By: Todd Etshman//July 15, 2011
By: Todd Etshman//July 15, 2011//
A survey on credit underwriting practices revealed that for the first time since 2008, many of the nation’s largest lenders have eased their underwriting standards.
The report, released late last month by the U.S. Office of the Comptroller of the Currency, indicates banks lowered their credit standards in response to changes in economic outlook, the competitive environment, market strategy, and regulatory policy.
The principal methods of easing credit card underwriting standards were reducing score card cutoffs and increasing maximum credit line size.
“The rate of increase in credit risk has slowed as the effect of more conservative lending standards has become embedded in the portfolios, the economy improves, and lenders work through existing portfolio problems,” the report indicated.
Advertising trend tracker Mintel Compermedia, reported credit card offers more than doubled from 551 million at the end of 2009 to 1.4 billion at the end of 2010.
“Competition is always fierce in the credit card industry and these days issuers are sweetening incentives to grab consumers’ attention in an increasingly crowded mailbox,” Compermedia’s Vice President Andrew Davidson said in a press release.
Consolidated Credit Counseling Services Founder and CPA Howard S. Dvorkin, said the ease in credit requirements is the largest since 2002. However, he wants people to know banks aren’t doing it to be nice and 16 to 18 percent interest rates aren’t uncommon.
“What they’re trying to do here is hook ’em and cook ’em,” he said. “They’re calculating the risk with the return. They see the market freeing up a little and the number of people getting into debt is smaller.”
It’s like a replay of an old movie,” Dvorkin added. “You have to respect the fact the credit card companies are trying to make money.”
It may be harder for companies to do that due to the restrictions the Credit Card Act of 2009 put on them but they’re adapting. Dvorkin’s message to consumers at risk for taking on more debt than they can handle remains the same: Don’t charge what you can’t pay; keep a savings account for the unexpected emergency; know the facts behind credit card offers; create and stick to a budget based on your income.
“We’re becoming a cashless society,” Dvorkin said. “The green stuff is not being used as much anymore,” and that creates a real danger of over spending. Although most credit card companies won’t take debtors to court due to the cost, collections efforts will almost certainly end up on consumers’ credit report.
“Debt collectors are known to misreport dates and status of accounts,” said Persis Yu of Empire Justice Center, noting that Rochester’s low income consumers have an especially high rate of credit report errors.
For those who get in over their head, Dvorkin said his credit counselors will “provide a voice of reason” and help set up a debt management plan.
Consolidated Credit Counseling has an office in Rochester at 1000 University Ave.
The federal Consumer Financial Protection Bureau, set to launch this week, plans to have its examiners monitoring banks’ lending activities, fee structures and marketing practices according to its nominated director, Elizabeth Warren.
“Starting on July 21, we will be a cop on the beat — examining banks and protecting consumers,” she said in a July 12 release.