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Information on mortgages, home equity loans, and consumer credit to help you use the power of financing to your advantage.
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Credit Cards > Consumer Protection
Credit card marketing leaving millions burdened with debt, group says
MARCY GORDON, AP Business Writer. Associated Press
Copyright Associated Press
WASHINGTON (AP) - Aggressive marketing by the credit card industry has left millions of Americans saddled with excessive debt this holiday shopping season, a consumer group said Tuesday.
The Consumer Federation of America also singled out in its report the banks it believes are the most irresponsible in extending credit. A banking industry group disputed the conclusions, saying the expansion of credit card marketing has enabled people with lower incomes to get credit.
"Millions of households carry far too much high-cost credit card debt," Stephen Brobeck, the Consumer Federation's executive director, told a news conference. He added, however, that both banks and consumers must act to resolve the problem and that consumers "must exercise more discipline."
An estimated 55 million to 60 million American households with revolving credit card balances had an average of more than $7,000 of credit card debt, costing over $1,000 a year in interest charges and fees, according to the report. It said low- to middle-income households are especially burdened.
The consumer group said the least responsible banks - as measured by their charge-off rates for debts considered uncollectible - are Mellon (charge-off rate of 9 percent from June 30, 1996 to June 30, 1997), Hurley State (9 percent), Wells Fargo (8.6 percent), First Union (8.4 percent) and Advanta (8.2 percent).
Tish Signet, a spokeswoman for First Union, called the report "seriously flawed and misleading."
"We stand by First Union's ongoing commitment to extend appropriate credit to qualified individuals and to maintain high standards of credit quality," she said.
Mellon spokesman Stephen Dishart said the survey "singles out a particularly small part of Mellon's lending program." Credit card loans account for only 4 percent of the bank's overall lending, he noted.
Dishart and Ms. Signet did not dispute the charge-off rates cited by the report.
The American Bankers Association said in a statement that banks have expanded their credit card marketing "to give people at all income levels access to credit. It is important to note that while those credit card customers have a variety of credit histories, more than 96 percent of all accounts are paid on time."
The bankers' group said charge-off rates reflect credit decisions made two to three years ago and that since then, banks have strived to tighten their standards for extending credit.
Wells Fargo spokeswoman Kim Kellogg said the bank's losses cited in the report stemmed from a 1994-95 marketing campaign, and that the mail solicitations used then were sent to many more consumers than currently.
Spokesmen for the other two card issuers didn't immediately return telephone calls seeking comment.
Addressing the issue of credit card marketing, Visa USA Inc. said, "A piece of mail is not a piece of plastic. For every 1,000 solicitations mailed, about 20 are responded to by consumers. It is wrong to equate how issuers market credit cards with the actual extension of credit."
The most responsible banks, according to the consumer group, are MBNA (charge-off rate of 2.1 percent), Peoples (2.4 percent), Travelers (2.7 percent) and First USA (2.9 percent).
Brobeck had this advice to consumers for the holiday shopping season:
-Carry only one or two major credit cards and limit total credit card debt to 20 percent of your annual income.
-Try to pay off all credit card balances in full every month, or to consistently pay down balances until they are gone. Pay more than the minimum required payment each month.
-Pay with cash, checks or a debit card rather than credit cards if you have trouble staying within your budget.
-If you need help, contact your local consumer credit counseling service. It can be located in the phone book white pages or by calling 1-800-344-7714.
Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
Companies: First Union-Newark NJ (NAICS: 522110 )
Text Word Count 614
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