July 21. This will help cut down on the fees in relation to late payments. meaning that consumers can pay all their bills online. credit card companies cannot change due dates between billing cycles. Overall.The sixth provision is. Some provisions of the Act will make a substantial difference for credit card companies and consumers battling debt issues. However. this allows consumers to have debt that is much more manageable and potentially allow payoff in a shorter time. 2010 The Credit Card Crisis Name These issues affect consumers by putting Americans deeper and deeper into debt. The issues of the credit card crisis are hurting consumers because they are getting deeper into debt and making their lives more difficult. by telephone. By not allowing excessive rate increases under certain circumstances. monthly payments also are reduced which can alleviate financial burden on someone in financial distress. The figure below is an example of the new formats of the credit card statement. leading to late fees and must accept payments received by 5:00pm on the due date rather than a midday time. to limit the solicitations and credit card issuance to individuals under the age of 21.Because rising interest rates have made debt repayment almost impossible for consumers. This below show the minimum payment paid and how much you will be paying and also addresses the fees associated with the statement. For example. And finally the seventh provision forbids the practice of declining value of credit card gift cards and hidden fees for cards not used within a period of time. The third provision raised limitations on circumstances under which credit card companies can raise their interest rates. The second provision sets forth thata credit card company must institute a grace period of three weeks or 21 days after the statement is mailed until payment is required. like previously stated. Gift cards should now have a five year life span.Without the Credit Reform Act. The first provision requires credit card issuers to give a minimum of a 45 day notice to card holders before raising their interest rates or making other significant changes in the terms of their credit agreement. or by any other means. This provision went into effect August 2009 and it allows consumers to cancel their credit cards before their interest rate increased thereby giving them a choice.

and unhelpful credit card companies. it was mentioned that the banks also hurting from all the debt incurred by American consumers and it is making it more difficult for banks to loan money. qualify for mortgages. and other loans. extensive fees. In a recent article.Another aspect to be mentioned is the ³domino effect´ that the crisis has on other things Americans use.July 21. Now with the reform in place perhaps Americans will be able to get out of debt faster.The domino effect takes place when Americans are not being able to get financed. 7 . The Credit card companies would have just continued to raise interest rates and other fees to make more money back. 2010 The Credit Card Crisis Name consumers would have virtually no chance of paying themselves out of debt with the increase in interest rates.

(³Card ownership´) Accessibility of information 8 . personalized credit cards designs. such as California.00. radio. which generally translates into living beyond one¶s means.July 21.Wants have become needs in our society. the luxuries they believe they need in their lives. Florida. 2. mailboxes and phones swamped with credit card offers. 0% APR for limited time periods. such as expensive furniture and electronics. consumers have multiple cards and an average household credit card debt of over $15.Credit Card companies have used many marketing techniques including 0% balance transfer offers. are being charged on credit cards today to satisfy the increasing needs of today¶s society. Even though this credit card behavior can be detrimental to a person¶s financial health. people will feel the need to use credit cards to supplement decreasing incomes and increasing expenses for items they feel are necessary for living. Arizona and Nevada. but one thing has remained the same: the American culture is centered on living the ³American dream´. attractive rewards programs and other offers to lure the consumer in. many find it necessary in order to live.Years ago. With unemployment reaching over 10% in the current year.On average. Availability of Credit Card Offers With information about consumers readily available to credit card companies. Americans have not been putting away in savings accounts in case an emergency arose. the American consumer gets at least one credit card offer daily.000. it included living in a nice little house with a white picket fence with a spouse. Now.S. 2010 The Credit Card Crisis Name INTERNAL AND EXTERNAL INFLUENCES IN THE LIVES OF CONSUMERS AND CDM Perception of Needs The first step to decision making is need recognition. With livings costs on the rise for necessity items such as dairy and gasoline. Americans have had to rely on credit card usage to get through the tough times. (Chu) Economic Influences Currently. the state of the economy has greatly influenced everyday lives of American consumers and their decision making. consumers have the option to pay later by opening a credit card. consumers find their email inboxes. consumers are leaning more and more on credit cards to pay for necessities they believe they can not live without. it seems that cultural norm is having more and more. and often. and magazines.Needs have greatly changed over the years. What they do not realize is that these store cards come with a big price: astronomically high interest rates.Layoffs are happening every day and consumers do not know what to do. it is no wonder that so many U.The changing factor is the definition of the ³American dream´ to consumers today. many Americans have resorted to credit card usage. until the economy is in order. not to mention an overload of advertising via mediums such as television.At virtually every department store.In order to live up to these high expectations.(Labor Force Statistics from the Current Population Survey). have seen credit card usage skyrocket.(Chu) Needless to say.5 children and dog and having enough money to live on comfortably. Particularly areas with weaker economic health. With the dependence on credit. With the ease and availability of opening a new credit card account. Items previous generations would have thought as frivolous.An article by Kathy Chu from USA Today indicates that people are foregoing paying on their mortgages and car notes in order to keep their credit cards active because credit cards are becoming their only cash flow.

finance charges and any fees that would associated with the account.com exist that give consumers the ability to search for the best credit card offer. which includes disclosing interest rates. 2010 The Credit Card Crisis Name The research stage of the decision making process is greatly helped for consumers seeking a credit card. (FDIC) This gives consumer¶s considerable information in selecting which credit card best suits their needs. HOW THIS REPORT CAN BE UTILIZED BY MARKETERS 9 .July 21. Due to the Truth in Lending Act of 1968. websites such as creditcards. Also. lenders are required to tell consumers what the cost of credit is they are using.

fee. Another option would be to create new markets. The intensity of the market can be attributed in part to the fact that the market is becoming saturated by credit card offers and many creditworthy consumers already have cards. the elderly. Marketers gain work to gain acceptance by groups that are more apprehensive to accept credit cards.Marketers of credit card companies need to be aware of the new regulation and be able to communicate those to consumers. Direct mailing are key here in relating the proper interest rate. many companies are offering low introductory rates for transfer balances. and financial charge information to existing customers and potential customers.July 21. Because the new act also prohibits issuance to individuals under the age of 21. and certain ethnic groups. it is important that marketers comply with that rule and adjust mailing lists and databases to exclude those individuals not meeting age requirements. such as the Hispanic population in the United States. In order to do this. Within the paper there have been many aspects discussed in order to help and maintain these debt issues in America. 2010 The Credit Card Crisis Name Marketers can utilize this report in many different ways. developing co-branded cards. including the college-age young adults. due date. with all of the regulations previously discussed the market for credit cards from the credit card companies is very intense and companies are fighting to gain market share. 10 . Presently. and building exceptional card value by offering consumers something in return for using their services. Marketers can work to gain new accounts byluring customers away from the competition. When marketers are looking into these aspects they will need to know the new reform act passed in order to keep up with the laws and regulations on Credit Card issuance. Credit card companies have already gained acceptance by certain segments.

2010 The Credit Card Crisis CONCLUSION Name Overall. Along with contributing factors like the present economy and ease of obtaining credit. Even though the government has developed the Credit Reform Act to help consumers get a handle on their situation.July 21. What is certain is that with an event as influential in the lives of consumers as the credit card crisis. the credit card crisis has made a footprint in the lives of consumers. it is not clear whether American consumers will be on the path to a debt-free future or will continue to live beyond their means through the use of credit. which may or may not be necessity items. Marketers must adjust techniques in order to appeal to today¶s consumer and to meet requirements of new federal legislation. 11 . consumers are ruining their financial health by relying on a little plastic card for daily cash flow to purchase items.

pag. 20 Jul 2010. "Credit Card Reform Act 2010 ± What It Means For You.d. "Current Population Survey. 03 Dec 2009.<http://www. Chu. <http://www." Huffington Post 24 Feb 2009."Credit Card Crisis.com.com/mag/marketing_credit_card_crisis/>.html>. 20 Jul 2010.July 21. "The Credit Card Debt Crisis: The Next Economic Domino.gov/bls/unemployment. Jonathan. Web.htm>."Labor Force Statistics from the Current Population Survey .burdenfreeinc.d.com/blog/2009/ 11/credit_card_reform_act_2010_wh. n. "Credit CARD Act of 2009.com/credit-card-news/credit-cardindustry-facts-personal-debt-statistics-1276. <http://lawbrain. 25 Nov 2009. 12 .<http://www. "Credit card statistics. 2010 The Credit Card Crisis REFERENCES/CITATIONS Name Boorstein . Regulations.html>. Credit Cards.com/money/perfi/credit/2008-0228-credit-cards_N.Web. Kathy. 20 Jul 2010." Demographics.Web. " FDIC Law. 20 Jul 2010.Web. "Credit card statistics. debt statistics .htm>. 9 July 2010. United States Department of Labor. Web. 20 Jul 2010.com.com/ariannahuffington/the-credit-card-debt-cris_b_169657.Web. n.com/credit-card-news/credit-cardindustry-facts-personal-debt-statistics-1276. <http://www. Credit Cards.com/wiki/Credit_CARD_Act_of_2009>. Huffington. Arianna.php#Demographics>."Direct Magazine 1 Dec 1998.<http://www. 20 Jul 2010.creditcards."Card ownership. debt statistics. 20 Jul 2010. Related Acts .huffingtonpost.Web." FDIC."More Americans Using Credit Cards to Stay Afloat.bls. FDIC."USA Today 28 Feb 2008: n.usatoday. Web.." Burden Free Debt. 20 Jul 2010.fdic.gov/regulations/laws/rules/6500-200. Burden Free Inc. <http://directmag. 04 June 2010.Web.php#Demographics>.<http://www.creditcards." Law Brain. industry facts. 20 Jul 2010.<http://www. industry facts.html>.